Tuesday, January 20, 2015

NASDAQ poised to test if the recovery has legs

A lot of the sharp NASDAQ recovery bounce on Friday could well have been a classic dead-cat bounce and the forced buying of a classic short-squeeze short-covering rally, so we really need to see several days of a continuation of this advance before passing final judgment as to whether Friday constituted the low of this swing downwards in the trading range. It would be no surprise either way to see the advance score a second day of rallying, or for people to sell into this advance since we just saw two weeks ago what can happen to a sharp two-day advance. I remain optimistic that Thursday and Friday were the low for this swing or mini correction, but I do have to acknowledge that it all depends on whether enough of the hedge funds and other speculators flip the switch from a risk-off to risk-on bias.

NASDAQ futures are up sharply, indicating a sharp pop at the open, but the big question is whether people pile on and kick off an even sharper follow-on rally, or whether people remain somewhat cynical and sell into any rallies.

I'm fully invested but with some reserves to buy on any further dips of either the market in general or individual stocks.

Quarterly reporting or earnings season is underway, which will stress individual stocks in both directions, with possible knock-on effects for the overall market. Netflix (NFLX) will be the poster child today and tomorrow with their report coming after the bell today. I am long NFLX with an extra speculative position. The stock fell $100 last time they reported, but I believe that was a fluke. We'll see how they play out tomorrow. This market is currently rather unforgiving of anybody who tries to depend on the specifics of past history and historic trading patterns.

Oil (OIL) is still searching for its bottom, but is showing at least some signs of a willingness to believe that the bottom may be near. We've seen some sharp recover bounces, none of which has really gained a lot of traction, yet, but that is a sign of both the fact that there has been no final capitulation to mark a true, traditional bottom, as well as the fact that so much of the sell-off has been driven by speculation rather than actual supply and actual demand.

-- Jack Krupansky

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