At last, a test for NASDAQ

There's no particular bad news this morning, but NASDAQ futures are down moderately strongly, suggesting that traders are ready to test the NASDAQ advance of the past two weeks. Whether bearish speculators pounce on a weak open and strive to push NAASDAQ down by 30 to 50 or even 100 points remains to be seen, but those possible outcomes are on the table.

 

After a decent 2-week rise, NASDAQ was due for some consolidation anyway. Weakness on Friday and Monday suggested that upwards momentum had fallen off, so at least a moderate pullback in now in the cards, anyway.

 

Whether any pullback is merely a speed bump, or a reversal back towards the lower end of the recent trading range, or a true new leg down for the spring mini-correction, possibly to turn it into a full-blown correction, remains to be seen.

 

The immediate question is whether bullish short-term speculators pounce on any early market decline with any significant "buy on the dip" enthusiasm. If they don't, even bullish short-term speculators may pull in their horns and "ride with the tide" by joining the bearish crowd, at least as long as the momentum is strongly negative.

 

A second question is whether the intensive selling and shorting of the formerly hot momentum stocks on the past two trading days may or may not have run its course. In other words, whether we might be due for a short-covering squeeze bounce on those stocks.

 

The real question is whether the bias of sidelined money flows is building up towards a medium-term, "risk on" positive bias or not. Will more hedge funds become bullish as bearish momentum fades? Will more mutual fund managers become more bullish? And, most importantly, will retail investors dump more money into retail mutual funds?

 

-- Jack Krupansky