Tuesday, April 17, 2012

Another mini-short squeeze to push the market around, with no trend in sight

The significant declines of quite a number of major technology stocks yesterday (Monday) left a lot of traders and short-term speculators with a negative, bearish stance, hoping for further declines. As frequently happens in such situations, an excessively bearish stance causes sharper-witted, nimbler traders to then pounce with a load of buy orders and instigate a little bit of a short squeeze, forcing the bears from Monday to "remove (or take off) their shorts" (as they say on Wall Street), and then everybody piles on for another ride up. Rinse and repeat.
 
Whether we see a continuation of the rally is unclear. Sure, it can happen, but just as likely is that "easy come, easy go" is the rule.
 
I would note that even with the sharp rise today, the Dow is still not close to setting a new near-term high.
 
So, we remain well within a trendless trading range, with more of the same expected.
 
Even if the Dow does set a new high, if it is not a healthy amount higher then we will face the prospect of a "double top", which is a distinctly bearish indicator. In truth, some people think that the Dow has already hit a double or even triple top, depending on how closely you measure these things. That's why we need to see a clear and definitive break out to clear the air about the trend.
 
Quarterly results are coming in fairly decent, but we already knew that Q1 was a semi-decent quarter for the overall economy. The big question is Q2. The even bigger question is Q3 and even Q4. After all, the stock market is supposed to look ahead and forecast nine months out.

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