Hey everyone! It's Warden. I'm taking a brief moment to write a chart analysis post because I feel that we are nearing a critical junction point. The volume today has been extremely low, currently sitting at around 1.7 million, and I feel that a lot of people are sensing that something big is coming. I've emptied the rest of my bank account into the dip today to buy more tickets to the moon.
There's a lot of questions people are wondering at this point.
When do we squeeze?
What happens at the Apex of a wedge?
Are there any important catalysts coming up?
These are all questions that have answers, and I will try my best to address these. My thesis for this post, is that as the stock breaks out of the wedge, if it chooses to follow the uptrend, it becomes increasingly expensive and impossible for shorts to bring this down any further. We may possibly climb to a point of no return for the shorts. Let's examine why by starting with understanding what a wedge is.
The wedges I will reference in this post are symmetric wedges.
We are indeed nearing the Apex of the Mother Of All Wedges (MOAW); this is the ultimate hedgie wedgie. I wanted to provide a fundamental explanation for why this wedge has formed and what it means for the stock.
Let's examine the simple uptrend. This is when the price forms higher lows, and higher highs.
And we also know what a downtrend is. Lower highs and lower lows.
And uptrend is called the frontside, and the downtrend is called the backside. The thesis of people trading the frontside, is that they think it will go up. For short sellers, they trade the backside, because they will go down.
Now if you get a really volatile stock, you might end up with a combination of the two theses, with two parties doing different strategies. This is why a wedge forms. Both theses are valid, and so both parties continuously trade in this wedge pattern.
The short side thesis and strategy looks like this:
Imagine the opposite for longs. They buy at the dips, and the sell at the peaks.
Thus, combining these two theses, we can conclude that:
When the stock moves up, that's buying plus covering.
When the stock moves down, that's selling plus shorting.
Simultaneously, Longs and Shorts are both making money because they both have valid theses. One thinks the price will go down, and the other thinks it goes up.
However there is a big problem with the short thesis for GameStop.
The short thesis is actually invalid.
Notice how throughout the entire duration of this triangle, OBV is flat. On Balance Volume info: https://www.investopedia.com/terms/o/onbalancevolume.asp
Take a look at a normal stock like Palantir. When a short thesis is valid, the price breaks out to the downside after the Apex. Palantir in the below picture, was a short side success. Notice how OBV falls during a short side success.
Or Activision. In this case, OBV goes up when the longs win.
I challenge you to find a stock that doesn't follow these rules on a macro level timescale.
OBV increases, if there is more volume during uptrends than volume during downtrends. That means there is greater buying interest. Vice versa.
When there is an imbalance of buyers and sellers, at the Apex of the triangle, there will be a "breakout". This is because, at the apex, one of the two trends breaks. Either the upside or the downside trend is violated, forcing one of the parties to flip their thesis. So if we go to the upside, the short sellers would flip to long side either by buying stock, or finally covering their shares.
So what about a flat OBV?
I believe it means that throughout the duration of the wedge starting 2/24, nobody was f*king selling. It was almost exclusively shorts short selling combined by less covering than shorting and retail buying in.
In a way, it's actually an illusion that they are tanking the price. In reality, the real price is whatever the uptrend line is. So here, I think the "real price" is around 155 dollars. We've actually been climbing up at the macro level. I think this has to do with the spread.
If you look at the Level 2 order book, you see the highest bid is 160, and the lowest ask is 160.74.
The goal of short selling is to tank the price. So you typically sell on the Bid. When you want to cover your shares, you want to ideally also buy on the Bid, because buying on the Ask is more expensive. However the issue is that liquidity is low, so if you have a deadline to cover FTDs, you need to buy on the Ask a lot. You actually end up losing money and the amount you lose is roughly equal to the average spread multiplied by how many shares you shorted. The only way to profit from short selling, is if people sell more than they buy after you short. Trading is a Zero Sum game, so the goal of short attacks is to paper hand people.
The problem is we see consistent higher buy:sell ratio, meaning that more people are buying than selling. Thus you probably can't make money if you short millions of shares, because eventually when you cover:
A) You lose money from the Spread
B) The price is already increasing from an excess of buyers.
Furthermore, what's even worse, is that the daily short volume percent is greater than 50% on average.
Some kind folks crunched FINRA's own short volume numbers and concluded that the majority of daily volume was short selling.
Okay, so first, we realize that they cannot really profit from shorting at the downtrend, and second despite this fact, they are shorting more than half the daily volume.
Now let's tie in the last two pieces of the puzzle. So how can there be a flat OBV if there are an excess of buyers? I believe it's because the Bid has been hit so much more than the Ask from the short sellers that it has caused the price to be artificially lower than normal. Thus, there's an increased number of days that the stock ends in the red, decreasing OBV.
I believe that the OBV is actually trending up wards. It's an illusion that it's flat. The Bid has been hit from selling more than buying has hit the Ask. Therefore the net direction is down. The excess of retail buyers balances this out and causes the OBV to end up going flat.
We are not losing this fight. We are in fact holding strong and buying.
Furthermore, from the updated institutional data for Q1 present so far in Bloomberg, we see a couple institutions "derisking" and other actually buying more shares. Some institutions appear to be out, but a lot more are actually in. Institutions are HOLDING so far, and perhaps actually buying.
Keep in mind that this is a TINY SUBSET of all the Q1 13F updates that will be filed before 5/17. I will be closely watching everyday to see what the majority of institutions are doing.
I believe 5/17 will be a very important deadline for us to find the new data.
So great, everyone is holding thus far, shorts keep shorting, and the spread and buyers are killing them. Lol.
After the Apex, the downtrend breaks. Shorts will be forced to create a new downtrend.
If they haven't given up, they'll likely react with a large short attack in an attempt to establish a downtrend.
However, given that GME is hard to borrow, they can only short a limited amount of shares. And because people won't sell, the shorts will be stuck trying to short into an uptrend due to the excess of buyers. This is the short staircase, the establishment of a new uptrend slightly below the Apex that will slowly choke the shorts to death. Every time they try to bring it back down, they have to eventually cover on the Ask. Couple that with the buying pressure, their short attacks get weaker and weaker each time as this uptrend slaughters their P&L.
Take Tesla as a historical example.
A short staircase choked the shorts. They were like "oh fuck, I'm screwed, better cover".
Seriously. I see no fucking way out for the shorts. To create a downtrend, you need a continuous supply of shares to short. Or you need people to sell. Both options are out of the question.
The catalyst might actually be the chart itself. Not so much a fundamental change in the company. But a fundamental change like a new CEO can certainly light the fuse.
Wedges form because Longs and Shorts both see a profitable strategy.
Shorts are not able to profit because of the Spread and the excess of buyers. OBV is flat because everyone is buying and holding.
The price might drop after the Apex, but an uptrend will form that will smother the shorts. Eventually they will panic cover.
Bloomberg shows recent institutions are buying and holding on average.
After the Apex, the short thesis of being profitable from shorting becomes invalid (if not already).
5/17 is an important date. It reveals the poker hand of the Longs as 13F Q1 filings are due by then. If they are still holding, then shorts are DOOMED.
The price isn't actually decreasing from these short attacks. It's actually steadily increasing. The drops are an illusion.
Thank's for reading. I'm as bullish as ever on this stock.
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