Short Covering

by Larry Levin


Today's rally looked like the product of a short covering squeeze. A short covering rally can be defined as the purchasing of a security, like the ES futures, that has previously been sold short in order to close out prior position. Although short covering may occur at any time, the term is often used in reference to the actions of investors with short positions who repurchase stock in strongly rising markets (like today) in order to cut their losses or protect their profits. This procedure produces even more strength in the market.

This often happens after large selloffs like that of the prior two weeks. Yesterday's incredibly slow day was also market by a relentless buying pressure. While today's economic data wasn't especially good, it wasn't bearish.

The early move down could hardly get into Monday's upper range - then reversed hard. Short covering (buying) led to more buying, which led to more and more levels of buy stops.





Previous Day's Trading Room Results:

Trade Date: 2/2/10

E-Mini S&P Trades*
(before fees and commissions):


1) FT buy @ 12:10pm at 1095.25 = +.50 & +1.50 (2 lot)

2) Algorithm positions (6)

3) "Reading the Tape" positions (11) ...combined Secret's, Algo, & "Reading the Tape" total...+3.50



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