Tuesday, January 27, 2015

NASDAQ headed for a day of more serious consolidation

We were lucky to actually see modest gains for NASDAQ for the preceding two trading sessions despite the interest in consolidation after the recent advance. Today we likely will not be so lucky. Nominally we will see weakness due to alleged disappointment with quarterly reports, but a lot of that may simply be traders reaching for any available news to justify a trading move. It is perfectly reasonable to see a serious attempt to consolidate after such a strong advance. Sure, it could turn out to be a turning point and lead to a renewed downtrend, but  that looks less likely than a day or two or three of consolidation before the advance continues.

The weather will also be a factor in the New York area, disrupting travel for a fair number of market participants, and leaving many in a sour mood for the day.

NASDAQ futures are down sharply, indicating a sharp decline at the open, but whether people really do follow through with a full-blown sell-off, or whether people buy the dip remains to be seen.

I'll be a buyer of Microsoft (MSFT) on any serious declines.

-- Jack Krupansky

Monday, January 26, 2015

NASDAQ will continue to consolidate before continuing advance

NASDAQ actually hung in there fairly well on Friday despite the mere 8-point gain. We had a fair amount of consolidation without giving up too much. We are likely to see more of that today. People are not quite ready to truly believe that we our out of the woods yet and on a path to a new 1-year high within the next two weeks. We're barely 1.25% away from that goal right now.

It is very possible that we could see some evaporation of the recent gains, but maybe that's lot quite as likely as a continued advance.

It is also very possible that on one of the inevitable dips that we'll see during consolidation, just when people seem ready to throw in the towel to protect recent gains, that out of the blue a bunch of the hedge funds will decide to catch people leaning the wrong way and go whole-hog risk-on to kick off the next leg upwards to that new 1-year high above the December peak. That's not a slam dunk by any means, but well within the realm of possibility for this year's stock market, with wide swings in a trading range, coupled with occasional new 1-year highs and new short-term lows.

NASDAQ futures are actually up moderately, after having been down moderately sharply overnight in reaction to the stunning victory of the far-left anti-austerity party in the Greek election, indicating a moderate pop at the open, but it is a coin flip whether people are really ready to pile on for further gains so quickly, or whether they are more in the mood for more consolidation and will sell into rallies.

Hedge funds are trying to take a run at pounding Lending Club (LC) into the ground, as their almost always do with new, hot stocks. They could well succeed at driving the stock down to new post-IPO lows, but I will be a buying of any further dips. I'm a long-term holder, but I'll also take some extra positions for trading short-term swings of 5% or more.

I sold half of my Box (BOX) position for a 10% gain, but I'll be a buyer on any big dips below my entry price of $20.20.

GoPro (GPRO) has a lot of volatile swings worth trading. I have a long-term position, but these wild swings are too tempting.

Oil (OIL) remains in its rough trading range as the bullish and bearish hedge funds continue to duke it out. Maybe we will see $40 oil before a bounce to $50, but we are no longer on a trend for that to be a slam dunk. I'll continue to play 5% swings.

Oh, and earnings season remains underway. Reactions to both positive and negative reports vary greatly, making it a great time to book gains and to pick up deals on dips.

-- Jack Krupansky

Saturday, January 24, 2015

Is Greece about to implode?

Is Greece about to implode with the expected election on Sunday of a far-left anti-austerity party that has nominally promised to cancel out the commitment to the EU deal to bail Greece out of its financial debt crisis?

In a word: No. As in yes, I am quite optimistic that Greece will not implode as a result of Sunday's election.

Mr. Tsipras and his Syriza party have indeed nominally made such as promise, but he has also made repeated public statements indicating that he has no intention of committing economic suicide.

My expectation is that he will indeed seek to renegotiate the EU debt bailout deal to make its terms at least somewhat less onerous, but I strongly suspect that the overall debt deal will remain largely intact even if the terms are indeed a bit less austere than the Germans would prefer.

I predict that Greece will remain in the EU and the euro.

I predict that Mr.  Syriza will be at least somewhat more generous with government services and aid for the unemployed, not so much as to make the EU bailout deal unworkable, but also not quite as much as the Greek citizenry might prefer. I think that will work out. I think most Greeks know that they need to suffer some amount of pain to get out of their predicament, so long as they can feel that the government is being more responsive to their needs than the demands of current corrupt officials.

As far as whether Syriza gets a sufficient majority or is able to form a successful coalition and what that coalition might be, all bets are off, but I think that will all work out as well.

Sure, there will be a lot of anxiety until this all plays out, but I predict that Mr. Tsipras and Syriza will be just the kind of breath of fresh air that Greeks - and Europeans in general - need to come together and start to really come to terms with cleaning up their own mess.

I am optimistic for Mr. Tsipras and Syriza and wish them well.

