Friday's rally - short covering?

[FriskyCat]

SPY/ES back to 3050 area, then back down.

 

[.sigma]

Friday on ASX saw a massive stock rally which initially started the day falling hard, then the last 3 hours rally hard, it was a 13% day from lows to highs on the main ASX bourse, XJO.AX.

USA was similar, but not quite so violent, nearly 9% on S&P 500 from bottom to top for the day.

Was this mainly the result of short covering prior to the weekend do you think?

Lets assume it is indeed short covering.

My question would be, now that you know this.. how can and will you use this information for your trading approach to this up coming week?

 

[.sigma]

FYI - Hank Paulson told me once - "With mark to market, the fastest way to print money is to prop up stock prices." With mark to market every $1 increase in a stock is multiplied by all outstanding shares. It is a very neat trick. You can spend a million and create a billion.

Hope everyone got there fair share. It was free money.

How does Paulsons quote help us retail traders? Just curious.

And how was Fridays price action "free money"? Although yes $SPY did fill that March 12 gap down, but it occurred within a 30 min frame, so unless you're literally looking for intra-day movements and scalp stuff like this, but even then I can't see how this was free money?

Cheers!

 

[JamesJ]

We could go Limit down in the future market right after open today.

Otc cfd Provider ig prices the Dow at 21930, which would be Limit down in Futures (-5.4% from Friday close).

 

[FriskyCat]

We could go Limit down in the future market right after open today.

Otc cfd Provider ig prices the Dow at 21930, which would be Limit down in Futures (-5.4% from Friday close).

Limit down to Limit Up to Limit down...used to be reserved for thinly traded commodity markets.

 

[themickey]

Lets assume it is indeed short covering.

My question would be, now that you know this.. how can and will you use this information for your trading approach to this up coming week?

It was very coincidental the last 15 minutes of Friday trading I was watching live while on the ASX, CBA Bank prices were hurtling upward and later noticed many stocks had leapt also. What was amazing was the huge relentless climbing of prices and it had me scratching my head for its reason, as volume was also huge.
I'm currently holding short on a couple of Inverse ETF's, it feels kind of reassuring to know it was probably short covering going into the weekend, however it was very dramatic if that's all it turns out to be. I'm going to go long on a Tech ETF Monday morning open, while maintaining my short ETF's, end of day re evaluate prior to EOD and close out either my long or the shorts.
Personally, I'm bearish longer term but this bounce may last a few days so will just follow whichever direction it goes.
Looking back over 20 years of charts, I could not see one instance where on a Friday, the market turned upward from a correction into a new trend other than dead cat bounces.

 

[.sigma]

So basically knowing Fridays up move at the EOD was short sellers taking profits reassures you psychologically, and also benefits you as you are short inverse ETF's?

 

[themickey]

So basically knowing Fridays up move at the EOD was short sellers taking profits reassures you psychologically, and also benefits you as you are short inverse ETF's?

It adds to my knowledge, it's the first time it dawned on me.
Was never physically aware before how a strong counter rally out of blue sky could possible be shorts liquidating their positions, possibly the imminent weekend accentuating this.
Of course it's only a theory but seems likely.
I suppose the main benefit I gain is to expect this sort thing again as I must confess I was a bit naive and caught by surprise.
Usually I think of fast reversals as just opportunistic contrarian plays, traders playing the market, like day traders snatching quick short term opportunities, but late Friday rally??? I was blown away by it and the severity - couldn't think of a reason at the time.
Some may say what happened on Friday was a bottom formation - like real bottom.
No, I don't buy into that for technical reasons.