The Short Squeeze Phenomenon May Have Triggered A Big Correction 逼空现象可能已触发了大调整

One of my favorite stock picking criteria has been to spot stocks with short squeeze potentials. My criteria are stock with less than 50 million shares float, 20% or more short interest, technically stock is ready to breakout. These kind of stocks will likely move big when good news hit and forcing short sellers to cover. If I catch these stocks at the right time, the stocks can move an immediate 20 to 50% up and may even be a double.  What I never dreamt of are 2321% and 789% surges in 16 days for GME and AMC respectively! I have seen a lot of market and stock gyrations in my nearly 40 years involvement in the financial markets, but the latest gigantic short squeezes on stocks are new phenomenons. 

An old  Chinese saying fits today's market situation very well: “When a country is on the verge of decline, there is always demonic happenings.” Only in this case it applies to the stock market, not the country. After  a 91% rise in tech stock heavy Nasdaq 100 under a negative Covid-19 pandemic environment since March 2020, many are expecting the US stock market is due for a big correction but needs a catalyst. I think the catalyst is here, it is the latest short squeeze phenomenon.  This is why:

The Reddit stock group Wallstreetbets had around 3 million follower before the big short squeezes of last week, its followers have grown to over 6 millions in the past few days. This is a very powerful group of investors when they decided to target a stock. What Wallstreetbets has done are making a lot of investors rich but at the same time causing may short sellers to go broke.  Investors Business Daily reported that 9 big investors made over $16 billions while ZeroHedge reported that Melvin Capital lost around $7 billions or 53% of its capital during the big short squeeze on GME. Silver Lake originally invested in AMC convertible bonds. When it looked like a big loss, however unexpectedly, AMC stock price surged by short-squeeze and Silver Lake is able to turned a loss into a profit. Silver Lake converted the bonds into stocks and sold them for a profit of $113 million from a $600 million investment. I am sure there are a lot more hedge funds and individual investors made and lost fortunes during the short squeeze. It is happy event for those that have made a fortune but it's sad for those that have lost a fortune. The focus here are those investors and hedge funds who lost a fortune. These investors and hedge funds are probably in the middle of raising money to meet margin calls. The choices they have are covering their shorts and/or sell other stock holdings to meet margin calls. These actions of scrambling for cash are causing turmoils in the stock market. The more stocks that are getting short squeezed the more serious the situation is. Now that the short squeezes have brought fortunes to many investors, many more short squeeze candidates are going to be uncovered and more fortunes are going to be lost. More fortune lost means more margin calls, more margin calls means more stocks get sold and hence putting strains on the stock market. We should not forget that as the stock market is in turmoil, brokerage firms are also at risk. They need to shore up their capital requirement and putting more restriction in trading.  If one of these brokerage fails, the ripple effect will be so immense that can trigger a financial crisis. The other problem we should not ignore are individual investors who are making a lot of money during short squeezes but have not take profits. Stocks that get hit by short squeezes are mostly not healthy companies as their stock prices are vastly diverge with company fundamentals. Investors who are holders of these stocks are going to attain big losses when stock prices crash down. These will also stress the stock market as more stocks get sold and margin calls are issued.

The US stock market sold off 4 days in a row last week. During last week's sell off, the S&P 500, Dow Jones Industrial Average, New York Stock Exchange Composite have all closed below their crucial 50 day moving averages while the Nasdaq Composite and Wilshire 5000 dropped below their 20 day moving averages. Important sectors such as Industrial (XLI), Basic Materials (XLB), Energy (XLE) and Financials (XLF) are also below their 50 day moving averages. When you have major market indexes and sectors are trading below their critical 50 day moving average supports, technical damages are done and the odd of continue stock market melt down is very high.  Also negative for the market is Volatility Index (VIX) jumped big to 33, this indicates fear among investors.

In conclusion, the US stock market looks likely to have a big correction coming because of the following reasons:

1. Stock market is over extended and valuations are at historic highs. It needs a correction. 

2. The on going short squeeze on stocks threatens the stability of the stock market.

3. The deterioration of technicals on many major indexes and sectors.

4. The near completion of Q4 2020 earnings, stimulus plan is still being negotiated and amount downsizing is likely.  There is not much good news to look forward to.

