Over the last year, we have written six articles here. A quick summary of how those article’s predictions played out is worth a look. The first article appeared in June of 2017. It looked at how the Powershares QQQ Trust (QQQ) crashed on June 9, 2017.
Key was that volume moved above 50 million shares. Since June 9th, the QQQ had a total of 15 days for the remainder of 2017 that saw volume on the QQQ exceed 50 million shares. Volume on the QQQ did not get back above 50 million shares again until February 2nd of this year as QQQ began to roll over falling from $170 to $156.
The rest of February saw multiple days above 50 million shares. More high volume days were seen in March as the QQQ then fell from $175 to $154. April saw the occasional day with volume above 50 million shares. Then May saw one day on the 3rd with high volume on QQQ. The selling in late June saw two days finish above 50 million shares. The lesson we identified a year ago is high volume on the QQQ is associated with drops in the names that make up the QQQ. That has happened in 2018.
In mid October of 2017, we wrote about the S&P 500 clearing 2550. It was noted that hundred and fifty point increments create key levels of support and resistance. In 2017, levels were cleared in days and never looked back, “hasta la vista baby”. That is not the case in 2018. 2750 on the S&P 500 has been crossed above or below nine times since January. For now 2800 has been cleared. A break of 2800to the downside on the S&P 500 would be a good opportunity to go short.
So the take away from 2017 articles is first watch for the QQQ to trade above 50 million shares as the next pullback begins to emerge. Second, a break of 2800 would be a good level to attempt to short the S&P 500.
This year we have written about Netflix (NFLX) as short sellers picked on the stock in March but failed to put their money where their mouth was. The article concluded that Netflix would make sense to short when the technicals begin to lag and the shorts are gone. We are there now. So being short with a cover at $371.00 makes sense. The target would be $300.
The downside would $329.88 which is the 38.2% retracement from the December low to the June high. More likely is a break to $300.95 which is the 50% retracement.
The other name we have written about is Tesla (TSLA). We noted in April the shorts would get crushed when they decide to re-short “en masse.”. They did it again as the stock moved from $275 to $375. Now the shorts are gone again and once more the stock is vulnerable.
Netflix and Tesla are great examples of the ebb and flow of how short interest impacts a stock. Next week we will take a look at a stock that fall from grace after a move greater than 100% since last fall.
Geoff Garbacz is the co-founder and one of two principals in Quantitative Partners, Inc. (QPI). Geoff and his team at Quantitative Partners have over 36 years of experience on Wall Street. Prior to the formation of QPI in 1995, Geoff worked for The Robinson Humphrey Company from 1990 to 1995.
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