The MAGS Squeeze Before the Correction
Amazon is showing the way. Google and Nvidia have not played catch-up yet, and the MAGS-heavy XLK has already printed the upside trigger before the later correction.
The Weekly Thesis
We are witnessing an incredible short squeeze rally developing as a result of market participants drinking the cool-aid that they had to be SHORT going into FOMC event. This positioning unwind which we are seeing at the moment for Big Tech is a classic short squeeze rally turned into a reversal which is now wreaking havoc on market participants who had been convinced that AI-Trade is done for.
Market has a humorous way of humbling participants and in the process cause violent swings which are extremely tradeable and provide incredible short term trading opportunities. This does beg the question:
How did this all unfold in such a short period of time?
To answer this question, let’s rewind back a bit down memory lane:
Positioning for NASDAQ going into the FOMC event had become extremely lopsided, market was in freefall with no bounce around the corner.
We had major catalyst events lined up, which I would call a perfect trifecta with FOMC event on Wednesday and MSFT earnings right after market close after FOMC event
The day after we had AAPL and AMZN earnings lined up. These three companies combined hold 30% of the entire Index Weight for NAS100 Index.
I remember this same catalyst dynamic from 2022 as if it were yesterday; I have seen it play out before, which is why when I witnessed these sequence of events, it was obvious the market was going to blow up.
Going into the FOMC event short positions were obviously going to lock in profits after the event, as it is a long standing tradition that market reverses the move which happens during the FOMC event the next trading day.
This unwind created a short term bounce. However, Microsoft was bound to report earnings after the market close, and it ended up delivering a massive beat, which made the company move +16% on the day.
This turned a “Short term bounce” into a “Full blown reversal”, which carried NASDAQ with it because it is the third largest company in the index.
This leads us to the final sequence of the Trifecta: AAPL and AMZN earnings
AMZN delivered on a massive beat, carrying the baton over from MSFT and became the epicenter of the next leg. AWS showed that AI revenue is pouring into cloud services, validating the record cloud growth already reported by Google.
Amazon rose +15% on the day. Sending shockwaves across Google and Nvidia which drove XLK tech sector along with them.
This led to a massive short squeeze rally in MAGS ETF which carried NASDAQ higher.
Where does this leave the market with it’s ongoing positioning unwind in Shorts?
The immediate draw is higher. The leaders still have unfinished upside work, while the broader correction belongs after that work is complete.
XLK has already printed an inside-weekly failure (See Figure), a proper long trigger in play and a bottoming signal. There is an open quarterly gap between $186 - $190 above which carries more weight than the daily gap left open post FOMC. I am betting on the market to fill the higher-time-frame inefficiency first, and only after upside targets are met, I will entertain downside inefficiencies between $166 - $171.
Figure 1: Inside weekly Candle Failure pattern firing Long Signal on US Tech Sector
My Active Book:
I have been holding long positions in AMZN and GOOGL prior to their earnings event
We closed our Apple ahead of earnings.
Nvidia is the planned catch-up rotation
Microsoft is a planned pullback rather than a chase
Meta remains restrained until next quarter.
Bitcoin is a spot accumulation hold, not the active volatility trade. The near-term volatility belongs in NASDAQ.
Current book heavily favors MAG7 companies as market is rotating from High Beta momentum ETF’s (DRAM and SMH) to Hyper-scalers following strong earnings.
The index-level move may need more than one week. NASDAQ (QQQ) is supposed to squeeze and take out the All Time Highs, but I would not demand the all-time high in the coming week. I am anticipating the move play out within the next three-week window, which is more realistic. XLK is where the setup is already visible, so I am letting that printed setup play out. (See Figure)
