A Bad Morning in Boca Raton

This morning was the first time in what seems like years (and perhaps is) that the Nasdaq Composite faded an initial heavy post-selloff rally hard. 

In a corrective or bearish tape over the decades of modern market history we very often see opening gaps higher faded. This is a function of underwater longs who were levered needing to unwind positions into any and all strength, coupled with scalping shorts who had previously covered into the prior session's closing bell, leaving a near-term void for an ephemeral pop. 

However, due to overall declining demand for stocks, the opening pop gets faded and sets up a fresh leg down.

At least that is what we often saw before the QE/ZIRP/pandemic/liquidity-driven bonanza we have seen where the market would just keep on squeezing to new highs after any and all selloffs. 

As you can see on the hourly Nasdaq Composite chart, below, in real-time, however, the opening pop (arrow) was indeed swiftly faded this morning with software and semis alongside it. True, we have Netflix earnings tonight which kicks off the leadership part of earnings season, meaning the "Mag7" names set to report over the next month or so. 

But I strongly suspect some of the newer traders to markets in recent years are a bit taken aback so far by this different price action. The rotation to laggards over the last week (e.g. IWM) was "supposed" to usher in a total broad market melt-up.

However, as we noted yesterday this market may very well all be one trade. And when the same folks who were short IWM and long QQQ/SMH get squeezed hard on the small caps it likely puts pressure on their long books to unwind there, too.