Retail Buying vs Speculative Squeeze

Let's start with what we're seeing on the chart. To me, this is a pretty bearish chart. Yes, it bounced off the 50d SMA,but it bounced back off of the 3-year resistance line just as convincingly. In doing so, it created a new bearish channel which it failed to break out of all week. It peaked just out of the top of the BBs last week and just closed below the center line with the overall band trajectory now about horizontal and tightening. This is different than what we saw in the third week of May; This is a bearish consolidation, which is further confirmed by the convergence of the 20 and 50 day SMAs. a couple weeks ago it appear that the 20d SMA was going to bust through and we'd be well on our way to new highs. Now, though, we can see its approaching for an almost perfectly tangent touch, which would be followed by a bearish move down and away. To top off this reversal pattern (quite literally), there's a pretty clear diamond pattern at the top of a parabolic move, which is confirmed by the dramatically increased volume.

How far will it drop and why?

To understand this a bit more, we have to figure out what's driving the market right now. This next correction isn't going to be like the one in March because it's fundamentally different. In March we saw a fast crash driven by massive institutional selling. That market the disassociation with real price discovery, as record amounts of retail investors have been buying into the market in new highs every day since then.
Along with exponentially increasing retail buying, what we've been seeing is a newly formed speculation bubble. It's different than other bubbles because it rapidly inflates and deflates itself until it runs out of energy. Tons of put options were purchased throughout the crash in March as institutional hedges, which, along with the retail buying, resulted in an aggressive price squeeze upwards. This was a huge cause for the parabolic move, as the underlying stock price is pushed away from the strike prices as they got closer to expiring. The strong majority of those put options expired this past week, and since mid to late May, a record amount of call options have been purchased (thanks retail) and now there's a 10-year high open call:put ratio.

Institutions know this, and used the price pinning of the MMs and retail buying as a shroud to sell under. Will there be a strong downward squeeze now? ? If so, will it out-weigh retail buying? When will institutions buy back in? When will retail investors capitulate? Will a drop cause heavy put buying and then another squeeze upwards later on?

I believe that the rest of this year is going to be extremely volatile as all of these forces play out in the equity market, but I favor a bearish outlook due to the healthy of our economy and the grim situation we're in with the global pandemic. I think it's likely that we test March Low by September as the call options near expiration and retail capitulates a bit, but a strong bounce up is still uncertain, as that would be around the time when unemployment could be increasing again, the corporate debt bubble starts to show signs of cracking, and world currencies begin to destabilize, but it's likely that we'll have another round of stimulus at that point and maybe Covid cases begin to decline again as people learn to behave more responsibly in an opened economy.

Regardless, the next couple years are certainly going to be historic, so I'm going to be following it closely while trying to hedge my life by making money on this highly volatile market.