Wednesday, June 11, 2014

Another test for NASDAQ

NASDAQ futures are down fairly sharply, indicating that traders will take a rather negative bias at the open. There is no significant news other than a modest revision to an IMF economic forecast – that is still completely consistent with all previously known economic data, namely that the global economy will continue to plod along, albeit at a somewhat slower pace, so no boom but no bust.
 
Is the futures drop warranted? Not from a fundamentals perspective, but with the recent rally appearing to run out of steam and not scoring a breakout in recent days, traders and short-term speculators automatically switch over to betting on a reversal and consolidation if not a short-term trend change to trade back down in the trading range. None of this has to do with longer-term fundamentals, just short-term trading "technicals."
 
The open question is whether short-term speculators will pile on in the short direction after the opening dip, or if the more bullish speculators will sense that "too many people are leaning in the same direction" and pile on in the long  direction and kick off a recovery short squeeze. Sure, we COULD see a 50 or 100-point downdraft, or maybe just a lot more volatility and another narrow change by the close, or we could see a breakout if the initial attack itself runs out of steam.
 
Note that all it will take is a 20-point gain at the close to put NASDAQ above the March near-term peak. That won't be enough to secure a full-blown breakout, but is the first necessary step. What we're really looking for is a sustained move above that March peak, like at least a few days.
 
I'm okay with a bit of consolidation here, but even if that does happen, it won't impact the longer-term trend significantly.
 
Overall, I'm still biased in the positive direction.
 
-- Jack Krupansky

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