Did Short Covering Ignite a Rally in the QQQs?
Note: I am off to visit my mother this weekend, so the next edition will be on Tuesday morning.
The Either/Or Market remains undefeated. If the SOX rallies, it tends to do so at the expense of the infamous broadening out trade, what I call the others. I was asked if I thought this was the new normal for the market. My reply was that ‘new normal’ is just another way of saying ‘this time is different’.
I would remind you that during the run-up in the SOX in May there were statistics being bantered about with folks finding different ways to tell us ‘this time is different’. Then June and July came around to remind us that it is never different. Stocks that get carried away on the upside always come back to earth.
For the time being, we do have the Either/Or Market. We had a version of this in 2021. We had a version of it in other years as well, and yet the market always managed to get back in gear, where everything moved together at some point. But Thursday was not that day.
The SOX enjoyed—finally!—a serious rally while the stocks that had been hot (the others) sat it out or went down. Just witness the volume in the market where a mere 55% of the volume on the NYSE was on the upside while the S&P tacked on 121 points.
My guess is there was a lot of short covering in tech-land. I have been waiting for the volume in the QQQs to rise; it finally did so on Thursday. Of course, I wanted the rise to be on a down day (to show us there was capitulatory selling), but instead the QQQs traded 66 million shares—the most since early June—on the upside. My conclusion is there was likely much short covering.
In any event, Bob Prechter once said that all rallies begin with short covering, so I won’t hold that against the QQQs. They did, in fact, bounce off that line I drew in a few days ago. Our job will be to figure out where resistance is. 685 on the QQQs is the first test because those are the twin lows from June and the second week of July.
I prefer to use the indicators, and for the time being, the Nasdaq remains oversold. That doesn’t mean every day forward will be an up day. In fact, I’d be shocked if that’s what we see. But the window is open for about another week, which means I think we see more rally attempts in the tech stocks.
