Tuesday, October 14, 2014

NASDAQ poised for a second shot at a dead-cat bounce

NASDAQ did take a shot at a dead-cat bounce on Monday, but it was too halfhearted and there was still too much extreme negative sentiment that hadn't completely played out – and too many hedge funds with cash they hadn't deployed yet – so enthusiasm quickly evaporated and extended the sell-off. But today could be different. We have some initial quarterly reports to help counter the negativity of the sell-off – fighting fire with facts.
 
NASDAQ futures are up sharply this morning which will assure that a decent short squeeze gets kicked off at the opening, which should in turn cause traders to smell the blood (of shorts) in the water causing them to incite more buying which in turn pumps up the short squeeze buying. Any sustained buying will only encourage short-term speculators to consider reversing their bias from "risk off" to "risk on." Granted, that initial short squeeze could quickly peter out and revert to another selloff as happened yesterday, but this time there will be fewer hedge funds with the necessary fire to passionately throw a lot more money at the market.
 
If the rally does turn into another rout, I'll be adding to my existing positions.
 
-- Jack Krupansky

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