Submitted by Portfolio Armor:
Taking Advantage Of Underwater Bears
On Thursday, we took advantage of the post-Powell rally to bet against one of the weak stocks that skyrocketed then.
It turns out Thursday was an especially good time to place a bearish bet. As ZeroHedge detailed on Friday, Thursday’s rally was the biggest short squeeze in eight years:
[I]n notional terms, Goldman’s Prime desk calculates that yesterday’s short covering was the largest since Nov ’15 (exceeding even Jan ’21 during the meme frenzy) and ranks in the 99.8th percentile vs. the past 10 years. US and European equities made up ~61% and 38% of the notional short covering, respectively.
A Game Plan For Placing Bearish Bets
Obviously, no one knew how big that short squeeze would be ahead of time (even Michael Bury was apparently surprised by it), but we (I and my subscribers who acted on my trade alert on Thursday) had a few things working in our favor:
- We had a target in mind, a stock with terrible fundamentals that had been rallying before Thursday’s short squeeze.
- We could see it had just shot up by +30% for no reason other than it was heavily shorted and risky names like it were leading the post-Powell rally.
That stock ended up giving up most of Thursday’s gains by the end of the day, and it was down about 18% from where we bet against it by Friday’s close.
Ready For The Next Crazy Rally
The are a handful of names with similarly bad fundamentals I have my eye on that look likely to move during the next crazy rally, such as this one:
Similarly, every day we have a list of top ten names we can buy from in the event of a market crash. The key is to have targets in mind before a market event that makes for an auspicious time to enter the trade.