-- Jack Krupansky

Friday, January 23, 2015

NASDAQ poised for a breather and a little consolidation

Okay, we've had a nice with NASDAQ run since the bottom last Friday, but at some point we need to see some consolidation before a further advance to assure people that we have a solid foundation for another leg up. Whether consolidation happens today or Monday or Tuesday is unknown, but somewhere in here it can be expected. In short, we are overdue for a little breather.

We can give credit to European Central Bank President Mario Draghi for a fair fraction of the advance yesterday. His quantitative easing monetary policy announcement probably caused some short covering. The down side is that these shorts could return to the market soon enough.

NASDAQ futures are up modestly, indicating a modest pop at the open, but it is a coin flip whether people build on that pop for a strong new leg of the advance, or whether they sell into any rally remains a coin flip. It's also a Friday ahead of a weekend, when anything can happen (including the election in Greece which could soothe or trouble Europe some more), so some fraction of speculators are likely to close out positions in advance of the weekend. Whether they are net long and will sell or are net short and with buy is unknown.

I don't think I'll be getting an allocation of the Box (BOX) IPO, so I plan on buying shares at the open. Just a modest position, and then add to it on dips.

Oil (OIL) continues its range trading as it continues to seek its bottom, but without any enthusiasm this week for either a major bullish or a major bearish move. The death of the Saudi king will juice volatility, but shouldn't be a game-changer.

-- Jack Krupansky

Thursday, January 22, 2015

NASDAQ remains volatile as it seeks to find its new trend

Once again we had a very mixed bag for NASDAQ on Wednesday, with a moderate dip at the open, then a sharp recovery bounce, and then a partial sell-off of those gains. The net was moderately positive, but with a bit too much tentativeness and lack of commitment. The good news is that we have two days of building on Friday's rally. We are still at risk of a sell-off of these gains, but so far the mixed bags have netted to a positive trend. Again, I still think we have a solid chance that Thursday and Friday really were the bottom of the swing down off the  December peak, although I do also have to admit that this is no slam dunk and risks abound.

We'll see some extra volatility today due to reaction to the announcement of the quantitative easing monetary policy (QE) by the European Central Back (ECB). This announcement was a slam dunk and much anticipated, so any initial buying enthusiasm could well be sold off. OTOH, there will be a lot of relief that this uncertainty has been removed.

NASDAQ futures are up moderately sharply, indicating a healthy pop at the open, but once again we have the uncertainty of whether people really will pile on to the opening pop for an extended rally, or whether we will see more selling into any rallies. For example, the net rally of the past two or three days may have been a rally in anticipation of the ECB QE, so now we could well see a classic example of "buy the rumor, but sell the news."

My bottom line is that I remain fully invested and optimistic, but with reserves to take advantage of any dips.

Pricing for the IPO of Box (BOX) occurs tonight. I have registered an indication of interest (IOI) with Fidelity, but I have yet to get an allocation for any IPO from them. In any case, I expect that by 11:00 AM tomorrow I will be a shareholder of Box. I'll open a modest position at the open and then buy more on dips and maybe play swings as well.

I'm a buyer of Lending Club (LC) on any dips. This is a long-term bet for me, but I may play 5% swings as well.

Oil (OIL) has been hanging in there surprisingly well after the recent bear market. We're still in a trading range as the bullish and bearish speculative camps duke it out, but you have to be at least a bit optimistic even as the risks for a further bearish move are very real. I'll continue to play 5% swings.

-- Jack Krupansky

Wednesday, January 21, 2015

NASDAQ continues test of Friday's bounce

NASDAQ had a mixed day yesterday, with futures up strongly and a nice pop at the open, then an immediate reversal and ski run down to moderately red for awhile, but then another reversal and eventually a moderate rally into the close. Although NASDAQ closed the day with a moderate gain, it actually closed slightly lower than the opening level, which is a decidedly mixed bag. So, today the test resumes, this time on the flip side with futures pointing to a moderate decline on the open. Once again, futures are an unreliable indicator of how stocks will trade through the day, although technically they did a great job of pointing to the closing level yesterday, but that was more of a fluke.

I expect today to be another day of consolidation, with some people continuing to book profits from Friday, while others are buying stocks that are still very depressed from their December level. How that all balances out for the overall market indexes is unclear, but once people have completed the bulk of their rebalancing we will then start to see the trend emerge. Again, it's not a slam dunk that Friday was the bottom, so we need to see a confirmation of either resuming the advance within the next few days, or we risk seeing a renewed sell-off to set a lower low within a week.

One likely scenario for today is a dip at the open followed by a rally with people buying the dip. Whether that rally sticks for the day is another matter. A close that is only moderately higher or moderately lower is the more likely scenario, but certainly not a slam dunk. We remain in an all bets are off market.

