Market On Open, Thursday 24 October
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Who Doesn't Love A Short Squeeze?
by Alex King, CEO, Cestrian Capital Research, Inc
Stocks moon on earnings prints for one of two reasons.
One, the earnings print was genuinely and unexpectedly superb. At which point FOMO kicks in - we can call it momentum buying if we like, everyone is in a rush to buy because they think everyone else will soon be in a rush to buy, and hey presto, stock up.
Or two, the earnings print wasn't as terrible as everyone had feared and prepared for. At which point anyone holding a lot of puts likely to open deep in the red the next day may well be buying the stock in large quantities after hours, to hedge the pending pain in the puts. And anyone with a short position in the stock, mindful of the infinite loss potential of any short position, will be diligently hedging by buying the underlying stock and/or covering their short by buying back the stock that they had already borrowed and sold. In which case, hey presto, stock up.
Usually the short-squeeze route leads to a shorter term pop in the stock price; the FOMO route can be more sustainable.
Tesla printed after the bell yesterday; earnings were like the curate's egg, good in parts; the stock mooned after hours, up almost 10% on the day. I don't know, but I am guessing, that this is a short-squeeze response ie. oops, short TSLA is too crowded a trade and it's a crush to get out of the door and quick. I don’t know if the move is sustainable for TSLA, I don’t cover the name. But I do think that earnings season may in general surprise to the upside. In semiconductor, a sector I cover closely, we’ve seen $ASML dump with a preposterous “oops we printed a day early by accident” move, then $TSM, $TXN and $LRCX all respond positively to their earnings reports.
Let’s take a look below at how markets are looking prior to the open today.
Before we do - I want to talk about our new SignalFlow AI service.
All Signal, No Noise
A couple weeks back we launched our latest service, SignalFlow AI. I confess to being blown away by the instant-hit status of this service. Usually with subscription services it takes a while to grow an initial membership, then another while to build up a flow of new members and so on. But SignalFlow AI has been a big hit right out of the gate. I’m delighted, but I’m not completely surprised. Let me explain.
The service uses a complex AI model to try to predict when the S&P500, or whichever major liquid market or stock it is asked to compute, is likely to enter a material downturn. There is a lot of heat and light generated in doing so. But that all happens in the datacenter. The output of the model is as simple as simple can be. Twice per trading day, in the morning and the afternoon, the service publishes a signal from the model.
“1 - Risk On” means that the model thinks that no material downturn is imminent.
“0 - Risk Off” means that the model thinks a material downturn is imminent.
No model is infallible as you know. And there are always things that happen in the future that are different from the past that may trip up any model. It is possible that this model is perfect, but not probable. But trading perfection isn’t why so many people have subscribed already.
The reason is simple. It’s the reason I myself have opened and run a specific account that trades solely on the SignalFlow AI model outputs. It’s that the service gets you a Robot Buddy. A robot that has no fear or greed. A robot that isn’t trying to feed you false information so it can trade against you. A robot that isn’t trying to make you look good (so you promote it) or bad (so it gets your job and/or bonus). You just have the robot taking everything it has learned about how major securities markets move, and then considering in that light whether markets are about to turn down or not. However dead-inside you run (and I speak as someone who never gets very excited about markets, whether they are melting up or breaking down), you don’t run as cool as a machine. Your robot sidekick doesn’t care about whether you’re having a good run or a bad run, and it isn’t having its senses overwhelmed by the news, CNBC, FinTwit, your boss, your top analyst, or anyone else. It’s just looking at the numbers. This is a very useful sidekick indeed.
The backtesting results are remarkable, as you can see here. I know full well that backtesting is backtesting, it’s not future-testing. But it’s so good that it gives me great confidence in the model thus far - enough to run capital solely on the model’s outputs.
Today the service is very low cost and provides signal for $SPY alone. We will add additional tickers over time, at incremental cost.
If you’d like to lock in launch pricing - prices rise 1 November - you can do so right here: