There has been lots of talk that the stock market needs to correct because it has had a strong rally and now the Meme stocks are in rally mode as well.
You know the names: Gamestop, Open Door and D Wave Quantum.
Some believe the stock market needs to correct as the tariffs are going to kick in soon and ruin the economy. Mainstream media is convinced that the tariffs are not going to work, but so far the stock market does not believe it. Since the April low on the 9th the S&P 500 has now rallied 28.21% through last Friday, July 25th. This rally has now lasted 94 days. But there have been other rallies like this one.
In October of 2023 through March of 2024, the S&P 500 rallied 27.61% in 152 days. December of 2018 saw a rally that lasted until April of 2019 where the S&P 500 rose 25.18%. That rally went 124 days. So there have been a couple of other rallies of more than 25% since the latest move.
What is important to know is how much did the S&P 500 correct after the moves in 2023/2024 and 2018/2019? The answer is 2023/2024 move saw a correction of -5.84%. 2018/2019 saw a correction of -6.84%. In both cases, a pullback of -6.34% on average is not the end of the world after a move up greater than 25%.
There are a couple reasons that the current rally could continue to advance. First, short interest on both the NYSE and NASDAQ is at or near record highs. The NASDAQ hit its all- time high on June 30th at 16,928,918,789. Meanwhile, the NYSE hit a multi-decade high of 17,923,607,492 at the same time.
That means that as the market advances, the more pain the short sellers will feel.
When this happens the number of short squeezes will rise.
Currently, there are 174 short squeezes in our universe of stocks which is over 5,000. Usually, this number can rise to over 400 in the middle of a market-driven short squeeze.