Wednesday, May 27, 2015

NASDAQ waits for the other shoe to drop

The first trading day after a long weekend is always problematic - it tells us nothing about the true near-term market trend. Whether it is a sharp rally or a sharp decline, it can frequently simply be traders reacting to each other rather than focusing on the same external catalysts. We need to wait a couple of days while the near-term trend gets reestablished.

The sharp decline of NASDAQ on Tuesday (felt more like a Monday to me!) was a disappointment, but some consolidation in the 5000 range was needed anyway, so this fits the bill. No big complaint on that front.

The big question is whether the decline was mere consolidation or whether enough of the hedge funds have decided to switch their trading bias to more of a net risk-off bias rather than a net risk-on bias. The decline on Tuesday could well have simply been due to volatility - a couple of days will sort that out.

There doesn't appear to be any dramatic shift in economic or business fundamentals to suggest that the market should go down dramatically.

NASDAQ futures are up modestly, suggesting a modest recovery bounce at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. If we do see a bounce at the open, the big question is whether the hedge funds pile on to kick off a decent rally, or whether they sell into any rally and turn this into an outright rout. The proverbial other shoe.

Fed fund futures did shift a little bit, with futures indicating somewhat less than a coin flip chance of liftoff in October (44%), but still indicating December as the most likely time frame for liftoff of interest rates. Personally, I still lean towards October, but a lot of this hinges on exactly how the data unfolds over the coming months.

NASDAQ could consolidate some more, or bounce, or maybe indeed the hedge funds are intent on trading the market back down in the wide trading range again. All are equal probability. The only certainty is volatility.

The only thing that concerns me is that we still haven't established solid technical support in the 5000 range - we spike up but then come tumbling back down. So lets see if the umpteenth time is the charm and maybe we get a solid bounce here that clearly establishes 5015 to 1530 as decent technical support that can serve as a solid foundation for a sustainable advance in the 5050 and 5100 range.

-- Jack Krupansky

Tuesday, May 26, 2015

NASDAQ poised for more needed consolidation, but...

With NASDAQ poised near its peak, and the economic and quarterly reports barely so-so, NASDAQ desperately needs more than a little consolidation at these levels before it can sustain much more of an advance at this time. It has very little in the way of technical support in the 5000 range or the 5050 range. That is not to say that NASDAQ can't or won't push to new highs very quickly, but it is to warn that without better technical support any spurt upwards could just as quickly reverse and turn into a mini correction or worse.

Q2 is not shaping up as firmly as people had expected or hoped. That doesn't mean the market is doomed to fall back, but it does mean that anything more than a modest advance over time would be very prone to dramatic corrective action. And any advance is that much harder and that much less sustainable without significant inflows into domestic stock mutual funds - which have been experiencing dramatic outflows over the past two months.

Today could be slower and choppier than usual as it may take a day or two for the big dogs to get back to their desks after the long holiday weekend, especially when the market is looking more than a bit uncertain and with no clear catalysts to the upside.

The good news is that as appealing as an overvalued market may be to short-sellers, they will be more inclined to stick with tight stops, which means that even the slightest rumors of a rally can kick off another short squeeze and push the market even higher.

In short we have a volatile market where the lack of strong upwards momentum is about equally matched by a distinct lack of conviction by the short-sellers. That doesn't mean that individual short-sellers don't have very intense conviction, but simply that net-net they are not the clearly dominant force in the market.

So, here we are near the upper edge of the wide trading range, with no clear catalyst for advance but also no clear catalyst for a solid reversal. Flip a coin whether or when the hedge funds decide to reverse their trading bias and force the market to trade back down in the wide trading range at least for a few days.

Lingering uncertainty about the infamous "sell in May and go away" calendar trading pattern confuses the market even more. To some it is clear that the pattern is not holding this year, while others believe passionately that the pattern is just getting started and the the summer months will be brutal. Again, flip a coin as to which side will marshal the stronger market activity over the next couple of months.

Even if Q2 does shape up to be another lousy or lackluster quarter, there will still be plenty of longer-term speculators looking out to Q3 and beyond for guidance on how to place their bets. A lot of the factors that dominated in Q1 and Q2 will tend to be muted in Q3 and Q4. Yes, the Fed will be a factor later in the year, but not so clearly a major factor since interest rates will remain quite low even a year from now.

Once again, the only certainty here is volatility.

NASDAQ futures are down modestly, indicating a little weakness at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day.

One strong possibility is that we see a little weakness at the open, but unless a strong sell-off quickly materializes, people will opt to buy the dip and instigate a modest rally as short-sellers are forced to cover their short positions. The problem with that scenario is that that rally itself would quickly run out of steam and lead to another reversal, rinse and repeat. The open question is the extent to which hedge funds will shift their net trading bias either more to the positive to bounce off the shorts, or more to the negative to eat into weak long positions. On top of that, hedge funds are really under pressure to perform, so they could be prone to shifting their trading bias more quickly to match a volatile market. As I said, the only certainty is volatility.

In short, we have equal probabilities for a modest pullback, a big sell-off, or a modest advance, with a slight chance of a big rally. About the only catalyst for a big rally is the obvious fact that no big sell-off has materialized despite the shakiness of the recent advance.

-- Jack Krupansky

Friday, May 22, 2015

NASDAQ to consolidate a little ahead of a long holiday weekend

After its extended recent advance to within spitting distance of a new all-time closing high, NASDAQ remains a bit tired and over-extended and due for a bit of a breather. The upcoming long holiday weekend will be a great incentive for people to take their eye off the ball. And the general lethargy of Fridays in general will sap a lot of the energy and enthusiasm that may have been behind the advance. Three scenarios are equally likely on such a low-volume trading day, volatility with trend-less erratic movement that may end up, down, or flat, a slight drifting higher, or a slight drifting lower. Sure, it is possible to also see big rallies and big sell-offs on low volume, but those gains or losses would tend to quickly be erased on Tuesday or Wednesday when all the big dogs get back to their desks.

NASDAQ futures are up modestly, indicating a modest rally at the open, possibly even taking us above the 5100 level, but as always we must caution that futures and the opening move are frequently not reliable indicators of the trend for the rest of the day.

We're less than two points from a new closing high and ten points from a first-time close above the 5100 level, but I would caution that neither is an absolute slam dunk, and even if we do see either or both, they could quickly be erased on Tuesday when the more serious players get back from the long holiday weekend. As the old saying goes, when the tigers are away, the monkeys rule the jungle.

Usually I say that the only certainty is volatility, but with the very low volume on a Friday ahead of a long holiday weekend, even volatility is not a certainty.

I'll be happy if we do set some new highs today, but I'll be even happier if we can finally establish some decent technical support here in the 5050 range before pushing above the 5100 level, so a modest pullback today, followed by a decent advance to new highs on Tuesday or Wednesday would give me a more positive feeling about the sustainability of this market. Please note that the stock market does not always give me what I want. I'm not even guaranteed that I will see any attractive buyable dips of quality stocks today, although that is usually an almost certainty.

It seemed like only yesterday we were moving past the middle of the month, and here we are now facing the end of the month with next Friday being the last trading day of the month and Monday a holiday. I won't suggest that we can make assumptions about how the market will trade next week, but the whole "sell in May and go away" calendar trading pattern thesis just doesn't seem to be holding up at all this year. I personally don't believe in calendar trading patterns, but since so many other people do, I have to be aware of the reality of people trying to front-run these patterns. This does not mean that we are free and clear for the month of June, especially with uncertain money flows, an uncertain economic outlook, and uncertainty almost everywhere we look. But, as they say, a bull market climbs a wall of worry.

Will Fed Chair Yellen say anything that moves the market in her speech this afternoon? Not likely since it's fairly clear that the economy is not quite strong enough to safely digest a rate hike in June or even September. Fed funds futures indicate only a 56% chance of liftoff of interest rates in December, only a 39% chance in October, and the fed funds target rate only 0.75% a year from now. In short, the Fed is effectively on the sidelines for the next few months as we wait for the economy to firm up.

-- Jack Krupansky

Thursday, May 21, 2015

NASDAQ feeling a little tired and shaky

Now what? Exactly. NASDAQ has run out of steam and failed to set a new high for this cycle of advance in its trading range. The path of least resistance is to roll over and dive back down towards the lower portion of the trading range. That may indeed happen, but it is neither a slam dunk nor is its precise trajectory. We could see a quick selloff or we could see a slow but equally painful gradual decline over the coming week. But it may also be that there is some underlying strength to this market and that we may only be experiencing the market taking a classic little breather before regathering its momentum to push to another new high.

It would also be good for the market to establish some more solid technical support here in the 5000 range before attempting to reach too far towards a new high in the 5100 range. A down day now and then followed by a semi-decent up day can work wonders for technical support.

Some bad news is that the latest weekly mutual fund money flow report from the Investment Company Institute yesterday showed outflows from domestic stock mutual funds of almost three times the pace of outflows from the previous week. Yikes! What we still do not know is the extent to which ETFs, newer investment methods such as social media portfolios, and hedge funds have taken over from the traditional mutual funds that the older generations knew and loved.

NASDAQ futures are down modestly, indicating a modest pullback at the open, but as always we need to caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. People may pile on and turn a modest pullback into an all-out rout, or they may buy the dip and push the market higher. Our fate is in the hands of the hedge funds and whether they decide to add risk or reduce their risk.

Meanwhile, I personally will be focusing on IPOs and be on the hunt for interesting dips of quality stocks to buy. And harvesting gains from stocks that do pop nicely. There is always something rallying even in a shaky or outright down market.

-- Jack Krupansky

Wednesday, May 20, 2015

NASDAQ still undecided about short-term trend

It is certainly frustrating, but NASDAQ is really having a tough time deciding on some sort of short-term trend and sticking with it. We are currently sitting near the upper edge of the wide trading range, with no sense of conviction as to whether we will break out to a new high or roll over and dive back down towards the lower portion of the range. Lacking any strong catalysts, the default behavior will be to simply meander in the range. Hedge funds of course hold all the keys - they may decide to add risk and push for that new high, or they may decide to take off some risk and bet of a short-term decline. Ultimately they will bet on the path of least resistance, but that will change on a moment by moment basis.

Being near the upper edge of the trading range and with momentum that has faltered, the path of least resistance would appear to be downwards, but it isn't always that simple. Sometimes too many minor players bet too heavily on the obvious while a few deep-pocket players hang loose until the end and then slam the market with contrarian trades which catch the too-cocky early betters off balance and the obvious suddenly fails and momentum gets restored. There is no guarantee that this will happen today, but it is a distinct possibility.

NASDAQ futures are up modestly but fluctuating, indicating a mixed open, possibly up a little or possibly down a little. As usual, we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. Whether people buy dips, pile on to rallies, sell into rallies, or panic and a minor dip turns into a rout remains to be seen.

My personal feeling is that NASDAQ will move a bit higher over the remainder of the month, but with enough volatility to scare off all but the hardiest of roller-coaster enthusiasts.

I'll be playing some IPO's, but mainly I am looking for buyable dips of quality companies.

-- Jack Krupansky

Tuesday, May 19, 2015

NASDAQ still at the same old crossroads

It sure was a welcome relief on Monday to see all the negative sentiment at the open turn completely around and give us a moderately up day for NASDAQ. But a gain of less than 1% is not exactly an indicator that we are out of the woods yet. NASDAQ remains a bit below its all-time closing high of 5092 on April 24th. A new high is certainly reachable, but whether it will stick is another matter. It's all up to the hedge funds and whether enough of them switch to a risk-on bias to get us above 5100 on a sustainable basis. But without fresh inflows to retail mutual funds such a move is unlikely to stick.

I think it is likely that many employees are indeed continuing to pump money into retirement accounts, for whatever reasons others have been taking money out of domestic stock mutual funds over the past six weeks. How that trend evolves and whether this may be the week that reverses the recent trend remains to be seen.

We may also be seeing a little bit of relief rallying, relief at the fact that the month of May is half over without any serious sign of the traditional "sell in May and go away" calendar trading pattern.

There is anxiety that Q2 is not going to be as strong as we once expected it to be, but a little weakness in Q2 also helps the overall market since it keeps the Fed rate hike in check. Fed funds futures are still indicating no hike until December and only a second hike next April. So, this Q2 anxiety may be starting to wane as people realize that it is already priced into the market and we are less than six weeks from the onset of Q3.

NASDAQ futures are up moderately this morning, indicating a moderate rally at the open, but as always we have to caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. Yesterday was a great example of that limitation. We will have to see whether people pile on to the opening rally for a determined push above 5100, or whether they take some money off the table and sell into the rally.

It really is hard to say whether more hedge funds will decide to let the advance run a little bit more, like to 5150 or even 5250 before once again reversing their trading bias to boost their profits by a rapid retracement downwards in the wide trading range from 4850 to 5100. Even a modest change in domestic stock mutual fund money flows could influence their decision.

So, we remain stuck in our trading range and are now once again poised at the crossroads, unsure whether we have the energy to break out to a new, sustainable high above the trading range, or whether to simply take the path of least resistance and continue to trade up and down in the range. The only certainty is volatility - which is a great source of cash even if not emotionally satisfying.

I'll personally probably be doing a little selling to meet my daily and weekly realized gain targets, but otherwise remain fully invested, but with reserves to take advantage of dips and any inevitable correction or mini correction.

-- Jack Krupansky

Monday, May 18, 2015

NASDAQ poised at another crossroads

NASDAQ remains stuck in a persistent pattern of maintaining a short-term trend for only a very brief number of days before morphing to yet a new pattern. We managing to rally up to the rough vicinity of a new high on Thursday, but here we are now on Monday morning with people in a sour mood expecting the worst. My usual analysis seems to still fit the bill, namely that NASDAQ remains mired in a wide trading range, with alternating swings up and then down. So, extending the mediocre market sentiment from Friday, this morning people seem poised to bet on a move downwards in the trading range.

That said, there is always the strong possibility that the futures trading is a head fake, designed to get traders mis-positioned, and to then revert to a renewed move upwards during the remainder of the day towards a new high in the trading range. Whether such a scenario comes to fruition today is unknown, but is is a distinct possibility.

It is also very possible that the recent advance will continue to unwind, taking us down more towards the middle of the trading range of 4850 to 5100.

Its really all up to the hedge funds, whether on net they decide to take more of a risk-off trading bias or more of a risk-on bias. Individual firms may have very strong feelings one way or the other, or not, but this is a sum of all curves phenomenon, where we need to add up all of the individual actions of all of the individual actors and see how that nets out. Of course we can't actually physically do that, but ultimately we have to approximate that as best we can. Ultimately, these guys are simply trying to maximize their profits, so it is mostly a matter of whether the path of least resistance is a move higher or a move lower.

The good news is that since we are still reasonable high in the middle of the 5000 range we have the potential to have a down day or two or three followed by a renewed upswing, which will have the effect of finally establishing some technical support here in the 5000 range which has been sorely needed for quite some time.

A sustainable advance deep into the 5100 range and beyond awaits palpable fresh money flowing into mutual funds, but the recent trend has been outflows instead. Maybe this will be the week that that changes, or not. There is usually no clear rhyme or reason for how people decide to add or take money from mutual funds - these are primarily ignorant retail investors who have a completely different mindset than professional investors, speculators and traders. The good news is that hedge funds are under a lot of pressure to deliver returns, and trading of volatility is one of the few reliable games left working for them these days, so volatile swings up and down within a wide but relative narrow trading range works for them.

NASDAQ futures are down moderately, indicating a moderate pullback at the open, but as always we must caution that futures and the opening move are not reliable indicators of the market trend for the rest of the day.

The more weakness there is at the open, the higher the chance that this will be a buyable dip with recovery through the rest of the day. But if the dip is too modest and the dip-buying is also too modest, the recovery will likely falter and lead to further selling as the day progresses. But if that cumulative selling is strong enough we could see another recovery bounce later in the day. But if enough hedge funds decide to switch to a more negative, risk-off bias, even modest initial selling could snowball and lead to another big sell-off taking us back below 5000. And each of these scenarios may have equal probability.

In any case, NASDAQ is sitting poised at a crossroads, again, unsure whether to break out for a new high, hover and build support above 5000, or revert to the rope-a-dope range trading of recent months.

-- Jack Krupansky

Friday, May 15, 2015

NASDAQ struggling to decide whether to break out

That certainly was a decent rally for NASDAQ on Thursday, meeting my stated target of a 60-point gain to put in a respectable showing. This indicates that NASDAQ is still in the game, but a single win does not tell us that we are out of the woods, the trading range, yet. NASDAQ is still short of a new high, with four closes above the close of Thursday. NASDAQ is also desperately short of having decent technical support above the magical psychological 5000 level. Sure, range trading by hedge funds virtually guarantees that we can rally from below 5000 to above 5000 almost on a weekly basis, the serious lack of fresh inflows of cash to domestic stock mutual funds are preventing a sustainable advance above where we are right now.

The latest weekly report from the Investment Company Institute on Wednesday showed that domestic stock mutual funds are stilling hemorrhaging cash in a serious manner, although the loss for the most recent week was less than a third of the prior week. Whether retail investors may simply be abandoning mutual funds in favor of ETF's, robo-advisers, and other more modern forms of investing in stocks is unknown at this stage. In any case,on any give day or week the hedge funds appear to remain in charge of short-term market moves, which this year amounts to up and down swings within a wide trading range, currently roughly 4850 to 5100.

NASDAQ futures are up moderately, indicating a moderate pop at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. A moderate rally after a decent showing yesterday doesn't feel out of character. Alternatively, selling into the rally and taking profits would also seem to be par for the market these days as well. It is up to the hedge funds to make the call.

It is a Friday again, so some fraction of short-term speculators will tend to close out positions in advance of the weekend when anything can happen. If they are net short that could mean more buying to cover short positions, but if they are net long that could mean some selling. But even if shorts are covered, that only adds to the risk of intensified short-selling next week.

Today is the midpoint of the month, so its almost past time for the infamous "sell in May and go away" calendar trading pattern to kick in. Sure, it could still make an appearance, but it is almost starting to look like a no-show this year. No matter how predictable trading patterns are, they are never guaranteed. Regardless, the dramatic market volatility is enough to scare away many investors anyway even if the net monthly trend does happen to be positive.

We could indeed have a little follow-on rallying, like maybe a 15 to 40-point gain for NASDAQ today, but such a moderate rally would probably be a negative sign that the recent advance is running out of steam. I wouldn't put any faith in a Friday market move in any case. The big question is whether the advance of this week may leave NASDAQ poised to be vulnerable to a bearish attack by hedge funds seeking to play the next downswing in the trading range.

One scenario is that we have a couple of nice but only moderate rallies today and Monday and maybe even Tuesday, maybe even closing above 5100 for the first time, but then the advance would effectively be over and the hedge funds would then quickly switch their trading bias to risk-off and trade NASDAQ back down in the trading range into the 4900 range again. That is not a slam dunk, but a reasonable possibility. After that? Rinse and repeat, with yet another rally to reclaim the 5000 level within another week or so.

To me, the main test is whether NASDAQ can establish support in the 5000 range or maybe even the 5100 range. I personally define support as a strong up day followed by a moderate down day and then an up day, preferably with more than one of these down days as long as the bulk of that sharp advance is preserved. The resulting valley gives technical traders a clear marker on their charts. It has no economic or business fundamental value whatsoever, but neither do all of these crazy swings in a trading range.

The main target I personally am looking for is for NASDAQ to close above 5150, to establish support in the 5150 range, and to then move on to the 5250 range. Until then, NASDAQ will be quite vulnerable and prone to range trading that takes us back to the 4900 range. But for this to happen, we need to see some consecutive weeks of inflows of fresh cash into domestic stock mutual funds, which we have not seen in the past six wees.

Meanwhile, I'll continue to trade big dips of quality stocks, with a target of 5% gains on the inevitable recovery bounces. My retirement accounts remain on autopilot, fully invested in quality growth stocks.

There are several interesting tech IPO's coming up in the next week or so. My usual IPO strategy is to buy a modest amount on the open, sell half on a 10% gain, and then play the dips. On rare occasion I may get an allocation of the IPO itself from Fidelity, in which case I'll hold it indefinitely.

-- Jack Krupansky

Thursday, May 14, 2015

NASDAQ takes a shot at trying to jump out of its trading range

The rally at the open on Wednesday was a bit of a disappointment - clearly people sold into the rally, it ran out of steam, and NASDAQ barely closed in the green, with a lot of momentum stocks taking a hit. Nominally that is a bad sign, but it appears that traders are intent at taking another shot at a rally today. But if the same things happen today and this second attempt falters, then it could get ugly. In any case, this is all typical of trading in a range. One of these days we will indeed lurch or lunge out of the range, either to the upside or to the down side, but for now, we just lurch and lunge in all directions. Flip a coin whether a move today kicks off a mini advance that takes us to a new all-time high above 5100 in the coming days.

NASDAQ futures are up moderately sharply, indicating a nice rally at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day.

Th nominal rationale for enthusiasm this morning is purported to be a weak dollar, but short-term FX trading moves are rarely very durable. But they are good excuses when traders are hunting around for excuses to cover their underlying trading strategies that have little to do with the excuses themselves.

The great unknown today is what hedge funds will do with their risk bias on the opening rally - will they add more risk and pile on to supercharge the rally with some dramatic short covering, or will they take more risk off and sell into the rally as they did yesterday. There are no demanding fundamentals to push them one way or the other - it is more a matter of the path of least resistance that will maximize their short-term profit. This may be their last big chance to exploit anxiety over the "sell in may and go away" calendar trading pattern - tomorrow is the end of the first half of the month.

To be clear, if we have a big up day, like up more than 1% or even up 60 points, that will be a good sign, but if we close up with only mediocre gains, like only half a percent or 25 points, that will be a sign of weakness that the bearish hedge funds will pounce on shortly.

-- Jack Krupansky

Wednesday, May 13, 2015

NASDAQ resists selling pressure

Trading for NASDAQ was quite impressive on Tuesday, with the market bouncing back nicely from an early-morning sell-off based loosely on a purported global bond sell-off. We may still not quite be ready to lunge upwards out of the wide trading range, but at least there is no sense of urgency to plunge downwards either.

The next few days will be critical as to whether the whole "sell in May and go away" calendar trading pattern will hold sway this year or not. By this time next week we should have an answer. So far, the tentative answer is no, sort of - but with enough volatility to choke a horse. This is not a market for the faint of heart. Maybe the advice I would give people is not to sell but just to go away and enjoy the spring and summer and let your portfolio grow on auto-pilot.

NASDAQ futures are up moderately sharply, indicating a nice rally at the open, but as always we must caution that futures and the opening move are not reliable indicators of the trading trend for the rest of the day.

We could poke above the magical psychological 5000 level again today, but the open question is how many times we will have to do that same move again before it sticks.

In the coming weeks we will begin to get a trickle of news and rumors on how Q2 is shaping up. Companies seem to be doing their darnedest to set the bar really low for Q2, which is bad for the very short term, but probably good news for July and August.

People are continuing to babble about rising interest rates, but the Fed is still projected to be on hold until December, or maybe October if the economy picks up a bit more than people are currently expecting. Even a full year from now, fed funds futures are pointing to a federal funds rate of only 0.75%.

