We've now had two solid days of consolidation for NASDAQ, which is quite healthy. That's no guarantee that we are even close to being out of the woods from a technical perspective, but a good sign nonetheless. It is difficult to say how long this particular consolidation phase will last. It might have ended with the intra-day low in the morning, especially since NASDAQ managed to claw back all of the intra-day losses and close above its opening level, which is no mean feat give the anxiety level here. On the flip side, the dip-buying of yesterday may simply have been a dead-cat bounce due to short-covering as hedge funds captured some profits. I'd give the market another week, at least, to digest the 5000 level.
The 5000 level is still an easy reach from here, but it could take some more days of consolidation before enough of the hedge funds are comfortable enough with adding enough risk to push NASDAQ above 5000 again. It could also take a few more of these consolidation swings before the 5000 level sticks for more than a couple of days and we finally see a new all-time closing peak that finally relegates the March 2000 peak to ancient history.
NASDAQ futures are up moderately, indicating a pop at the open, probably driven by both the dip-buying after the intra-day low yesterday and anticipation of the jobs report coming on Friday. Whether the opening gains stick is another matter. Flip a coin, but measured doses of optimism and caution will likely both be repaid. Volatility will almost certainly remain king. Any opening pop could also be a setup by hedge funds, to lure less-sophisticated traders into the market, and then clobbering them with renewed selling. Sometimes hedge funds like to see these pops because they give them a higher entry price for opening fresh short positions. We could well see people both selling into rallies and buying on dips. It will be a bit of a tug of war between the two camps until enough of the hedge funds shift their risk bias and give us a more one-sided market, but whether that has an upwards or downwards bias is indeterminate.
I personally lean towards the consolidation having runs its course, but that's not an absolute slam dunk and further dips are a very real possibility. We could also see an up day, but followed by another down day before the consolidation completes and the advance continues.
-- Jack Krupansky