Sure, a 110-point decline for NASDAQ is not something to be easily ignored, but... A lot of what has been happening over the past few months is due to some serious hot money that is not committed to a particular market direction. If stocks look like they have run out of upwards momentum, the hot money piles on on the short side. And that continues until the downward momentum peters out. Then they reverse course, rinse and repeat.
Friday was a tough day also because short-term speculators are reluctant to sit in positions ahead of a weekend when geopolitical concerns are in play.
Sure, there are legitimate concerns about Q1 earnings, but most of that has already been priced into the markets, and are primarily due to weather issues rather than any persistent economic weakening. To wit, I flew from New York to Colorado on Friday morning and the plane was full – not an indicator of a weak economy.
The bad news from Friday was that NASDAQ broke below its recent low, which says that there is a fair chance that a renewed downwards trend is being established. On the other hand, the new low is lass than 1% lower, so it is also possible for it to essentially establish a double bottom, and then form a more solid base for the next leg higher.
Overall, the economy is not doing so bad, so there is no solid reason for some short-term weakness to amount to more than that. Sure, the hot money on the down side might persist, but I think it's a fair bet that the short-term bears are close to running out of steam. The 62-point rise on NASDAQ earlier last week was a bit much for the bearish speculators to accept, so they really had some intense enthusiasm for erasing that gain and more. I grant them that. Hey, at least it was fun to watch.
Again, the outlook for the economy months down the road should be a better guide for how and what to bet on for stocks.
Flip a coin whether Monday is weak for NASDAQ. By Wednesday we'll have a clearer view of the short-term trend.
-- Jack Krupansky