-- Jack Krupansky

Tuesday, May 12, 2015

NASDAQ continues to writhe in its trading range

Did I mention that NASDAQ remains trapped in its trading range? A week ago, when the market was also plunging I suggested that NASDAQ might close above 5000 gain as early as Friday, and it did. But... I also posed the question of how many times NASDAQ would have to do so before it sticks - and here we are. Once again, even as the market is poised for another plunge, on unspecified factors that might relate to a purported global sell-off of the bond market, we could close above 5000 for the umpteenth time within a matter of a few days. But, just as we saw last week, who knows how many more of these rally/plunge cycles we will see play out before we safely and soundly close above the 5100 level.

There's bound to be an outright correction some time in the future - we should have one or two each year for good measure, but it is laughable the way people worry that every down day may be the start of a correction.

NASDAQ futures are down sharply, indicating a sharp pullback at the open, but as always we must caution that futures and the opening move are not reliable indicators of the market trend for the rest of the day. Sure, this could be another 70-point down day, or even 100 points, but the sell-off could also lose steam within an hour or two and turn into a rally of equal or greater magnitude. Or the market may simply bounce around for a more modest net loss or gain. The only certainty is volatility.

The main message from the markets on Monday was that the rally from Friday had run out of steam. We do seem to be in a market environment where both the advances and sell-offs are more abbreviated. Traders and hedge funds tend to have a predictable reaction - if the market loses momentum in one direction, then its time to reverse your trading bias and bet on a move in the opposite direction. Rinse and repeat. This is the essence of the trading range. The wildcard is net money flows - will fresh money come in to push the market above its range, or will people pull more money out of the market to drop it below the bottom of its previous range. The problem with hedge funds is that they can rapidly decide to shift money in or out of the market, but they can only do that for a relatively short period before even their money runs out of steam, and then they reverse to play the opposite direction. The current trading range for NASDAQ is roughly 4850 to 5100.

My response is to continue buying on big dips,cashing out on the inevitable rebounds. Granted, the timing of rebounds can be dicey, which is why patience and flexibility are required and are my key defenses in this crazy bouncy-castle market.

-- Jack Krupansky

Monday, May 11, 2015

NASDAQ is struggling but optimistic

NASDAQ has managed to claw its way back up to the magical psychological 5000 level, but only just barely. It faces headwinds, as they say, but there is some cautious optimism as well. As they also say, a bull market climbs a wall of worry.

This may be the week that gives us the answer as to whether the traditional "sell in May and go away" calendar trading pattern will hold sway this year. So far it hasn't, although people remain worried.

More worrisome may be the track record of significant outflows of cash from domestic stock mutual funds over the past month, but even that may be overrated. Besides the dominance of hedge funds and institutional investors, a new factor may be the rise of the robo-advisors, including services such as Motif Investing, Wealthfront, and Schwab's Intelligent Portfolios, all alternatives to traditional mutual funds for retail investors. I almost get the impression that the younger generation is more inclined to take a social approach to investing rather than their father's mutual funds. So, there are some risks, but there are some opportunities as well.

NASDAQ futures are up modestly, indicating a modest rally at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the trend for the rest of the day.

I never trust a market move on a Friday. People are closing out the week and may have a completely different outlook on Monday morning after having had time to contemplate the events of the past week and to more fully work out in their heads how they expect or hope or worry that the market will perform in the coming week. IOW, they start the week with a blank slate. But of course everybody has their own pet theory of what the world will look like going forward, so Mondays are an invitation to dramatic volatility.

NASDAQ is positioned modestly above the middle of its recent trading range of 4850 to 5100. It is so difficult to say whether  the hedge funds see more profit potential by letting the market rise a bit more before reversing and trading downwards again in the trading range, or just throwing in the towel and start the next downswing now. We'll soon see whether they sell into the opening rally or buy any dips during the day. To me it feels like NASDAQ has a bit more to run before the next major downswing in the range, but this is no slam dunk by any means.

NASDAQ still hasn't established any decent support above the 5000 level, so there is significant risk that even if we have a couple more up days above 5000, we may quickly slide back down into the 4900 range. One of these months we will finally establish a solid beachhead above the 5000 level. My preferred beachhead is when we see one or more down days above 5000 that stay reasonably above 5000, but then see a couple of solid up days to confirm that the support is really there.

