🍔Short Squeeze Incoming

Is this the breakout we've been waiting for?

Welcome back! In this report we lay out the case for a technical rebound and short squeeze forming in the market. We are at a pivotal moment with SPX cracking all time highs and potentially making the next move up. How should you position your portfolio? Find out below!

Fool me thrice, shame on me

Last Sunday, for the third Sunday in a row, the market gapped down on extraneous news — this time on announcement of 25% steel and aluminum import tariffs. Recall on Jan 27 it gapped down on DeepSeek fears (our take here) and on Feb 3 it gapped down on Canada/Mexico tariffs (discussed here).

This time the market wisened up. By Monday open, SPX futures had recovered the losses. Traders are desensitizing to headlines, especially on tariffs — investors are realizing it’s all bark and no bite as resolutions follow swiftly. We have been very clear that Trump’s guiding stars are jobs and disinflation, and a protracted trade war hurts both. Therefore, tariffs aren’t a real threat. We wrote:

Trump is focused on disinflation and jobs. A protracted trade war hurts both, and it also hurts the US stock market and overall economy (Trump’s barometers of success). So a quick resolution was likely, and that's exactly what happened; by Tuesday, Trump granted Canada and Mexico a one-month pause.

-From “Cracks in the Economy”, Feb 9, 2025

For those who remember, the same thing happened during Trump’s first term. He announced tariffs on Mexico, the currency tanked, only to reverse a few days later upon “reaching a deal”. This was always the intended outcome. Trump is not trying to suffocate, but rather extract wins viewed favorably by the public. Somewhere along the way, markets forgot this lesson and are repeating the same mistake. Market’s mistakes mean profit for us, hence why we recommended buying the dip.

Mexico tariffs were not sustainable

So expect more tariff headlines. China and Europe are up next. They will sound scary at first, but don’t panic sell because they’ll get resolved soon. No country in the world is economically in a position to fight back; besides, it’s easier to just give the concession. For example, Canada conceded on border security and agreed to send troops to stop fentanyl… a plan they already put in place back in December! But a win is a win, right?

Inflation shock

Lately, monetary policy has taken a backseat to tariff policy — that is, until the Weds inflation print of 3% year-over-year. Due to a perfect storm…

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• Looking past the inflation shock

• Mag 7 or Drag 7?

• What about small caps?

• Technical signs pointing bullish

• Short squeeze incoming!