Basically, people are still trying to decide whether Thursday and Friday were really the bottom for the swing off the December peak. It's all in the hands of the hedge funds and whether they will resume shifting from a risk-off to risk-on bias.

For my personal portfolio, Tuesday was a very mixed day, roughly flat with half my stocks up and half down.

I need to decide whether to sell some of my Netflix (NFLX) that I bought recently to add to my longer-term position. Capturing a 20% gain is certainly tempting. I'm in for the long term, but the stock does have a lot of volatility worth playing.

Oil (OIL) continues to bounce around seeking its bottom. The good news is that it's been in a rough trading range for over a week now, volatile, but with no strong sense of the steep downward trend it had until then.

-- Jack Krupansky

Tuesday, January 20, 2015

NASDAQ poised to test if the recovery has legs

A lot of the sharp NASDAQ recovery bounce on Friday could well have been a classic dead-cat bounce and the forced buying of a classic short-squeeze short-covering rally, so we really need to see several days of a continuation of this advance before passing final judgment as to whether Friday constituted the low of this swing downwards in the trading range. It would be no surprise either way to see the advance score a second day of rallying, or for people to sell into this advance since we just saw two weeks ago what can happen to a sharp two-day advance. I remain optimistic that Thursday and Friday were the low for this swing or mini correction, but I do have to acknowledge that it all depends on whether enough of the hedge funds and other speculators flip the switch from a risk-off to risk-on bias.

NASDAQ futures are up sharply, indicating a sharp pop at the open, but the big question is whether people pile on and kick off an even sharper follow-on rally, or whether people remain somewhat cynical and sell into any rallies.

I'm fully invested but with some reserves to buy on any further dips of either the market in general or individual stocks.

Quarterly reporting or earnings season is underway, which will stress individual stocks in both directions, with possible knock-on effects for the overall market. Netflix (NFLX) will be the poster child today and tomorrow with their report coming after the bell today. I am long NFLX with an extra speculative position. The stock fell $100 last time they reported, but I believe that was a fluke. We'll see how they play out tomorrow. This market is currently rather unforgiving of anybody who tries to depend on the specifics of past history and historic trading patterns.

Oil (OIL) is still searching for its bottom, but is showing at least some signs of a willingness to believe that the bottom may be near. We've seen some sharp recover bounces, none of which has really gained a lot of traction, yet, but that is a sign of both the fact that there has been no final capitulation to mark a true, traditional bottom, as well as the fact that so much of the sell-off has been driven by speculation rather than actual supply and actual demand.

-- Jack Krupansky

Saturday, January 17, 2015

Has NASDAQ bottomed?

It is indeed too early to tell, but Thursday and Friday together seem to point in the direction of a near-term bottom for NASDAQ. The index fell 15 points short of hitting the December trough. That's a mixed bag. It's a good sign that try as they might traders and speculators simply weren't able to break down below that previous low. But... this was trading on a Friday ahead of a three-day weekend, so you can't depend too much on market behavior on such a day.

The NASDAQ-100 (QQQ) and Triple Q (TQQQ) did set new lows slightly below the December trough level, so on that score we're on solid ground to continue an upswing back towards the upper edge of the NASDAQ trading range.

Thursday had a little bit of a feel of throw in the towel capitulation at the end of the day. But a little may not be enough.

Friday was poised to to have a decent degree of capitulation with futures down sharply after the close on Thursday, but futures gradually recovered so that NASDAQ opened down only 4 points. I would have been happier and more content to call this bottom if NASDAQ had opened 20 points lower and fell another 50 points before a sharper rebound. Of course, we have to take the market as it is, not as what we want it to be. So once again we had a mixed bag on Friday, not as positive a sign as I would have hoped, but not bad news either.

A good portion of the bounce on Friday may simply have been the forced buying of a short-squeeze short-covering rally. IOW, the buyers were simply closing out short positions to protect profits or limits losses rather than outright betting on the future trend. But just because we had a short squeeze does not tell us whether it was the result of a one-day event or a true change in bias of the hedge funds. I'm betting on the latter, but not with tons of confidence.

Given that Thursday and Friday had that halfhearted feel to me, I'd say that there is a coin flip chance that we could see another move down for NASDAQ before it sets its final low for this swing off of the December peak. But that also means there is a coin flip chance that enough of the hedge funds will decide to protect their gains from shorting the December peak and flip the switch to go from risk-off to a risk-on bias to play the swing upwards in NASDAQ's trading range.

The recent slump is not a full-blown correction - we're only 3.75% off the December peak, what I would call a mini correction, so all the normal rules about capitulation are not in full force. IOW, sure, various trading rules and trading patterns apply, but just not so rigorously. Yes, the rules apply, but don't depend on them to be enforced by a squirrelly market ruled by a wide range of hedge funds all marching to the beat of a different drummer.

