Thursday, September 04, 2014

NASDAQ poised to bounce back from a minor bear attack

That was fun. NASDAQ did indeed have a nice pop at the open on Wednesday, as futures indicated, but as I had indicated, futures tell you how the market will open, not how people will react after the open. I said that it was an open question of whether people would pile on to the rally or sell into it – they clearly ended up doing the latter. It was an example of "buying exhaustion" – everybody who was prepared to buy had already done so, so there was no further immediate upside available, so traders reversed their bias and down we go. The selling pressure really only lasted for the morning, with NASDAQ bouncing a little and closing a few points above that noon level. So, the good news is that selling pressure was only modest to moderate and not sustained, but the bad news is that the bulls held back from buying the dip with anything resembling enthusiasm. Maybe the bulls just wanted to see what else the bears might be prepared to offer, and the same sentiment on the part of the bears – a classic waiting game.
 
It's still too soon for all the heavy hitters limping back from summer break to be firmly in their saddles, so we still don't know their net risk bias, whether we're going to be facing "risk on" or "risk off" in the coming weeks. Give them another week or so, for the dust to settle, sort of.
 
NASDAQ futures are up moderately, indicating another pop at the open, for a recovery bounce, but... this could be another fake-out, a "dead-cat bounce", or traders simply trying to tee up the market for a fresh bear attack. IOW, it remains to be seen, again, whether people will pile on to any initial rally or sell into it. I expect plenty of volatility as people engage in a tug of war to determine the market direction.
 
I'm going to be traveling, out of town, and mostly otherwise occupied for eleven days starting on Friday, so I may miss a lot of the action. I have a good combination of exposure to the market and decent cash reserves, so I'll be well-positioned no matter how the next twelve days play out, but I may miss out of buying any short-term dip opportunities. My next big trading day will be Tuesday, September 16, 2014. It will be interesting to see how the market plays out during that interval.
 
-- Jack Krupansky

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