Tuesday, January 13, 2015

NASDAQ to try again for a bounce, maybe this one will stick

NASDAQ started yesterday positioned modestly above the midpoint of its trading range and with a positive bias in futures, and a nice pop at the open, but immediately headed south. I guess that clarifies the net bias of the hedge funds, at least for that one day. NASDAQ starts today positioned modestly below the midpoint of its trading range and also with a positive bias in futures. Once again, we should see a nice pop at the open, but whether it sticks and people pile on for a recovery rally or whether people sell into this rally the same as they did yesterday and Friday is a coin flip. I suspect that this time the recovery bounce will stick and kick off a moderate short-squeeze short-covering rally. The problem is that such a recovery rally could end up the same as we saw last week, with the angry short-sellers simply waiting a day or two and then pouncing again with the renewed vigor we saw in the past two trading sessions.

The hedge funds may yet seek to test the lower edge of the trading range - that would make sense, but they may also permit, tolerate, and even encourage a recovery bounce here with the expectation that it will be a classic dead-cat bounce that simply provides them with a higher and better entry price for a next wave of short-selling to accelerate the push towards that lower edge of the trading range. Or, maybe enough of them may decide that they have a decent enough bullish re-entry price and flip their bias from "risk off" to "risk on" to give a net boost to fuel an advance back towards the upper edge of the trading range and even to a new 1-year high.

I'll continue to be on the alert for buyable dips, although I'm also looking to cash out for nice gains on some of my recent dip buys. Overall I remain fully invested and positioned for a continuation of the ongoing bull market, regardless of these annoying potholes that we encounter along the way - six of them last year.

Oil (OIL) is still seeking a bottom, with renewed vigor as Goldman and some other analysis suggested that $40 may be closer to the bottom. I personally don't know where the exact bottom is, but I do know that there is value at these prices. Maybe not in the very short term, but eventually this speculative bearish frenzy will run its course since it masks true supply and true demand.

-- Jack Krupansky

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