Monday is a trading holiday, leaving us with a shortened week which only further undermines all traditional trading rules and trading patterns.

Flip a coin whether NASDAQ futures will be up or down Monday evening, flip another coin whether futures flip-flop early Tuesday morning, flip another coin whether futures are up or down shortly before the open and at the open, flip another coin for whether futures head down or up after that opening move, and flip another coin for whether NASDAQ closes up or down for the day. Literally, these are each independent events. In truth, I wouldn't venture a bet which direction NASDAQ will head on Tuesday, in particular because it will be prone to give up some of Friday's gains, while also having the prospect of attracting money emboldened by the sharp bounce on Friday.

If NASDAQ does open weak on Tuesday, there is a fair chance that the hedge funds and other bearish speculators will sense blood in the water and kick off a renewed round of selling that could completely wipe out Friday's gains, and then some. We've seen this happen before.

Personally, I would expect there to be some intraday weakness on Tuesday as the bears test the durability of this nascent advance. If futures are down before the open it will also likely be part of a test rather than an outright bet on the trend for the whole day. There is frequently a disconnect between futures in the pre-market and the direction of trading for the rest of the day.

I wouldn't be surprised if we have a modest to moderate loss on Tuesday and I would not consider that indicative of the true trend given the sharp pop on Friday. But if we have a couple of days of weakness or mediocre advances (like 25 points or less), the bears will sense weakness and take another run, as we have seen many times in the past.

It will be quite important for NASDAQ to preserve the psychologically important 4600 level and the 4592 level of the the earlier January trough. If both of those go then NASDAQ will likely head south for another test of the bottom we set on Friday, and the December trough after that. That's not my expectation, but that's  what would be in store if NASDAQ sheds 30 points or more on Tuesday or Wednesday.

In any case, we are completely at the mercy of the bias of the hedge fund traders, whether they choose to flip the switch and go more risk-on or go more risk-off.

Even if hedge funds do continue to flip the switch to the risk-on position there is no guarantee that NASDAQ will travel the full distance to the upper edge of the trading range, let alone kick off a new up-leg to a new 1-year high above the December peak. There is indeed a very good chance that will happen, just that it's not guaranteed. Some renegade hedge funds might decide to jump ship early this time and send NASDAQ back down short of the 4800 level.

Welcome to an anything-goes market.

In any case, I do think there is a solid chance that Thursday and Friday was the low and turning point for this down-swing and that we are headed for a January high with a new 1-year high to follow.

-- Jack Krupansky

Has Oil finally bottomed?

Okay, I admit, that I phrased that title a little provocatively, in the sense that even I have to admit that oil could fall a bit more before finally rebounding. But, seriously, we may have seen a near-term bottom, although maybe we could have a significant dead-cat recovery that leads to the final sell-off to the low $40's before oil really starts to stabilize and then rebound to something that more closely relates to actual supply and actual demand rather than the vast levels of speculation that we still see even after all these years since oil first rose out of the $20's.

Indeed, I can't be certain that the bottom is in, but at least I can be certain that we will see tremendous volatility as the competing bear and bull camps struggle mightily to assert their dominance. Just last week alone we saw several 5% moves in both directions in a very short period of time. To me, that's more a sign of bottoming than a one-way trend. Nonetheless, with so much speculation underway, all bets are off as to near-term trend.

Personally, I will continue to buy Oil (OIL) on any 5% dips. But I may also continue to take profits on 5% bounces as well. I may consider playing 3% swings as well, depending on how the market plays out.

As far as the impact on the U.S. economy, the lower price of oil will have a mixed impact. Consumers and chemical and transportation companies will enjoy the lower price of oil, but unfortunately chemical and transportation companies hedge the price of oil by buying long-term oil futures, which means they have already paid a higher price for oil they will use in the months ahead or a year or more, so the positive impact for them will be somewhat muted.

The lower price of oil will certainly negatively impact the oil producers and the wide range of companies that service them, and although this could put a fair number of them out of business and cause them to dramatically cut their investment spending, as well as put highly-paid workers out of work, it will also serve to rationalize the oil sector, so that the survivors will be much better positioned and have the future potential for even greater profitability. Of course, picking winners and losers is a fool's errand. Investment in the oil sector will likely decline, but not likely in a nice, straight, predictable line.

Overall, over time, I see the economic impact of lower price of oil to be mixed and maybe even a net wash, even though it may be an uneven and bumpy path to that net wash, with consumer spending dominating in some periods even as lower oil sector investment dominates in other periods.

The good news is that anxiety over the impact of the lower price of oil will give us stock investors lower entry prices for a wide range of stocks.

As far as the price of oil itself, I wouldn't be surprised to see $40 or even $38 oil, but I wouldn't bet the farm on that prospect. We might indeed see $42 oil, but maybe not before we see $52 oil first. Enjoy the roller-coaster ride.

-- Jack Krupansky

Friday, January 16, 2015

Update to Fed rate outlook for 2015 - 58% chance of Liftoff in October, %56 chance of second hike in January

Yesterday, my revised outlook for Fed rate hikes in 2015 put liftoff in October with a 50% chance, and no further hikes until at least March of 2016. Today, that gets updated to a higher 58% chance of liftoff in October (a hike from the current 0.0% to 0.25% range to 0.50%), and a 56% chance of a second hike to 0.75% in January.

My forecast is based on the fed funds futures probabilities provided by the CMW Group FedWatch web page:

These numbers are based on fed funds futures contract prices, so they are what actual market participants are betting, not the mere whim of some economist or pundit - or even the Federal Reserve itself.

Once again, I didn't expect the outlook to change as quickly as it has these past two days, but... it has. I always defer to reality.

Incidentally, the odds for liftoff in September are now only 39%, and 12% in June, compared to 32% and 8% yesterday.

-- Jack Krupansky

NASDAQ poised for a moment of truth

We may have seen a bit of capitulation and throw in the towel sentiment in NASDAQ yesterday as it traded down with little recovery in the final half hour of trading. Today could well be a classic moment of truth where either the tide turns and NASDAQ turns and trades back up in its wide trading range, or the bulls capitulate and the sell-off deepens and heads towards a full-blown correction. Futures are down sharply, but a little higher than last night, suggesting that at least some fraction of market participants are willing to consider that the opening dip could be the low for the day or that we will see some sort of recovery bounce during the day. Whether that actually happens is indeed a coin flip.

I do expect that we will see a big dip at the open to technically break below the level of the December trough, but whether that kicks off a further sell-off or simply triggers a massive wave of dip-buying and a classic short-squeeze short-covering rally is a coin flip. I do expect that somewhere in here, at least within the next few days that we will see the hedge funds flip the switch and reverse their trading bias from "risk off" to "risk on".

To be clear, I am not saying that today will absolutely be the day that NASDAQ turns around, but simply there is a very significant probability of such an event.

The economy may indeed be taking a little breather in here, but that's actually typical, with GDP showing a lot of quarter to quarter volatility. But so far there are no solid indications that the U.S. economy is doing anything other than continuing to incrementally recover, albeit at too modest and uneven a pace to satisfy your average ADHD-afflicted Wall Street trader or speculator.

I did buy a little Intel (INTC) after the close after their post-earnings dip. It was my first after-hours trade, ever. I was trading using Fidelity. I also bought a little Bank of America (BAC) that seems oversold.

Oil (OIL) remains unsettled and still seeking its bottom, but is showing some positive signs, although they could indeed be more of the dead-cat variety. I will buy again on the next 5% dip, if that does happen.

I may do a little dip buying at the open, or even in the pre-market just before the open, and certainly more later in the day if a new low is hit.

I have revised my forecast for the outlook for the Fed target interest rate, from a liftoff in September to October and a final rate in December of 0.50% rather than 0.75%. IOW, the Fed will not be an issue for people who had been worrying about rising rates this year.

-- Jack Krupansky

Thursday, January 15, 2015

Revised 2015 Fed Interest Rate Outlook - Liftoff in October, 0.50% at Year-end

Just last Sunday I offered a forecast for the Fed's fed funds target rate in 2015 based on the price of fed funds futures contracts tracked by the CME Group FedWatch web page. Some anxiety about the economy has already spread in the markets since then. My previous forecast was for liftoff, the first hike, to 0.50%, in September, with a further hike to 0.75% by the end of the year. Now, today, based on updated data from CME Group, the probability of liftoff in September is only 32% and just a hair over 50% in October. The chance of a hike in June is now only 8%. The odds of the rate being 0.75% (or higher!) in January 2016 are only about 44%, so the rate is likely to be still at 0.50% in both December and January.

My new, revised forecast is that liftoff will occur in October, and that the fed funds target rate will remain at 0.50% through the end of the year. The CME Group web page doesn't have probability data beyond January. To be clear, there will be only a single hike this year, either in October or December, and a second hike to 0.75% no sooner than February of next year.

In truth it is actually only a 50/50 coin flip whether liftoff occurs in October or December, but I'll go out on a limb and stick with October for now.

And this revised forecast should itself be taken with a grain of salt, coming as it has a mere four days after my previous forecast. I will continue to revise my own forecast as the CME Group FedWatch probabilities change either the month of liftoff or the pace of hikes. That said, I expect that this forecast will hold a bit longer this time.

