Stocks Declined Sharply as "Short Squeezes" Drive Unsual Price Action

 Summary of content for the week of  Jan 29:

1. Week 4 major indexes performance;

2. Week 4 US sector indexes performance;

3.Major indexes weekly charts of support and resistance levels;

U.S

Major Indexes SPX, DJI and COMP(Nasdaq) recorded their largest weekly loss in three months. SPX ended in a five-week low. Technically SPX closed at 3714.24, just beneath its 50dma at 3715.95 level, immediate technical support at 3630-3645 level if it continues downside move. All three indexes' major weekly uptrend still well intact. 

Major indexes performance for the month of Jan. SPX and DJI have given back all their gains and ended in red YTD. HSI index is the best index with 3.9% YTD return. 

Market Hotspot- GameStop and Short Squeeze

GameStop(#GME) was targeted by online forum Reddit the "WallStreetBet" (or is commonly referred as "WSB") to aginst the establishment "big-boys" short-sellers, due to its more than 100% short-selling interest by those institutional short-sellers and hedged funds. In a short trade, which is a bearish position, an investor borrows shares and sells them, hoping to buy them back at a lower price in the future.

What is "Short Squeeze"? In a "short squeeze", a rising stock price can force short investors to buy back the shares at a higher price, incurring losses on their bearish positions as they "cover" their shorts. If enough bearish investors cover their short positions, they can drive the stock price even higher.GameStop(#GME) and AMC Entertainment(#AMC) were two of the heavily shorted stocks that experience short squeezes, causing huge price gains and major losses on short positions. 

Is this market top from here? 

In short, we think this is not this bull market's end given that the fundamental outlook hasn't changed on below three aspects:

1) Outlook of the economy still on the recovery and expected to gain momentum after vaccine getting smoother. The government's massive fiscal stimulus will support the recovery.  

2) Corporate earnings are rising, offering sufficient support for current elevated valuations.

3) Monetary policy, the Fed interest rate kept at low and monetary stimulus in place for at least next two years.

SPX Sector Indexes Weekly Performance All 11 sectors ended in the red, Energy(XLE) lost the most with 6.5% down. 

China/HK

China SSE index recorded a weekly drop amid fears its central bank PBOC was turning hawkish after it drained over RMB 300 billion from the banking system in the week. SSE index ended in a four-week low, pull back to test 3450 level where it had bullish breakout 4-week ago. Technically, 3450 level is major support.

HSI index ended the first week down after a four-week rally in a row, it has formed a pretty bearish engulfing candlestick pattern on its weekly chart, which indicates potential further downside but it appears the bullish outlook has not changed, expected uptrend will resume after short-term profit-taking. 

Singapore

STI had its largest decline in three months for the week, pull back after the previous two-week sideway. Immediate technical support at its 50dma 2886 level. This year's target unchanged at 3100.