Friday, July 11, 2014

NASDAQ moves on to next stage of testing

NASDAQ actually did quite well for the significant test that occurred on Thursday with trumped-up "concern" about the Fed and Portuguese banks. Even though we were down for the day moderately, we closed well above the low for the day, which occurred at the open, and then NASDAQ rose through the rest of the day. In other words, the initial gap down did not inspire ANY additional selling. Not bad. And that opening low effectively tested support at the old March near-term peak. This is all good news, but that doesn't mean we are out of the woods or done testing. Traders sometimes feel the need to test a couple of times before deciding that support is really holding, especially during lazy slow summer trading, before moving on.
NASDAQ futures are up moderately, suggesting a non-trivial pop at the open, but the big question remains whether short-term speculators and traders "sell into any rally" or pile onto the rally, or whether people buy any dips that might occur during the day. And, as always, after that initial reaction, we could see volatility as buying or selling volume peters out and people reverse their bias repeatedly throughout the day.
This is a Friday, so technically short-term speculators will tend to close out positions ahead of the weekend when anything can happen, but we don't really know if those positions are net long or short the market, so we could see a nice little rally into the close – or a renewed selloff, with equal probability.
The big question going into next week is how urgently traders feel the need to continue testing NASDAQ before throwing in the towel and prepping for the "next leg up" for NASDAQ. We still have 2% to go to regain the closing high from last week, so NASDAQ will be vulnerable to renewed testing until that lost ground can be recovered.
I did some dip buying at the open, buying my favorite stocks that had the biggest declines – Banco Santander (SAN), Yelp (YELP), and Solar City (SCTY). All had gains by the end of the day.
-- Jack Krupansky


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