To be clear, the Fed has not yet made any definitive statements about the pace of hikes after liftoff, so at a minimum we should not presume that rates would rise at a methodical 0.25% pace at every FOMC meeting. I would expect the Fed to start offering preliminary guidance about the presumed pace of hikes at their August Jackson Hole conference, or maybe at their July or September regular FOMC meetings.

The real bottom line here is that no matter what, Fed interest rates will remain very low for the entire year, so any silly talk of rising interest rates hammering stocks this year is pure crap.

-- Jack Krupansky

NASDAQ to take another stab at testing support

NASDAQ did fairly well on Wednesday, testing support at the psychological 4600 level and even managing to close 29 points above its opening level, even if still down moderately for the day. IOW, it could have been a lot worse but it wasn't. Today looks likely to be a more serious test of support at the lower edge of the trading range. Even if NASDAQ does manage to close below the January 6th trough, it has deeper support at the mid-December trough at the 4550 level. Also, it is now not uncommon for NASDAQ to break below support by more than a little and still manage to bounce back fairly sharply. IOW, hedge funds are not afraid to challenge and violate traditionally sacrosanct trading rules.

NASDAQ futures are down sharply, nominally due to Swiss forex issues, indicating a significant drop at the open, but once again it is a coin flip whether people will actually pile on for a further sell-off or whether they will buy the dip. I'll probably buy a little at the open and then later in the day if the sell-off does extend.

We could see a decent recovery bounce sometime today after the opening dip, or the hedge funds may decide to push lower to give themselves a lower entry price if indeed they do intend to get ready to flip over from "risk off" to a "risk on" bias to play another swing upwards in the wider trading range.

There is no guarantee that the hedge funds will continue playing the swings of the trading range as opposed to the sell-off being simply a precursor to a true 10% correction or even a full-blown bear market, but siply a reasonably high probability that the hedge funds are playing their same games.

Earnings season has started, but not yet with a lot of fanfare or enthusiasm. Playing the technical trading range swings seems more interesting to the hedge funds than economic or business fundamentals.

Oil (OIL) remains volatile. We had a nice recovery bounce, but that could likely be simple a dead-cat bounce as the two trading camps duke it out as oil seeks a bottom here in the $40 range.

-- Jack Krupansky

Wednesday, January 14, 2015

NASDAQ poised to test support

The early rally for NASDAQ completely evaporated yesterday as too many people (including me!) sold into the early rally, indicating that there is still a strong "risk off" bias. My suspicion is that speculators are still intent on testing the lower edge of the trading range, down at the 4600 level and down to the early-December trough of 4547. We are already down to within less than 2% of that vicinity, so it's not out of the question. Whether or when the real test occurs is unknown, maybe today or tomorrow, or maybe next week. It's also possible to test it more than once, possibly with one or more dead-cat recovery bounces mixed in there as well. All of this is technical trading based on charts and trading volume, with nothing to do with actual economic or business fundamentals, although traders and speculators love to use any actual news as a cover for their otherwise purely technical moves.

NASDAQ futures are moderately negative, indicating a moderate dip at the open, but whether people pile on for a significant sell-off or buy the dip is a coin flip.

Early yesterday I sold some trading positions that I had bought on recent dips and then opened some new trading positions on the renewed dip in the afternoon. I expect to open additional dip positions today as well.

Oil (OIL) is hanging in there, still seeking a bottom. Plenty of people desperately want to try to run it down to $40, but isn't been a struggle for them so far. Again, most of the current trading is distinctly speculative rather than based purely on economic fundamentals.

-- Jack Krupansky

Tuesday, January 13, 2015

NASDAQ to try again for a bounce, maybe this one will stick

NASDAQ started yesterday positioned modestly above the midpoint of its trading range and with a positive bias in futures, and a nice pop at the open, but immediately headed south. I guess that clarifies the net bias of the hedge funds, at least for that one day. NASDAQ starts today positioned modestly below the midpoint of its trading range and also with a positive bias in futures. Once again, we should see a nice pop at the open, but whether it sticks and people pile on for a recovery rally or whether people sell into this rally the same as they did yesterday and Friday is a coin flip. I suspect that this time the recovery bounce will stick and kick off a moderate short-squeeze short-covering rally. The problem is that such a recovery rally could end up the same as we saw last week, with the angry short-sellers simply waiting a day or two and then pouncing again with the renewed vigor we saw in the past two trading sessions.

The hedge funds may yet seek to test the lower edge of the trading range - that would make sense, but they may also permit, tolerate, and even encourage a recovery bounce here with the expectation that it will be a classic dead-cat bounce that simply provides them with a higher and better entry price for a next wave of short-selling to accelerate the push towards that lower edge of the trading range. Or, maybe enough of them may decide that they have a decent enough bullish re-entry price and flip their bias from "risk off" to "risk on" to give a net boost to fuel an advance back towards the upper edge of the trading range and even to a new 1-year high.

