Charting Nine Days Of Short Squeezes And Vapor Volume

Tyler Durden's picture

Still unclear on what drove the policy vehicle known as the stock market straight up, which for some reason speculators still participate in despite relentless warnings that it is broken, manipulated, etc, for nine consecutive days, following the release of the FT rumor of a bank recapitalization on October 4, since refuted? Simple: look at the chart below. The Green is the Russell 3000, while the Red is the Goldman "highest short interest index." Beginning with September 4, and continuing through today, every time the market appeared poised to drop, market makers would mysteriously squeeze shorts, with the Red line consistently leading the overall market (Green). Said otherwise: shorts panic -> weak hands cover -> market follows. Naturally, for this to work, volume has to be well below average, which was indeed the case - the volume has been abysmally low for the duration of the entire melt up which means the second there are no incremental weak hands to short, and the movement flips, most likely on the fully priced in deus ex bail out of Europe which will not happen next week or ever, massive volume will return, and the market will do what it always does in such situations: soar inversely. Until then, and as always, it is best to play in other, less manipulated venues - buy some CDS, arbitrage some shiny rocks, blow some money on Blackjack, just stay away from the frontrunning algos whose only purpose is to sniff out weak shorts and sell stops. There is no market: we would say it is a casino, if only it was even 10% as fun.

Short summary:

ES Volume: