The major market averages bounced yesterday on declining volume. The S&P 500 has bounced off its 50-day moving average which served as a logical area of short term support as we discussed in yesterday's pre-market missive. The tech-heavy NASDAQ Composite index, meanwhile, is in no man's land between its 50-day and 200-day moving averages. Given that the damage inflicted to leading stocks has been greater than in prior times since QE was turned to full thrust back in January 2013, odds favor this bounce being temporary with more downside. While over the longer term, QE could very well propel markets higher, pronounced short term weakness seems in the cards which could be profound.
In the meantime it is a matter of watching how this initial bounce and rally plays out. In the case of short-sale targets such as Stratasys (SSYS), the stock undercut our initial downside target at the $100 price level, at which point those short the stock can choose to cover their position, allowing the stock to bounce and rally with the market as it perhaps sets up again as it rallies into an area of logical resistance. Another example is LinkedIn (LNKD), a favorite short-sale target of Gil Morales' which he has discussed at length in our weekly live webinars. LNKD undercut his 160 downside target yesterday, where it should have been covered. The stock rallied sharply yesterday, and as it approaches the 180 price level where ultimate resistance lies, it may become shortable again, but this all depends on the action of the stock and the market indexes.