Tuesday, August 05, 2014

NASDAQ set to test whether the recovery bounce will stick

Okay, check the box off, NASDAQ scored a decent recovery bounce on Monday, erasing at least Friday's loss plus a little, but... it remains to be seen whether the bounce was "real" and durable and will be the foundation for the next leg up, or whether it was simply a classic "dead-cat" bounce that will peter out and reverse and lead to a next leg down into a mini-correction. Flip a coin.
 
We are still in a slow summer trading environment, so a lot of these daily movements are simply noise until serious trading resumes after Labor Day.
 
I suspect that NASDAQ might trade around in an even narrower trading range here near the bottom of its larger trading range until we see some clarity as to whether Thursday's big decline was a harbinger of things to come or simply a one-day fluke.
 
One good sign is that the intra-day low on Monday was still well above the intraday low of Friday, and "higher lows" is always a bullish sign.
 
Traders may also want to see if they can engineer a "double bottom", which is a more bullish foundation for a continued rise. None of this has anything to do with economic and business fundamentals, which remain reasonably solid, but psychology and apparent "technical considerations" are a major part of how markets work.
 
NASDAQ futures are down moderately this morning on no particular news, so this is really simply traders saying that they want to give the nascent reversal a good solid "test" before continuing. So, the big question today is whether people pile on to the opening dip and head in the direction of a correction, or buy the dip and head back up towards the upper reaches of the trading range. Or... just bounce around chaotically within a narrower trading range until we actually do see more of a true trend.
 
-- Jack Krupansky

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