Tuesday, August 19, 2014

NASDAQ set to test whether the new near-term peak holds

Okay, NASDAQ actually did manage to break out relatively cleanly from its trading range and set a new near-term high, 22 points above the old near-term peak on July 3, 2014. That doesn't mean the coast is clear for the next leg up. In fact, the next task for traders and short-term speculators is to "test" the durability of this new near-term high.
 
NASDAQ futures are up modestly, suggesting that traders are willing to bet on further gains, but the big question is whether people continue to pile on to the rally at the open, or whether they sell into any rallies and bet or at least presume that the next move is more corrective.
 
I'm sure the bears are chomping at the bit to sink their teeth into this market, but they just got burned badly, so they may decide to wait a bit longer before diving back in to get a better (higher) entry price for fresh short positions. On the flip side, more bullish speculators may be more than happy to extend themselves to take advantage of a short-term lull in the bearish "risk off" bias.
 
And the usual caveat – all of this is happening in the summer doldrums of slow trading, so expect volatility and wait until after Labor Day for the "full team" to weigh in and cast their votes as to what is the more sustainable trend.
 
-- Jack Krupansky

Monday, August 18, 2014

NASDAQ set to take another shot at breaking out of its trading range

NASDAQ opened with a solid run at the upper edge of its recent trading range on Friday, but fell a bit short, like less that 5 points, and then wavered a bit before throwing in the towel. People blamed news from Ukraine for the intra-day sell-off, but that was just traders using a little non-news as a cover for their underlying intentions. As it turned out (with no new news), NASDAQ bounced back and scored a modest rise for the day. It was disappointing that the breakout run failed, and that is a yellow flag here, but none of this is necessarily definitive given that here we are in the summer doldrums of late summer slow trading.
 
Friday's trading pattern is also consistent with the trader's model of "filling the gap", where traders believe that trading must eventually trade back down to "fill" any "gap" left by a big rise (or fall) at the open. Trader's managed to do exactly that, which then opened the door for the bounce and moderate gain for the day. In that sense, this was a bullish signal.
 
The main yellow flag from Friday is that people didn't pile on to the pop at the open. There was a little bit of selling into that rally. People did try a couple of more times to rally for that last 5 points to a new high above the July near-term peak of 4,485, but ran into significant resistance. Not a good sign. So, we have mixed signals.
 
NASDAQ futures are once again up moderately strongly this morning, indicating a significant pop at the open. Once again, the big question is whether people will pile on to that opening rally and kick off a significant short squeeze and push NASDAQ up the 21 points needed to set a new near-term peak, or whether people will mostly just sell into the rally. And even if a new near-term peak is reached, will it hold and extend those gains. If not, we could be setting up for a "double top", which is a more bearish sign and the prelude to trading back down towards the bottom of the trading range again.
 
As I said, none of this is really definitive during the slow summer doldrums trading. Regardless of where we end up come Labor Day, the market will "adjust" by the end of September as the bulk of traders and speculators get back to their desks after a lazy summer and start placing bigger bets on whatever trend they think is emerging. The big question is whether they will be taking more of a "risk on" or "risk off" posture, especially going into October when the Fed will officially end its QE2 buying program. That could cause some significant volatility, but I suspect that it will all be a wash come November, when people will resume placing bets on the actual underlying U.S. economy, which continues to incrementally improve.
 
Some people continue to express great anxiety that the Fed will aggressively raise interest rates in 2015, but there is no sign or even chatter of that possibility coming from the Fed itself.
 
-- Jack Krupansky

Friday, August 15, 2014

NASDAQ poise to test and try for a breakout from trading range

The modest gain for NASDAQ on Thursday was quite welcome, and now positions the index barely 0.75% below the upper edge of its trading range, as defined by the near-term peak in early July. NASDAQ futures are up moderately, suggesting that traders think there is a chance that bullish speculators may make a run for a breakout above that July peak. That would also be predicated on a healthy pop caused by a short squeeze.
 
Even if NASDAQ does technically break out above the trading range, the big question is whether it is sustainable, or whether it simply gives bearish speculators a more attractive entry point for another run back down in the trading range.
 
And once again the main thing to look for is whether people pile on to any pop at the open or instead sell into any rally.
 
