Wednesday, October 22, 2014

NASDAQ poised for a little consolidation before next leg up

Traders and speculators will certainly have to pause and digest these big gains that we've had lately in NASDAQ, a little "consolidation", before any additional leg up in the coming days. A fair chunk of the gains were most likely due to a short squeeze as speculators bought to cover short positions to protect their gains, but I'm sure some decent fraction of the buying was due to short-term speculators who switched to a "risk on" posture. The two big questions are whether additional speculators will similarly switch their bias, and at price level these risk-on speculators will reverse again and cash out those long gains and resume shorting. IOW, whether we are going to stay in a relatively narrow trading range here or are heading up towards the upper edge of the broader trading range and maybe even a new NASDAQ high for the year.
 
NASDAQ futures are down slightly, indicating a very modest dip at the open, probably on the expectation that there are plenty of speculators who got caught in the short squeeze and are itching to reopen their short positions at a better price. So, the big question here is the degree to which people pile on to any opening dip for any deeper consolidation, or whether they buy the dips during the day, or whether they sell into any further rallies during the day. Whether today becomes a modest up day or a down day is really a true 50/50 coin flip.
 
I almost sold a couple of my dip positions yesterday, but... I'd prefer to let them ride until NASDAQ gets further up towards the upper portion of the broader trading range. But I do indeed intend to start raising my reserve cash level as any additional NASDAQ gains occur.
 
In any case, all of this recent activity is "technical", based on stock trading charts and trading volume, not based on actual business and economic fundamentals, which really haven't changed much at all in the past couple of months. My mantra is the same: The economy continues to incrementally improve, albeit at too sluggish and inconsistent a pace for your average ADD-afflicted Wall Street trader or short-term speculator.
 
-- Jack Krupansky

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