The Short Squeeze Theme Continues to Dominate the Tape

Morning futures are slightly higher as we see some small profit taking around the world. The selling so far seems very contained and controlled (until it’s not). After the WSJ released an article after the close Friday highlighting the Fed’s potential exit plan from QE, many thought the market could experience some turmoil early this week.

However, the market appeared undaunted yesterday and nothing has changed as far as the trend goes. The S&P hasn’t traded below a previous day’s low for more than 60 minutes since the gap up after the Friday’s Job report on May 3rd. Until we see some blaring complexion changes, or a daily close below a previous upper level, I would keep doing a lot of the same: rotating through each sector as set-ups present themselves. You can always do a “little less.”

Equities ended the day little changed yesterday as the Dow Jones Industrial Average shed 0.2% while the Nasdaq added 0.1%. The S&P 500 ended flat. Right now, it does feel like broad indices need rest, but there continues to be very tradable action in individual stocks. The short squeeze theme continues to dominate the tape, with many high-short-interest stocks continuing to go for the throats of naysayers.

Economic events to watch today: Small business optimism index at 7.30 AM, import/export prices at 8.30 AM, and a Morgan Stanley shareholder meeting.

The short squeeze theme continues to grab traders’ attention, with the most obvious case being Tesla (TSLA).

The electric car maker became profitable this quarter after handily topping Wall Street expectations, and then Consumer Reports gave the company’s Model S car a 99 out of 100 rating, calling it the best car they have ever reviewed. Sales have been strong since that stellar review, and TSLA has shorts scrambling to cover. After more than doubling in the last month, TSLA has been up another 8% pre-market today and looks like it could squeeze all the way to the triple digits.

Research in Motion (BBRY) saw some nice upside momentum yesterday as the stock continued to move higher on good volume. BBRY looks like it wants to break out of the macro wedge pattern that has been developing since January. Keep an eye on this stock as $16.50 is the break out level, as it could be the next heavily shorted stock to squeeze.

Green Mountain Coffee (GMCR) also had a huge squeeze last week after earnings, and is holding up well in the upper end of that igniting bar. Watch yesterday’s high as your short-term point of reference for this trade.

The consensus a year ago seemed to be that solar energy had no future, but some progress in technology has created more efficient panels and made the business more viable. Highly shorted solar stocks have been flying in the last couple months. The three we have been focusing on are First Solar (FSLR), SunPower (SPWR), and Solar City (SCTY).

Each solar stock has had its own catalyst: First Solar (FSLR), the largest player in the industry, raised guidance significantly after announicing a more-efficient panel breakthrough, SPWR saw a Warren Buffet-owned utility pony up to buy its two biggest solar farms in California (the largest solar project in the US), and SCTY has skyrocketed as a deriative play on Tesla (the two companies share a CEO–the esteemed Elon Musk). SCTY disappointed on earnings last night and is down about 8% pre-market, so let’s see how it, and the rest of the group, gets treated during today’s session.

Banks have been quiet but are holding up well.

Goldman Sachs (GS) found support at its 50-day and is holding above the descending channel after breaking out of this consolidation range on 5/7. GS closed above Friday’s high yesterday and looks poised for some upside continuation today.

Citigroup (C) looks like it is trying to build a base above the prior breakout level as it continue to holds $48.30 level. The longer it holds above this level, the higher chances we could see a move back to recent pivot high at $49.46 and higher prices after that.

Bank of America (BAC) has a flag pattern that is still developing after the bank saw an igniting move on 5/6. Micro support is standing at $12.88. Below that we have the 8-day at $12.80. As long as the bank holds above this key support level, it would keep bullish composure intact.

JP Morgan (JPM) outperformed its peers yesterday as the bank finished the day up 1.45% after a nice trade back to the intermediate resistance level of $49.63. A break and close above this level could add some fuel to its recent rally for some additional gains. The next resistance to watch is $50.

High beta tech overall is looking better, but there are some divergences.

Apple (AAPL) has held up where it should hold, which is above the Friday’s low of $450.48, and saw a nice push right off the open yesterday. The intra-day action was a bit choppy but overall the stock is acting better as it found good support at the 8-day. Taking out the 100-day at $459ish would be the next challenge.

Google (GOOG) is hovering at all-time highs. GOOG does feel a bit stretched from its short-term moving average so it wouldn’t be a spot to chase. A better spot to get involved is on a pull back into the 8-day at $862ish.

Amazon (AMZN) got stronger on the the jobs number gap up Friday 5/3, helping the stock pare losses from earnings. AMZN has reclaimed the support of all key moving averages as it closed above the 100-day yesterday. The stock looks like it could be poised for some continuation above $265.88.

Netflix (NFLX) has been back in play as it gained another 5.4% yesterday and closed at a new 52-week high. Some digestion up here would be constructive for higher prices moving forward.

We have seen several stocks gap up and hold well after earnings, which is the type of action we like to see for long entries.

Visa (V) After the igniting move on earnings, Visa has been flagging nicely above its 8-day moving average. The longer it holds above $177ish, the higher probability we could see the next breakout above $180.84.

Boeing (BA) saw a nice pro gap on earnings and continues to climb higher above its 8-day moving average. The stock is consolidating at highs and looks like it could be poised for a breakout above $95.15.

Wynn Resorts (WYNN) got a nice gap up on earnings and has been grinding higher since. The stock closed on highs yesterday and looks like it could be poised to see a break out at $140.43 if it doesn’t gap up above that level today. Overall, Wynn is the strongest play in the casino group right now.

Whole Foods (WFM) has been holding nicely above the gap from earnings, showing commitment. The longer it holds above the earnings gap that started at $99.75, the greater chances we could see higher prices moving forward.

Disclosure: Scott Redler is long AAPL, GS, JPM, V, BAC, CLF, MGM, ZNGA Short SPY.

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