Stocks had a massive move higher yesterday, and really to no surprise. It was Monday; this happens every Monday. Yesterday’s move higher felt like a massive short-squeeze of sorts; I think it had more to do with a convexity squeeze more so. It is the same concept as a short-squeeze but instead is when dealers have to get long more stock to stay gamma neutral, due to their options books. Factor in, that the higher the stocks go, the more call buying it attracts, and the cycle gets out of control.
Not only that, but remember, we had one of the biggest short positions being built up the non-commercials of the NASDAQ 100. It seems like these they were also getting squeezed and starting to cover. We can also see that dealers have been building their positions in the NASDAQ 100, which suggests hedging is taking place, either against stocks or indexes. It supports the convexity squeeze narrative.
It doesn’t invalidate yesterday’s move at all; it is just important to understand what is happening because it can likely continue until something snaps. We also know that this wasn’t a stimulus play because the sectors that would benefit from a stimulus did not have nearly as strong of a day.
The key to all of this will be watching the implied volatility levels, when dealers start cranking those levels up, the snap will come, just like as in June and September.
NASDAQ 100 (QQQ)
The Qs cut right through resistance at $293 and instead move up to $297. They paused when they go to the uptrend, and for now, the biggest obstacle for the Qs maybe that uptrend, which should now be resistance. The RSI and volume explosion suggests higher prices lie and I still think we head back to the highs.
Apple
Apple (NASDAQ:AAPL) went up over 6% yesterday, which is just ridiculous for a stock of its size. It pretty much stalled out at $124, which was the resistance level we pegged starting on Friday. The next stop is likely $131.
Broadcom
Broadcom (NASDAQ:AVGO) finally broke above resistance yesterday, and that RSI shows you how much momentum is moving in the equity. A projection suggests the stock climbs to $399.
Unity Software
Unity Software Inc (NYSE:U) was crushed yesterday, falling by 10%. It sounds like competitor Roblox is coming to the market. The one thing I know is that my kids love Roblox more than they ever loved Netflix (NASDAQ:NFLX). In fact, Roblox has replaced their YouTube and Netflix time.
See you tomorrow.