I'll continue to be on the alert for buyable dips, although I'm also looking to cash out for nice gains on some of my recent dip buys. Overall I remain fully invested and positioned for a continuation of the ongoing bull market, regardless of these annoying potholes that we encounter along the way - six of them last year.

Oil (OIL) is still seeking a bottom, with renewed vigor as Goldman and some other analysis suggested that $40 may be closer to the bottom. I personally don't know where the exact bottom is, but I do know that there is value at these prices. Maybe not in the very short term, but eventually this speculative bearish frenzy will run its course since it masks true supply and true demand.

-- Jack Krupansky

Monday, January 12, 2015

NASDAQ may bounce but still struggling to find a direction

NASDAQ whipsawed dramatically last week as the big dogs and heavy hitters got back to their desks from the extended holiday beak and started to assert themselves and show the traders who's in charge. NASDAQ is now only a little above the midpoint of its recent trading range, so it could trade either way. It has plenty of room to trade towards the upper edge of the range and possibly even a new 1-year peak, or back down to test the firmness of support at the September peak.

NASDAQ futures are up moderately, indicating a decent pop at the open, but whether people pile on for a nice advance or once again start selling into all rallies is a coin flip. It could take an hour or two for the heavy hitters to let traders play around before they assert themselves again. The problem is that we don't have any transparency on how the hedge funds may be thinking about shifting their bias between "risk on" and "risk off", which they do on a moment's notice.

-- Jack Krupansky

Sunday, January 11, 2015

Stock market outlook for 2015

To make a long story short, the stock market in general and NASDAQ in particular will face a lot of volatility in 2015. Maybe not as extreme is this first week of trading has been, but the same general pattern. The economic outlook for 2015 is fairly bright, but as uneven as the recovery has been over the past few years. Unfortunately, a lot of the economic brightness of 2015 has already been priced into many stocks. And the big concern is that the prospect of rising interest rates in the second half of the year could reduce the enthusiasm for even higher stock valuations. I think that concern is mostly misplaced, but I do have to acknowledge that the markets don't always follow my lead.

Hedge funds will remain in control of short-term market trends, just as we saw in 2014 with six major peaks, each followed by at least a partial or mini correction before continuing to advance.

We appear to be in the middle of a recovery from the mini correction off the peak of late December. In 2014 we had early peaks on January 22 and March 5.

On the one hand, it seems quite reasonable to expect new peaks on the same variable one to four month intervals that we saw in 2014. On the other hand, with stock valuations now a lot more lofty, we could see hedge funds make shorter runs up as well as more of the very brief corrections we saw in the last few months of 2014. Of course, we shouldn't bet too heavily that the stock market will ever be reasonable.

Stocks could get squirrelly later in the spring as we get closer to the time when the Fed is expected to stat raising interest rates, which could impact some dividend-paying stocks and hence stocks in general since anything that affects any of the stocks in a market index will have some effect on all stocks in that market index.

Although the first Fed rate hike is not likely until September, there will be a lot of chatter asserting that the Fed should start hiking rates in June. It will be a competition of voices, which will lead to plenty of volatility. My expectation is that the Fed will finally nail down the time frame and details of the first hike at their annual conference in Jackson Hole, Wyoming in late August. I believe that there is close to zero chance for a Fed rate hike before September.

Even a Fed rate of 0.75% by the end of the year is still too little to have any significant financial impact on most of the stock market. Still, a lot of confusing and conflicting chatter will likely whipsaw markets and give us at least a few short-term peaks and mini corrections throughout the year.

We could see a replay of the trading pattern of mid to late 1999, where people were seriously worried about how Y2K would play out when the calendar rolled over to 2000, but stocks climbed that wall of worry right through the end of the year. Liftoff and that jump to rates of 1.0 and higher can look awfully scary to a lot of people.

Will we see a major, full correction (more than just barely a 10% decline off a peak) in 2015? Sure, it's quite possible, but probably only if we have some equally unlikely major advance of more than 10%.

Will NASDAQ set a new all-time high above its dot-com peak? There is a good chance, since it would take only a 7.3% pop from the current level to hit the all-time closing peak of 5048. I won't give a specific target gain for NASDAQ for 2015, but 7 to 15% is certainly within the realm of reason. We could also see a new peak earlier in the year and then trend down and close the year below that dot-com peak. Anything is possible here.

There will also be plenty of rotation between groups of stocks and individual stocks as well. The leaders of 2014 are not so certain to be the leaders of 2015. Ditto for the laggards of 2014.

I am personally not expecting any specific trading pattern or any specific replay of any historic trading pattern, in large part because we really are in a whole new world here. Not that everything is rosy and wonderful, but that a lot of historical activity simply won't play out the same way is has in the past. As Mark Twain famously said, history doesn't repeat... it rhymes.