-- Jack Krupansky

Friday, May 08, 2015

NASDAQ continues to zing around in its trading range

Who knows, maybe NASDAQ will extend its recover rally today, or not, but the main point is that we will remain in a wide trading range, without any sense of an intermediate trend. We are still closer to the bottom of the trading range than the top, so a rise over the next week or so is more likely than a decline, but there is no certainty of a daily basis other than volatility.

The nice bounce on Thursday was a relief, but there is no guarantee that it wasn't a classic dead-cat bounce with more selling next week. My own conviction is that we remain range-bound, but with a slow and gradual shifting of that range upwards over a time frame of several months.

People seemed incredibly relieved at the jobs report this morning. It was actually fairly mediocre, but it was a great relief that it wasn't a lot worse given the sluggish winter.

NASDAQ futures are up sharply, indicating a sharp rally at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the trend for the rest of the day. The big question is whether people sell into the opening rally, or whether they pile on and kick off a bout of forced-buying short covering. A short squeeze can deliver an impressive-looking gain, but the problem is that the shorts will be back with a vengeance soon enough.

It is a Friday again, so some fraction of short-term speculators will tend to close out positions ahead of the weekend when anything could happen. If net long, they will sell, but if net short they will buy to close out short positions. It is hard to know whether people will want to be long or short the market next week, so that only adds to the volatility.

A nice gain for the day feels more likely than not to me, but not a guarantee, and the bigger question is whether we really have passed the turning point for this particular downswing in the trading range, or whether the bears are merely consolidating before taking a more determined swipe at the market next week. I don't think the latter is the most likely scenario, but it is a real possibility.

Personally, I remain overweight in growth stocks, but will continue to focus my short-term trading on buying big dips for 5% gains over a one to three week time frame, although that can stretch to a month or more or even a few months at times.

-- Jack Krupansky

Thursday, May 07, 2015

NASDAQ lurches within its trading range

If you don't love volatility, then this stock market is not for you. The latest weekly data from the Investment Company Institute showed a doubling of outflows from domestic stock mutual funds in the past week compared to the previous week. That is not good news at all, but I would note that mutual funds are not as big a driver of the stock market as they used to be, with ETFs, hedge funds, and institutional investors such as pension and endowment funds exerting more influence. The net effect is that upwards momentum has slowed and is more muted, if not virtually invisible in the dramatic daily volatility. Also, hedge funds are extremely competitive and facing very meager returns, so trading volatility is one of the few games left available to them, and trading volatility only enhances that volatility.

NASDAQ futures are fluctuating between slightly positive and slightly positive right now, indicating a mixed open. Just an hour ago they were down moderately sharply for no apparent fundamental reason. I suspect some hedge funds were trying to engineer a bigger sell-off, or maybe just trying to spook fellow traders into dumping their positions. In any case, that effort seems to have failed, for now. As always, we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day.

NASDAQ remains trapped in a trading range. Currently we are in the lower portion of that range. Traders will attempt to test the lower edge of the range, which I figure is around 4850. It is always very possible that we could break below the range, but probably more likely that somewhere in here the hedge funds will reverse their risk bias and go for the easier money by trading back upwards in the range. Up and down, back and forth, is a lot easier money than a pure one-direction bet.

Are stocks overvalued as Fed Chair Yellen suggested? Sure, they usually are, except when the market is extremely depressed. It's only a question of how overvalued. Besides, it's all a matter of supply and demand. Given all the recent IPOs, it would be fair to say that there is significantly greater supply available than a year ago. And the ICI data suggests that there is less demand. If not for the hedge funds furiously pumping up volatility with range trading, stocks probably would be somewhat lower than a year ago, or flat at the best case, sad to say.

What's next? Simple: It's the economy, stupid! Exactly. The direction and health of the U.S. economy will be the primary driver of the U.S. stock market over the long term. Sure, hedge funds can push the market this way and that for a few months max, but over a year to 15 months the trend will be driven by a combination of the current economic data and the outlook for the next six to nine months.

-- Jack Krupansky