It's another Friday before a weekend during the summer doldrums, so short-term speculators can be expected to take at least some of their money off the table in advance of the weekend when anything can happen. Whether the net difference between the bullish and bearish speculators is positive or negative remains to be seen. I would simply note that the bears may opt to let the bulls have their one day in the sunshine, and then regather in force and pounce harshly again early next week.
 
Meanwhile, the real economy here in the U.S. continues to incrementally improve, which will continue to auger well for the stock market. We still have a long way to go before we are finally back to a fully productive economic state. Maybe another two years or so. Sure, the cynics will fuss about the Fed with wild speculation, but the Fed is focused on making sure that the recovery of the economy completes. IOW, the moderates are in control of the Fed right now, not the cynical hawks.
 
-- Jack Krupansky

Thursday, August 14, 2014

NASDAQ ponders its next move within trading range

NASDAQ had a nice gain on Wednesday, but it may have been in large part a short squeeze, so retaining all of those gains may be difficult. Speculators are likely split between those betting on a bullish move and those betting on a corrective move. How those two camps net out remains to be seen. It all depends on who has more available cash that they are ready and willing to bet on their bias right now. So the trading range continues, with NASDAQ stuck between the March and July peaks. A lot of that is due to the summer doldrums with their characteristically slow trading, but this kind of tentative, uncertain advance is not atypical in even the best of markets.
 
NASDAQ futures are up a little, suggesting a modest pop at the open, but the question remains whether people will pile on to the pop or sell into any rallying as the day progresses.
 
A little consolidation would be par for the course at this stage, but I also wouldn't be surprised if we see another round of short covering due to too many speculators taking a too skeptical position on the health of the market.
 
I sold extra positions on Amazon (AMZN) and Yelp (YELP) that I had taken recently on irrational dips since they achieved my goal of a 5% gain from the dip. I retain long-term buy and hold positions on these stocks though. The cash proceeds are now ready for the next round of irrational dips that Wall Street likes to hand me on a silver platter. Thank you, Wall Street! Really.
 
-- Jack Krupansky

Wednesday, August 13, 2014

NASDAQ set for a short squeeze

Tuesday wasn't a great day for NASDAQ, but it did prove that the current trading range trend is reasonably resilient. It would have been so easy for short-term speculators to push NASDAQ below support, but... they failed and NASDAQ recovered from a steeper intra-day loss. Now that NASDAQ has proved its staying power for the bottom of the trading range, traders are grinning because they know that the more bearish speculators are probably over-extended and that a little pressure will get them to abandon their short positions in a process known as a short squeeze. Get a few bears to jump ship and that will fuel a rise that in turn incites more short covering, and so on in a virtuous cycle, until all the weaker short sellers have been forced to cover their short positions by buying back the shares that they had shorted.  The flip side is that those disgruntled bears will sit patiently and wait for NASDAQ to become a little over-extended higher up in this trading range and then pounce again.
 
NASDAQ will likely stay in this trading range for the rest of the summer, although there is a distinct possibility of breaking out modestly to a slightly higher near-term peak.
 
I bought a little more Tableau (DATA) and Solar City (SCTY) on the dip yesterday.
 
-- Jack Krupansky

Tuesday, August 12, 2014

NASDAQ poised to take a breather after two-day advance

Stock markets rarely rise in a straight line. Even if NASDAQ is destined to hit a new near-term peak within the next couple of weeks or even the next couple of days, it would be perfectly plausible for it to pause a little, consolidate a little, or even make one more valiant bear attempt to "test" the recent near-term low before continuing to advance. More than a little volatility is to be expected.
 
NASDAQ is still stuck in a minor mini-correction – about 2% off the the recent near-term peak on July 24, 2014. It is also caught in a fairly narrow trading range – not quite 4% from the recent near-term peak to trough. A lot of this is simply the random volatility that comes with summer doldrums of slow trading, including people simply imagining that they are spotting a trend that is mere coincidental volatility.
 
Meanwhile, the real U.S. economy continues to drift along, incrementally improving, but neither booming nor busting. That means that a lot of companies will be seeing improving fortunes, but with quite a few stumbles along the way as well. As long as the economy sees a net improvement, the stock markets should as well.
 
Geopolitical events are really a side show here. If anything, they assure that the government will continue spending that will end up in the pockets of shareholders.
 
