Wednesday, April 09, 2014

Possible dead-cat bounce, but may have hit selling exhaustion

The semi-decent bounce for NASDAQ on Tuesday was quite welcome, but may indeed be the proverbial dead-cat bounce that precedes a further decline. Only time can tell. The good news is that even though a new near-term low was hit early in the day, NASDAQ managed to bounce up nicely from that low, which strongly suggests that the short-term bearish speculators did indeed reach "selling exhaustion", the point where nobody was left to sell - everybody likely to sell in the near-term had already done so. But, the nice pop could simply have been a modest short squeeze, which is not a completely reliable indicator of a trend.
 
It will take a couple more days to sort out the trend. Even if we do establish a series of up days, the question is whether more bearish short-term speculators are simply biding their time and waiting for near-term buying exhaustion before renewing their short positions.
 
It really does feel like we are near the end of the recent mini-correction, if not yesterday or the next couple of days, then within a week or two. A lot of people were probably simply pre-positioning for weakening in Q1 earnings. The likely outcome is for stocks to rally as the Q1 earnings reports are put behind us - a classic case of "sell the (bad) rumor, buy the news."
 
For today, the question will be whether bearish short-term speculators continue to "sell into any rally" or actually do bite the bullet and  reverse their bias to a more bullish "risk on".
 
-- Jack Krupansky

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