For my more detail on my Fed rate hike outlook for 2015:

For more color on how I feel Fed rate hikes will affect stocks:

In short, the bull market will likely continue through 2015, but with plenty of volatility to scare the faint of heart.

-- Jack Krupansky

Will Fed rate hikes crush the stock market?

A lot of common chatter suggests that stocks will suffer when the Fed starts hiking interest rates. This conventional wisdom is half right and half wrong. Fed monetary policy has three modes: accommodative or loose, neutral, and restrictive or tight. It is only when the Fed shifts from neutral to tight monetary policy to slow the economy that stocks could suffer. That doesn't mean that traders and speculators might not attempt to front-run the Fed long before we get to tight monetary policy, but we are literally years from that phase of monetary policy.

Currently, Fed monetary policy is extremely loose or accommodative. When the Fed makes its first rate hike in September monetary policy will remain very loose and have very negligible negative impact on the economy. Even at the end of the year when the fed funds target rate will be up to 0.75%, that is still incredibly loose and accommodative monetary policy. So, again, no headwind for stocks.

A neutral fed funds target rate is probably in the 3% to 4% range, call it 3.5%. The most recent report from the Fed suggested that they see the long-term rate at about 3.75%, in a range between 3.25% and 4.25%..

Even by the end of 2016, the current members of the Fed open market committee are expecting a rate in the 2% to 3% range, which is still well below the neutral range. IOW, even at the end of 2016, which is almost two years away, the Fed interest rate will remain very loose and accommodative, and hence not a worry for stocks.

And even after the Fed does reach neutral monetary policy, that does not mean that restrictive or tight monetary policy is right around the corner. We could see a healthy economy for several more years after that.

Rising interest rates can effect demand for dividend-paying stocks, but only when rates rise to a level so that T-bills and notes pay a comparable rate to the dividend yield. Typically stocks that pay a low dividend, such as under 1% or even 2% or 2.5% are only doing so to attract the attention of mutual funds that only invest in stocks that pay dividends, so a Fed interest rate up to about 3% will not be a problem for such stocks. Even stocks paying only a 2% to 2.5% dividend will remain attractive as long as their earning growth rate is sufficient to fund continual increases in the dividend rate, which is normally the case, especially in a growing economy, which is what we have and will continue to have with accommodative and neutral Fed interest rates.

To summarize, rising Fed interest rates will not offer any significant headwind for stocks for well more than another two years. So there is no need for investors to fret about rising interest rates in 2015.

-- Jack Krupansky

Outlook for Fed rate hikes in 2015 - Liftoff in September, 0.75% at year-end

For a while people had been expected a first Fed rate hike in March, but enthusiasm for that target date has clearly evaporated. If you asked the average market participant today, they would probably say that liftoff will occur in June, but recent Fed funds futures contracts reported by the CME Group indicate only a 17% chance of a first hike in June, a 37% chance in July, and finally a 52% chance in September.

According to Fed funds futures, there is actually still a 2% chance of a first hike in March, but that is probably more of a hedge than an outright bet.

September is nine months away, which is way too far for any reliable economic predictions. Still, I think it is a good bet, since the decision to start rate hikes will likely be more a matter of the passage of enough time without any bad news and with enough gradual improvement so that the Fed can feel confident that they will not have to reverse their decision in the following months, rather than triggering the first hike on some set of economic indicators hitting some specific target numbers.

The Fed will probably start rate hikes at least a few months after a lot of the experts on Wall Street give the Fed the go ahead. The Fed will probably intentionally stay "behind the curve" since their goal is to be conservative rather than to be aggressive and shoot from the hip. So, expect to hear a growing choir of voices clamoring feverishly for rate hikes in April, May, June, and July. By early summer, if not May, expect people to be increasingly repeating the mantra of "the Fed is behind the curve!".

Even if everything does look right for a hike in late June or July, the Fed will probably wait until the summer is over so that everyone is fully prepared for what lies ahead. I expect that they will use their annual policy conference in Jackson Hole, Wyoming in late August to prepare people for what will come in September.

Granted, any number of shocks or surprises could occur in the economy over the next nine months, but that's also enough time for the economy to recover from any minor and even major major hiccups. Besides, predictions and forecasts are always made assuming that events proceed and evolve as expected. But, as of right now, September looks primed to be the point of liftoff.

The CME Group FedWatch web page suggests that the Fed will make a quarter point hike in September, October, and December, so the Fed funds target rate should close the year at 0.75%.

Sure, that is a healthy bump from essentially zero, but is still way too low to have any significant impact on the vast majority of companies. Sure, the stock market may react in late 2015 to expectations of higher rates in 2016, but once again, that is still too fat out in the future for ADHD-afflicted Wall Street traders and short-term speculators.

The CME Group FedWatch web page:

-- Jack Krupansky