And the Fed will not really be a major issue here either. The economy and most individual companies have long since gotten past a dependence on ultra-cheap money. And, the Fed is not so likely to steeply raise interest rates over the next year anyway. Sure, quantitative easing will end in October or so, sort of (the Fed will retain a huge balance sheet for the indefinite future), but few if any companies will be significantly impacted by that prospect. Sure, interest rates will rise incrementally over the next year, which will impact the cost of capital, but the improving economy will likely more than offset that additional cost. Maybe two years from now we could see a new slowdown of sorts, but the stock markets don't look that far down the road. Maybe nine months, tops.
 
-- Jack Krupansky

Monday, August 11, 2014

NASDAQ poised to resume bouncing up within trading range

Although NASDAQ did technically break a bit below the lower edge of the trading range defined by the March peak, it did not do so with enough conviction to attract enough bearish sentiment to constitute a true breakdown and another leg down. Instead, we had a semi-decent recovery bounce on Friday that left NASDAQ 12 points above that March peak. So, NASDAQ continues to hover near that lower edge of the trading range. Traders don't like to hover, so if NASDAQ won't break down, then they will try to push it up.
 
NASDAQ futures are up fairly strongly this morning, suggested a big pop at the open. That could kick off a reasonably significant short squeeze. But then once again we will be faced with the question of whether people pile on to any initial pop with real enthusiasm, or whether the bearish short-term speculators sell into any rally. And futures don't tell us how trading will evolve during the day.
 
Despite all of this, we are still locked in the summer doldrums of slow trading, so volatility is the only sure thing, and otherwise all bets are off. So the market could move one way and then the other, rinse and repeat. Meanwhile, individual stocks could show some significant action. I'll be on the lookout to buy big dips and take a little money off the table on decent advances.
 
I'm not so sure how to play Priceline (PCLN) these days. It had a big run-up but is now trading in a fairly narrow range, without any significant breakout potential in the short-term. The quarterly report came out this morning and sentiment seems a little negative. I already have a significant long-term buy and hold position, but I'll be tempted to buy into any significant dip.
 
-- Jack Krupansky

Friday, August 08, 2014

NASDAQ in a mini-correction

After a semi-decent bounce yesterday for NASDAQ at the open, bears came out of the woodwork and sold into the rally. No surprise there. NASDAQ is now a solid half-percent below the March peak, indicating that another mini-correction may be underway. Maybe, or maybe not. With slow summer trading all bets are off, still... it didn't look good. The flip side is that the selling on Thursday may simply have been short-term speculators getting out early to get a head start of the summer weekend. Why not?!
 
NASDAQ is still close enough to that March peak that it could recover and continue back upwards within the previous trading range. Also, since short-term speculators frequently close out positions ahead of the weekend, any previous short positions could result in buying that would boost the market today. But with all the volatility, it is rather difficult to access the net bias of market participants.
 
NASDAQ futures are up modestly, indicating that traders feel that the sell-off yesterday was a bit overdone and a bit of a recovery bounce is warranted. But, once again, it remains to be seen whether people will pile on to any bounce or just sell into any rally as they did on Thursday.
 
Curious that my portfolio had a net gain yesterday. That suggests that we are seeing more of a "rotation" between stocks rather than any outright "liquidation" from stocks in general.
 
-- Jack Krupansky

Thursday, August 07, 2014

NASDAQ poised to bounce back from oversold position

Yesterday NASDAQ went... nowhere, but by the most indirect route possible, heading both down sharply and up sharply before closing essentially flat for the day. Although there was no significant net bullish interest, the significant thing is that the bearish enthusiasm clearly evaporated, indicating that the market may be "oversold", that it has reached "selling exhaustion", where everybody that might sell has already done so. That doesn't mean that it is ready to rebound a lot higher, but does mean that bulls at least have a hint of some breathing room.
 
NASDAQ remains hovering at the bottom of its trading range – technically it is a couple of points below the March peak, but that's close enough to be statistical error (less than 0.1%.) We could drift along in this hovering posture in a very narrow trading range for a bit longer, but traders don't like very narrow ranges, so if NASDAQ won't break cleanly below that March peak, the only other palatable option is to push higher, back towards the July peak of the trading range. This is not a certainty, just a tendency.
 
NASDAQ futures are up moderately, but the same question remains as to whether people will really pile on to the opening pop, or sell into any rally. We know what the futures prices are, but we don't know the intentions of people after the market opens.
 
We could see a bit of a short squeeze, which could accelerate in this slow summer trading, but it could easily peter out as well.
 
