Monday, May 12, 2014

Nice NASDAQ rally, but will it last?

Yeah, that was a nice rally for NASDAQ on Monday, closing at 4,144, but the question of whether those gains will stick and lead to further gains is completely open.
 
A sharp rally like this on essentially no news is typically a "short-covering rally" – too many short-term bearish speculators had bet against stocks and a subset of their colleagues decided to reverse and pull the rug out from under the remaining bearish short-term speculators. Just a little buying leads to a little short-covering, which leads to rising prices, which leads to more short-covering, and quickly the snowball grows into a mountain.
 
NASDAQ has now reclaimed a little over a third of the loss from the recent peak of 4,372.
 
Now the question becomes whether NASDAQ will rally past the other intermediate peaks that it passed on the way down, namely the 4,148, 4,161, 4,276, 4,319, 4,333, and 4,358 levels. That's a lot of territory to cover, and all of it still constitutes a trading range, so we could easily see NASDAQ rise another 100 or even 200 points and then reverse again and remain in the trading range.
 
-- Jack Krupansky

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