The Continuation Long And Smoking Shorts
Why this rally (still) has legs, and how to rig the markets in your favor
In yesterday’s communique, I called out the upside on the markets:
My first target will be the overnight highs from the NVDA earnings…
Maybe we can call this close enough.
You can hear the gnashing of teeth as big money tries to sneak offsides cash to work at higher prices.
It’s leading to the follow on trade.
While some stocks have fully erased their Tariff Tantrum gains, some names still have to play catch-up. That’s where fresh money is being put to work
SMCI is a solid example:
It caught a gap up on the China Release Valve but quickly faded. Yet as it touches that gap fill, buyers show up in size. It’s now appearing to clear a consolidation pattern to start a new rally.
You’ll see similar patterns across the market.
Like Caterpillar (CAT):
And Costco (COST):
In my “Most Liquid” watchlist, there’s dozens of continuation long setups that have clear defined risk.
The energy that can push this market higher is from the breadth of names with this pattern, so until they stop working you’ve gotta stick with the upside momentum trade.
The Second Squeeze For Coreweave
This is not price action that happens often— the parabolic remount. When a stock has trendlines that get steeper, at some point it can’t sustain itself and it has a downside liquidity break.
Normally, that’s the end of the rally, and it either settles into a range or round-trips a good chunk of its gains.
The “hyperscaler” narrative took a bath earlier this year with Deepseek AI showing efficiency gains. That’s one reason much of the AI trade hasn’t gone rocketship higher.
The news dropped on Monday that CRWV secured a data center deal with Applied Digital (APLD).
It took traders a full day to put 2 and 2 together, and realize that the size of the deal was a big signal that CRWV has a ton of demand on its own.
The stock finished up 25% on the day.
At some point this will be a stellar short setup… but it’s still early. There’s no real signs of a fade, and the options market isn’t blown out. Yet there could be a “broken slot machine” setup into Thursday that I’ll be looking to put on for a fade.
How to Stack the Chips In Your Favor
A (somewhat sketchy) trade has been going on in Corporate Finance recently. It turns out, if you announce “crypto treasuries,” it causes your stock to pump higher as low-information momentum traders place market orders.
There’s a lot of market participants that want this to happen. Sometimes they own warrants and want higher prices to lock in gains. Maybe they’ve got convertible debt they want to get rid of and need shares higher than their strike price.
Or it’s the company’s executives that want to make sure they have a cushy salary for the next few years.
These games are played in the market all the time and are not for the faint of heart.
Like Sharplink (SBET):
This stock gapped from $6 to $30 overnight. There was an announcement of a private investment of public equity (PIPE) of $425mm in order to buy Ethereum, a crypto token.
(Try explaining that to yourself in 2013.)
The stock had a pop, then a short squeeze, then an unwind. Normally the stock would start cratering, but it held, and managed to retake the catalyst day open.
It ran to $120.
That’s not the wildest part. I want you to check out the volume for each day:
The second squeeze had half as much volume. Because there’s no liquidity. Just like the company wanted.
A few weeks before the announcement, the company issued a 1/12 reverse split on the stock.
12 shares were converted to 1. This drastically reduced the supply of shares available… and when there’s no liquidity into a big gap up, and shorts are forced to cover…
It can get ugly.
According to finviz, there’s only 630,000 shares float. That’s incredibly thin.
I can’t know for certain if the entire thing was engineered…. but I do have a “reverse split” screener that I pull up every once in a while to see if a smallcap is about to run.
A Simple Hack to Be Early
I’ve got two names on my “buy the dip” watchlist. The first is Archer (ACHR), which is making vertical takeoff and landing (VTOL) aircraft:
The second is UBER:
They’ve got similar structures. Big breakout behind a catalyst, but nobody wanted to chase and they’ve had a full momentum reset.
But I don’t know when these are going to turnaround. Because I’m always early on buying the dip.
I have a fix.
There’s an indicator called the “anchored volume weighted average price” — AVWAP for short. A decade ago, it was a huge pain to get this on your charts, and now it’s native to most platforms.
That means every trader is going to “anchor” their VWAP to the recent highs, and then only take it long if the stock gets back above it.
Which is a solid idea! It keeps you out of trouble and a little disciplined.
But what I’m doing now is a (t+2) VWAP.
Here’s how it works. If you have an obvious AVWAP, just shift it over 2 days. I’ll show you in ACHR:
The top yellow line is where most of the eyeballs will be. But what I’ve found is that it is now acting as a magnet, and you can get some cheap upside out of it as you anticipate the roll higher.
The lower yellow line is just shifted forward two days. It’s going to trigger earlier, and odds are if that AVWAP breaks, there’s going to be a fast push to the second one.
This isn’t any kind of rocket science… it’s all about positioning and where market participants are most likely to trade.
Happy hunting!