Short covering rallys are similar to perpetual motion, as they are known and can be described, but no one REALLY knows for certain their existence. The good news is that just as perpetual motion can be described, so can a short covering rally.
Here is our definition of a short covering rally:
- Non-Technical – Like a table of mouse traps with table tennis balls on them, one trips and the others all begin to fire off, causing a sudden feverish collective effort.
- Technical – Negative sentiment becomes so great, investors who have sold short positions begin buying with aggression, moving prices much higher.
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Short Covering Characteristics:
- GIANT move up in the markets
- Little or no exact reason for the sudden caving and purchase by the negative bears
- Low volume for such a dramatic move on the capital indexes
- Excitement swells and headlines turn positive
- Immediate fatigue by capital markets can often be spotted i.e. They don’t last long
In Keyser Soze like fashion we may never know if they existed or not. Was yesterdays market move a short covering rally? Only Soze knows!
Have a great day!
PS – Interesting update, Janet Yellen last at the Boston Economic Club, gave a very “open the door” speech to more Fed intervention, i.e. QE and the capital markets, which would normally be excited, seem to be yawning!