Thursday, October 09, 2014

NASDAQ needs to adjust to yet another short squeeze

That was a nice pop for NASDAQ on Wednesday, but... it smelled like a classic short squeeze, with selling reach "selling exhaustion" (and proximity to the lower edge of the trading range), which led to traders reversing their bias, at least for the day, and betting on the upside which put pressure on the shorts to cover and protect their gains from short selling. The Fed minutes really didn't say anything new and different, so that was just a cover, an excuse, for traders to ply their short-term trades.
 
NASDAQ futures are down moderately, suggesting a dip at the open. This is probably recognition by traders that the pop yesterday was indeed a short squeeze, so that bears with cash are now ready to pounce again with new and deeper short positions. Still, futures don't tell us how people will trade after the opening trades have completed – will they pile on for a renewed sell-off, or will they buy the dips and extend the short squeeze?
 
In any case, we are still in a broader trading range, and the extent of these short squeezes strongly suggests that the sell-off is almost purely classic range trading rather than true investors doing any significant selling of investment, rather than trading, positions.
 
The bottom line is to expect plenty more of this trendless volatility in the broader trading range.
 
-- Jack Krupansky

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