Wednesday, July 09, 2014

NASDAQ doing a little consolidating

Well, that was a decent amount of consolidation for NASDAQ on Tuesday. Whether that's the end of it remains to be seen, but it is actually a good and healthy sign for a market and individual stocks to consolidate after a significant advance. Technical traders (not me!) like to see occasional "testing" like this to see that there is a decent "base" in place. Specifically the dip on Tuesday served the technical trader's adage of "filling the gap" created by the strong open a week ago Tuesday. Now that that gap is "filled", there is one less reason for technical traders to have a negative bias. It is also noteworthy that NASDAQ closed well above its low for the day, which was shortly before noon. IOW, either selling pressure abated and/or a moderate amount of dip buying (that's me!) surfaced. That doesn't mean that we are out of the woods, but simply that there are fewer signs to give technical traders and speculators a strongly negative bias.
 
The Alcoa (AA) was a pleasant surprise, suggesting that the real economy is continuing to improve, which is the ultimate reason for a rising stock market. Although, in truth, the stock market has traditionally been a "barometer", rising or falling well in advance of what average people notice about the overall economy.
 
I still have lingering concern that we could be facing significant "buy the rumor, sell the news" bias related to the Q2 reporting season. Although, with the stiff consolidation of the past two days, that concern is somewhat, but not completely, reduced. Its so difficult to judge what is in the collective heads of short-term speculative market participants these days, especially all these hedge funds with their "hot money" which may stay in place for only weeks or a couple of months and reverse on a dime for no reason apparent to any outsider.
 
There is still the prospect for a correction or at least a mini-correction for NASDAQ, but no overwhelming reason to believe that is either imminent or underway. Despite these speed bumps, NASDAQ will tend to continue to follow the economy higher.
 
NASDAQ futures are up moderately, suggesting a bounce at the open, but that could be the proverbial "dead-cat bounce" ("even a dead cat can bounce"), so the question is whether people pile on any bounce or sell into any rally, and if a dip occurs after the bounce, do people buy the dip or pile on to sell short into the dip. The more likely scenario is just lots of trendless volatility, but given the slow summer trading, we could see either more consolidation or a semi-decent recovery bounce.
 
-- Jack Krupansky

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