Thursday, March 01, 2007

NASDAQ Technical Picture - Short Covering Helps Fill Wide Gap Down



The NASDAQ gapped down about 40 points on the open due to renewed yen carry trade fears. Within 15 minutes it was down a total of 56 points. The bears started covering shorts, prompting a vertical momo move to close the gap. After about two hours, the market shifted into a sideways chop with some minor weakness into the close. Despite the lack of follow through in the afternoon, we did manage to hold support on a closing basis. The quick rebound off of the early lows is a win for the bulls, but we need to see some confirmation before getting long again. I'd like to see a higher low, followed by a break above today's highs as confirmation of a short-term change in the current bear momentum.
Economic Calendar: Mich. sentiment at 10:00.

2 comments:

Prospectus said...

Jamie,

How can you tell it was short covering during bars 1-4?

Jamie said...

Prospectus,

I noticed that almost all of the momo stocks on my watchlist that have taken a beating this week traded in the same fashion as the Qs. If I had held my short on JOYG overnight, this morning's gap down would have been a gift, so I would have covered on the first signs of strength. The WRBs and vertical price movement is consistent with a short squeeze. It's always difficult to find a low risk entry on a short squeeze and that was also something I observed in today's morning action.