Monday, February 02, 2015

NASDAQ poised for a recovery bounce

We saw some more throw in the towel selling on Friday, with NASDAQ falling steadily and sharply into the close later in the afternoon. That's an unpleasant feeling, but also a sense of capitulation, which is typically a good sign. So, now, NASDAQ is poised for a recovery bounce. Whether it sticks is an open question.

NASDAQ futures are up modestly to moderately, indicating a modest to moderate pop at the open, but whether that opening pop leads to a meaningful rally throughout the day, or people decide to sell into the rally remains to be seen.

The advance from the January trough is still somewhat intact, so all is not lost, but we're going to need to see a fairly decent bounce over the next several days to preserve these meager gains, otherwise the bearish hedge funds will sense blood in the water and start shorting the market more aggressively. As things stand now, they are probably already a little too short, and hence vulnerable to counterattack by more bullish or neutral hedge funds who are not adverse to kicking off yet another short-squeeze short-covering rally to force the shorts to buy when their stop loss limit orders are triggered.

Of course, none of this is absolutely guaranteed. In fact, I wouldn't be surprised if we saw another two days of selling to fully test the support under the January trough - but I wouldn't bet on it.

I remain overly-long the market and betting that the advance will continue, eventually. Meanwhile, I'm more than happy to buy on dips and play the swings for some short-term cash profits.

-- Jack Krupansky

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