Thursday, October 23, 2014

NASDAQ poised to size up its resiliency

The "consolidation" for NASDAQ on Wednesday was well within the bounds of reason and quite acceptable given the size of the recent gains and the extent to which a good fraction of those gains was likely simply short covering. Now we need to see whether consolidation has runs its course or not. Once again, flip a coin, and it depends on whether the hedge funds who drove the gains with a "risk on" posture will stick with that bias or decide to reverse and try to play a narrow trading range rather than risk their gains on a further rise in the broader trading range.
 
NASDAQ futures are up moderately strongly, suggesting a nice pop at the open, but the question is whether that pop kicks off another short squeeze and whether more hedge funds take a "risk on" posture, or... whether more hedge funds abandon their very short-term "risk on" bias and revert to a "risk off" posture and sell into any rallies, as some did on Wednesday.
 
It will be interesting to see how people position themselves in advance of the quarterly results from Amazon (AMZN) and Microsoft (MSFT).
 
I'll pick up some more Yelp (YELP) on its big dip this morning. Typical Wall Street over-reaction, but it always creates buying opportunities for us longer-term investors.
 
-- Jack Krupansky

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