This post was published on ZYX Short Change Alert.
The key point is to not lose track of the upcoming opportunity to make a fortune by short selling high momentum junk stocks that are levitating at unsustainable heights due to short squeezes. It is near certain that this opportunity will come, the only question is when.
No one in the media is going to ring a bell when this opportunity comes, of course, they will talk about it after the fact. The key point here is that you need to be ready to pull the trigger but be disciplined to wait.
Fortunes were made three out of four times over the last 30 years from similar conditions in high beta stocks where prices are divorced from fundamentals. Such conditions persisted in 1987, 1995, 1999 and 2007.
Fortunes were made in 1987,1995 and 2007 when high beta stocks divorced from fundamentals crashed. In 1995, the story was different; they kept on rising all the way to 1999 and then crashed ultimately reaching levels well below where they were in 1995.
We have been doing extensive modeling of the present conditions for high beta stocks. Five out of six screens are negative on such stocks. The technical analysis screen is not only positive but extremely positive.
So far in this earnings season every junk momentum stock that we follow has reported earnings lower than the whisper numbers. Under normal market conditions, the bad earnings should have caused these stocks to fall. However, we are in a market where the junk momo crowd interprets bad news as good news and good news as great news. Trees do not grow to the sky no matter what the interpretation.
It is like a fever that is going up. Ultimately the fever will break . The two questions are when and how high the fever will go? At this time the fever shows no sign of breaking. It is a vicious cycle. The stocks go up as weak shorts panic and cover. Then technical analysis oriented traders jump in on the buy side as they see technical break outs giving further rise. More astute investors see the absurdity of the moves up, they establish new short positions. Analysts find themselves in a quandary; their bosses want to know how come their targets are lower than where the stocks are trading and why they are losing business to competitors because that is where customers who want to buy these stocks find positive reports. Not wanting to lose their jobs, analysts upgrade. This leads to more short covering and the vicious cycle continues.
What to do now?
Please stay extra alert and patiently wait for the opportunities.