Monday, October 13, 2014

NASDAQ poised for a dead-cat bounce

As I indicated in my previous post, the sharp decline for NASDAQ on Friday was much more a technical matter related to breaking below the lower edge of the broader trading range rather than based on fundamentals of the U.S. economy. Today we will see whether there is any significant follow-through for that technical move.
 
NASDAQ futures are ambivalent this morning, but almost seem to be pointing to a dead-cat bounce today. Whether hedge funds still have oodles of cash that they are ready to throw at fresh short positions remains to be seen. I strongly suspect that they placed their bets last week and are now much more interested in cashing out their profits, or at least protecting those profits.
 
It will be interesting to see if "too many people are leaning in the same direction". IOW, if too many people are sitting on short positions and there is no long line of people standing ready to immediately open additional short positions, then we will hit a condition known as "selling exhaustion", in which case traders will note volume falling and reverse their bias and kick off a short squeeze, which is commonly known as a "dead-cat bounce" – because even a dead cat can bounce.
 
If the market does decline further significantly, I'll be picking up additional stock as indicated in my previous post.
 
Global growth slowdown? Sure, that's happening, but... the U.S. economy is incrementally picking up steam, so for the coming few years the U.S. will be leading the rest of the world, making U.S. stocks the investment of choice. Don't confuse "trader talk" with the real world economy.
 
-- Jack Krupansky

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