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Sears: How to Trade the Top of a Short Squeeze


Friday it was Netflix short into today. Today it was Sears short after a big six-day run.

When the VIX is below 20, this is the type of volatility you get. When the VIX broke down in early December 2011, people said it was broken, that it no longer correlates and doesn't count for anything.

Meanwhile, if you look back at it now, it appears to have given market participants valuable information. It was telling us get prepared for a slow methodical low volume move to the upside. If you combine that with the Gap and Go from December 20, 2011 and the "Market Wedge" resolution on January 3, nobody should be complaining that there weren't signs of a rally on the horizon. We did go over this on the Thursday before New Year's on CNBC Street Signs.

Anyway, the S&P pulled back to test the 1307-1309 level today and held it well. Until we see a volatility spike, expect this type of action. This doesn't mean you shouldn't be hedged if you are holding a portfolio of longs, but it was nice to have some DIA short this morning even if we were only down 50 points or so.

With that said, don't fight the tape, especially since it feels like we can go a lot higher this year. In fact 1410-1440 is my 2012 target. My first quarter target has pretty much been reached.

At this point it's very slow but there are select setups. Each day we get some type of unexpected opportunity. Besides having a thesis of longer term action. There have been very nice cash flow opportunities.

Friday it was Netflix (NFLX) short into today.

Sears: A Textbook RedDog 80-20 Reversal

Today it was Sears (SHLD) short after a big six-day run. The stock was squeezed for almost a double and just "felt" ready today. The shorts were exhausted. It was a tier one short around $53.50 and then an add below $52.50. It then created a nice topping tail as it went below $51.17. I did cover most but will trail the rest. The next spot to cover should be $43.50-$45.50.

Here is a link to a "vintage" video I did about what a RedDog 80-20 Reversal is.

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Scott Redler is long SPY, OIH, XLF, LULU, X, WMT. Short SHLD and DIA.
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