Wednesday, August 13, 2014

NASDAQ set for a short squeeze

Tuesday wasn't a great day for NASDAQ, but it did prove that the current trading range trend is reasonably resilient. It would have been so easy for short-term speculators to push NASDAQ below support, but... they failed and NASDAQ recovered from a steeper intra-day loss. Now that NASDAQ has proved its staying power for the bottom of the trading range, traders are grinning because they know that the more bearish speculators are probably over-extended and that a little pressure will get them to abandon their short positions in a process known as a short squeeze. Get a few bears to jump ship and that will fuel a rise that in turn incites more short covering, and so on in a virtuous cycle, until all the weaker short sellers have been forced to cover their short positions by buying back the shares that they had shorted.  The flip side is that those disgruntled bears will sit patiently and wait for NASDAQ to become a little over-extended higher up in this trading range and then pounce again.
 
NASDAQ will likely stay in this trading range for the rest of the summer, although there is a distinct possibility of breaking out modestly to a slightly higher near-term peak.
 
I bought a little more Tableau (DATA) and Solar City (SCTY) on the dip yesterday.
 
-- Jack Krupansky

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