Thursday, January 08, 2015

NASDAQ seeks confirmation of trend

The sharp NASDAQ  recovery bounce on Wednesday was great, but will it last or was it simply a classic dead-cat bounce ("even a dead cat can bounce")? It may have simply been a traditional short-covering rally where too many people were too short and traders simply exploited that temporary excess. OTOH, although the first 40 minutes of trading may have been such a short-covering rally, followed by an hour and a quarter of moderate selling off of that rally, some serious buying did kick in late in the morning and held up for the rest of the day. That second-wind rally may indeed have been some of the hedge funds shifting to a "risk on" bias". Maybe and maybe not. It will take another couple of days for that shift was real and durable.

NASDAQ futures are up sharply this morning, indicating a big pop at the open. This has the prospect of turbo-boosting any short-covering rally, but whether it is sustainable or simply ends with a lot of renewed selling into rallies is a coin flip.

Again, the big question is not whether traders can engineer short-covering rallies, but whether a sufficient portion of the hedge funds shift to a "risk on" bias to push NASDAQ all the way back up through its trading range and even begin a new leg up from the December peak.

In any case, the big dogs and heavy hitters (e.g., the hedge fund managers) are now back from their extended holiday beaks and gradually beginning to exert control. But that doesn't mean that we will see a smooth trend. Volatility will continue. A longer-term trend will re-emerge, but could be rather difficult to discern under all of the volatility.

There is still a fair chance that speculators will try again to push NASDAQ down below the September peak and even below the December trough. But flip a coin whether such a push is really a bear market trend or actually simply a deeper setup for a more extended bullish push up through the trading range to a new one-year peak.

Oil (OIL) is still struggling to finds its bottom. It's overdue for a recovery bounce, but whether that's a true bottom or simply a bear market rally remains to be seen. I remain prepared to buy on any additional 5% dips.

-- Jack Krupansky


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