We're getting near the end of the bulk of the Q2 reporting season, so although we will see volatile action in individual stocks, overall activity could become more muted. We could see a drift down as enthusiasm for Q2 wanes, but we could also see some less-speculative money flow into the market now that the uncertainty of Q2 is evaporating. And any "buy the rumor, sell the news" effect is likely to have mostly run its course.
 
Geopolitical events are not a major factor here. Traders and short-term speculators just use bad (or good) news as a cover for their underlying bias.
 
We have two major factors here now, the ongoing, incremental improvement of the economy on the plus side, but anxiety over whether the Fed might withdraw "accommodation" at too fast a pace on the downside. My view is that Yellen is more of a dovish pragmatist, so she will go easy on withdrawing Fed stimulus until GDP picks up more solidly and the unemployment rate drifts down closer towards 5.5%. The stock market probably has a good solid year, if not two, to go before interest rates begin to have even a remotely negative impact on the real economy. It's mostly about perceptions.
 
-- Jack Krupansky

Wednesday, August 06, 2014

NASDAQ poised to test bottom of trading range again

The NASDAQ decline on Tuesday simply erased the gain on Monday without providing any clear indication of any emerging trend. Still, it did highlight some weakness and clear evaporation of bullish interest, so now traders are greenlighted to make a serious test of whether the bottom edge of the trading range will hold or whether a full-blown mini-correction is in order.
 
NASDAQ futures are down moderately strongly, but the question is how people will respond after the open. Will they pile on and follow the market down, or will some significant dip-buying emerge? It may take an hour or so before the response becomes clear. Sure, this could turn into a rout, but it could just as easily bounce strongly after the opening dip and become a solid double bottom for this lower edge of the trading range.
 
It could take a couple more days to sort this out. Expect lots of volatility
 
And, no, none of this is about Russia or Ukraine or Gaza. Those are just noise to cover what people are actually doing behind the scene.
 
-- Jack Krupansky

Tuesday, August 05, 2014

NASDAQ set to test whether the recovery bounce will stick

Okay, check the box off, NASDAQ scored a decent recovery bounce on Monday, erasing at least Friday's loss plus a little, but... it remains to be seen whether the bounce was "real" and durable and will be the foundation for the next leg up, or whether it was simply a classic "dead-cat" bounce that will peter out and reverse and lead to a next leg down into a mini-correction. Flip a coin.
 
We are still in a slow summer trading environment, so a lot of these daily movements are simply noise until serious trading resumes after Labor Day.
 
I suspect that NASDAQ might trade around in an even narrower trading range here near the bottom of its larger trading range until we see some clarity as to whether Thursday's big decline was a harbinger of things to come or simply a one-day fluke.
 
One good sign is that the intra-day low on Monday was still well above the intraday low of Friday, and "higher lows" is always a bullish sign.
 
Traders may also want to see if they can engineer a "double bottom", which is a more bullish foundation for a continued rise. None of this has anything to do with economic and business fundamentals, which remain reasonably solid, but psychology and apparent "technical considerations" are a major part of how markets work.
 
NASDAQ futures are down moderately this morning on no particular news, so this is really simply traders saying that they want to give the nascent reversal a good solid "test" before continuing. So, the big question today is whether people pile on to the opening dip and head in the direction of a correction, or buy the dip and head back up towards the upper reaches of the trading range. Or... just bounce around chaotically within a narrower trading range until we actually do see more of a true trend.
 
-- Jack Krupansky

Monday, August 04, 2014

NASDAQ set for a recovery bounce or to test the bottom of the trading range

After the steep decline on Thursday and further sloughing off on Friday, NASDAQ is now poised for a recovery bounce. That will certainly feel a lot better than a selloff, but it will take a couple of days to determine whether a bounce today is a true reversal or just a "dead-cat" bounce ("even a dead cat can bounce") before further declines into another mini-correction. The key thing to watch today is whether people sell into any initial (or even subsequent) rally or whether they pile on and kick off a short squeeze.
 
NASDAQ has technically "broken" below its support at the March peak, but only by a few points and that was on a slow summer Friday, so I would personally say that it is "at" support and hasn't clearly and decisively moved well below support. That makes today and tomorrow rather critical. If NASDAQ falls another 20 points or another 1% or more, then I'd say we are sliding into a mini-correction, but for now, we are poised to reverse and head back upwards within the current trading range.
 