5. World Coronavirus cases reached 103,350,614, deaths reached 2,233,799, when will these end?

我最喜欢的选股标准之一是发现具有空头挤压潜力的股票。我的标准是流通量少于5000万股，空头率超过20％，和技术上股票已经准备好突破的股票。当好消息来袭并迫使卖空者补仓时，这类股票可能会大幅上涨。如果我在适当的时候买入这些股票，这些股票可以立即上涨20％到50％，甚至可能是翻番。但我从未梦想过的是GME和AMC在16天之内分别上涨了2321％和789％！在我从事金融市场行业近40年的过程中，我看到很多市场和股票的很多千奇百怪的现象，但是最近对股票的巨大空头挤压程度是一种新现象。

有句中国古话很符合当今的市场形势：“国之将亡，必有妖孽。” 但现在的情况还只是适用于股票市场，不是国家。自2020年3月以来，在Covid-19大流行不利的情况下，科技股偏重的纳斯达克100指数过份的上涨了91％，所以许多人预计美国股市将进行重大调整，但需要催化剂。我认为催化剂就在这里，就是最新的逼空现象。下面讲讲为什么：

Reddit股票群Wallstreetbets在上周出现大规模逼空之前已有300万关注者，其关注者在过去几天已增长到600万以上。当他们决定对目标股票行动时，这是非常强大的力量。 Wallstreetbets的所作所为使很多投资者变得富有，但同时也可能导致卖空者破产。 《投资者日报》（Investors Business Daily）报道，有9个大投资者赚了共超过160亿美元，而ZeroHedge报告称，在GME出现巨额逼空期间，梅尔文资本（Melvin Capital）损失了约70亿美元，占其资本的53％。Silver Lake 原来投资在AMC可转换股票的债券，眼看投资就要泡汤。不意AMC股价被逼空激活而转亏为盈。Silver Lake立刻将债券换成股票卖出而获利1.13亿美元。原来的投资是600亿美元。我敢肯定的说，在逼空过程中，还会有很多的对冲基金和个人投资者发家致富和大损失。对于那些发大财的人来说这是一个快乐的事情，但对于那些赔大钱的人来说却是可悲的。这里的重点是那些失去财富的投资者和对冲基金。这些投资者和对冲基金可能正在筹集资金以满足追加保证金的要求。他们的选择包括补空和/或卖出其他股票以满足追加保证金的要求。这些急着筹款的行动正在导致股市动荡。被逼空的股票越多，情况就越严重。既然逼空股票为许多投资者带来了财富，那么更多的逼空股票将被发现而导致更多的财富损失。更多的财富损失意味着更多的追加保证金，更多的追加保证金意味着更多的股票被出售，从而给股市带来下跌压力。我们不应忘记，由于股市动荡，券商经纪公司也面临风险。他们需要提高资本储备要求，并在施加更多的交易限制。如果其中一家经纪公司破产，连锁反应将非常巨大，可能会引发金融危机。我们不应该忽视的另一个问题是在逼空股票中赚了很多钱却没有获利的投资者。受到逼空的公司大多不是健康公司，因为它们的股价与公司基本面大相径庭。当这些股票回归正常而价格暴跌时，持有这些股票的投资者将蒙受巨大损失。随着更多 追加保证金通知发出，更多的股票会被抛售，这将给股市带来更大的下跌压力。

上周美股连续四天被抛售。在上周的抛售中，标准普尔500指数，道琼斯工业平均指数，纽约证券交易所综合指数均收于它们关键的50天移动均线之下，而纳斯达克综合指数和Wilshire 5000均跌至它们20天移动均线之下。工业（XLI），基础材料（XLB），能源（XLE）和金融（XLF）等重要板块也低于它们的50天移动平均线。当您看到主要的市场指数和各大重要板块价格低于它们关键的50天移动平均线支撑时，这是严重的技术性破坏，股市持续下跌的可能性非常高。还对市场不利的是，波动率指数（VIX）大涨至33，这表明投资者开始感到担忧。

总结来说，由于以下原因，美国股市出现较大的回调的机会大：

1.股票市场过度扩张，估值处于历史高位而需要调整。

2.持续的空头挤压威胁着股市的稳定。

3.许多主要市场指数和行业指数的技术面已经遭到严重破坏。

4. 2020年第四季度财报已接近尾声，经济刺激计划仍在谈判中，而且可能会缩减规模。没有好消息可望。

5.世界冠状病毒病例达到103,350,614，死亡人数达到2,233,799，病毒大流行什么时候才结束？