Today's decline was payback for the shorts after the short squeeze on Thursday

The nice pop on Thursday was nothing more that a traditional short squeeze as traders and short-term speculators realized that too many people were betting too heavily (and with too-tight stops) for a further market decline. Once the market started moving against the shorts, they quickly covered and followed the rally up. But, their only interest was to follow the momentum as long as it lasted. Once the short-covering rally quickly ran its course (as they always do), the shorts piled on their short positions again (or "put their shorts back on" as they say in the boy's club on Wall Street.) Back to square one as far as judging the short and medium-term market trends.

 

Well, not quite back to square one. The Dow is still well above its near-term low on Wednesday, so a "recovery" of sorts is still quite possible.

 

The bottom line is that we will see a lot of volatility that "makes no sense" until we get some clarity as to true trend. Meanwhile, range-trading is the dominant trend. What we need to keep our eyes open about is whether we quickly set a new low below Wednesday's low or set a new high above the recent peak for the Dow. Otherwise, trading range it is, indefinitely.

-- Jack Krupansky