After yesterday's sizable drop, many are wondering if the market has enough power to break to new high's. Our friends at Erlanger Squeeze Play think so. Here are a few of Phil Erlangers thoughts: (www.erlangersqueezeplay.com)

Short interest dropped 0.50% on the NASDAQ in its report released after the close yesterday. Overall short intensity dropped in all sectors for the month, with short intensity particularly light in: energy minerals, transportation, commercial services, health services and utilities.

ve only 7 sectors (out of 18) with average short intensity above 45%. For the past three months we have had 14 sectors above 45%. Moreover, this month we have only 1 sector above 50% short intensity — last month there were 4 sectors above 50% short intensity, and the month before we had 11 sectors above 50% short intensity.

Last week we described the short intensity situation as diminished but still elevated.

In using the term elevated, we do not mean that short intensity is high. In fact, the short intensity for a third of all sectors is now classified as light. By "elevated", we mean that a noteworthy position of uncovered short interest remains. The chart above shows that for technology, short intensity is at the lowest since May, but still significantly higher than last January. The current reading in the mid-40s is roughly midway between the May peak seen (the low-50s) and the January "vapors" levels (the high-30s.) Bottom line, there remains enough short interest to support a rally into February, should price action accommodate. Should there be more short covering from here, short intensity levels will diminish further — and represent more of a negative for the market as a whole.

As we have previously stated, the easy money has been already been made.

The market has missed an opportunity to recover, but we are more concerned about how it moves through January. If January is a non-event, it will be a harsh set-up as seasonality deteriorates beginning in February. Stay tuned.

Regards,

Philip B. Erlanger, CMT