Okay, NASDAQ did its dead-cat bounce thing yesterday, albeit not with a lot of conviction. The relative weakness of the bounce leads people to believe that the market has a high risk of heading further down, so... that's what traders will test for in the coming days. None of this has anything to do with business fundamentals or the strength of the U.S. economy - which continues to improvement incrementally as each day, week, month, and quarter passes buy. That doesn't mean that every period of time will be uniformly better than the previous period, but that on a smoothed basis the improvement in the underlying economy is more obvious.
NASDAQ futures are down sharply, not on any particular fundamental news, indicating a significant dip at the open, but the question is whether we see significant selling after that initial dip or whether we start to see people buying the dips. The important thing at this stage is not whether everybody starts buying, but whether enough of the more adventurous speculators start to buy ahead of the pack so that we start to see a tentative "base" start to form. Then, as traders continue to test that base to probe for weakness, the less adventurous speculators will begin to realize that their room for additional profit on the downside is limited.
We're halfway through the month, halfway to getting the Fed meeting which ends the QE buying program behind us, so there will still be plenty of room for cynics to express their anxiety. The question is about those more adventurous hedge funds and exactly when they will be ready to go "risk on" with a bit more commitment.
It will be interesting to see how enthusiastically people respond, positively or negatively to Intel's (NASDAQ:INTC) latest quarterly report, not so much initial response today, but how the stock trends over the next few weeks. I have a small position, which I will expand if there is any dramatic weakness.
-- Jack Krupansky
Disclosure: The author is long INTC.