IOW, NASDAQ is poised to "test" the bottom of its trading range. Either we bounce and continue the trading range, or we break down and begin a mini-correction.
 
I made some more dip buys on Friday – Tableau (DATA), Yelp (YELP), 3D Systems (DDD), and Amazon (AMZN). My goal with those particular positions is a 5% pop. I have existing positions in those names that I will be holding for the longer term.
 
I have a small position in Michael Kors (KORS). I may sell a little depending on how high it pops after their quarterly report this morning.
 
-- Jack Krupansky

Friday, August 01, 2014

NASDAQ poised to test lower edge of its trading range

Wow, that was impressive – as I suggested early yesterday, the failure of NASDAQ to achieve a breakout on Wednesday left traders more inclined for consolidation within the trading range, and we got that, in spades. We even came close to testing the lower edge of the trading range as well (the March peak), but not quite. Today, traders may use the disappointment of yesterday's decline to take a shot at that lower edge again, but... since they failed yesterday when pessimism was at a climax, their odds of success are greatly diminished.
 
Again, it may also have been a combination of slow summer trading, people wanting to cut out early on Friday and dumping positions on Thursday, or even option expiration today.
 
I wouldn't read too much, if anything, into the steep decline on Thursday, other than that yes these kinds of dips can occur even in the most bullish of markets. And we're in a trading range here, so the rules of a trading range trump any underlying longer-term bullishness.
 
We may or may not see a dip at the open to "test" the lower edge of the trading range. If we do see a dip, the big question is whether people buy the dip and we reverse and start trading upwards within the trading range again. Or, if people pile on to the dip, we could see a true "breakdown" and head into another mini-correction. Given that this is a slow Friday in a slow summer, I wouldn't draw any immediate conclusion even if we do close modestly below the March peak. The action on Monday and Tuesday will be more telling, when people get back from their summer weekend.
 
As far as GDP, average the Q1 and Q2 reports to get a better view of where we are, so averaging 4.0 and minus 2.1, gives us about 1%. I expect that Q3 will probably be about 2% or so. Yes, the economy is still plodding along, neither booming nor busting. We are still in the recovery phase after the recession, and will be for at least another year if not two. So, there is no need to worry that the Fed is going to dramatically raise rates over the coming year.
 
 
I bought a little more LinkedIn (LNKD) and Tesla (TSLA) just before the close. It will be interesting to see how they play out. My goal for those two positions is simply a 5% pop. I have longer-term positions in both that I will stick with no matter what.
 
I also picked up an extra position of Amazon (AMZN). Wall Street has a hot/cold attitude toward them, but I have great confidence in their longer-term business prospects.
 
And I picked up an extra position of Yelp (YELP) as well in its post-report dip. And 3D Systems (DDD) as well. I really like these dips.
 
-- Jack Krupansky

Thursday, July 31, 2014

NASDAQ poised to consolidate in its trading range

NASDAQ was poised to break out to a new near-term peak yesterday, but... "poised" is not a measure of certainty. It did pop very nicely at the open, but too many people took a "sell into any rally" bias and a significant portion of that opening pop was lost. An attempt to rally again later in the day failed to set a high for the day, which is always the signal that the rally is failing. Sure, we did manage to see a nice gain for the day, but it just didn't have the feeling of any real enthusiasm.
 
BTW, I was one of those people selling into rallies, but I am still overweight on a lot of these stocks. I had a lot of "extra" positions that I had bought on dips which had hit 5% or more gains, so they had served their purpose. I now have semi-decent cash reserves to get back to buying on dips.
 
NASDAQ futures are down sharply, on no particularly significant news. I wouldn't say that Argentina or Greenspan are great reasons for a significant pullback this morning. Rather, I think the failure of NASDAQ to break out yesterday is all the incentive that traders need to consolidate and test to see if NASDAQ is ready to trade back down deeper into its trading range.
 
And I'm sure that some people just want to close out positions so they can take it easy on Friday and head off for the weekend early.
 
There are also some option expirations occurring that can boost volatility.
 
That said, this will be a test – to see if people really are ready to reverse their bias and sell the market lower, or... maybe they will prove the traders wrong and buy into the dip. And then the big question is whether people pile on to any intra-day recovery rally or sell into it.
 
In any case, this is all "trading range" behavior, typical of slow summer trading.
 
Some people are also worried that a stronger economy means that the Fed will be tightening credit too severely too soon, which they fear will cause a major stock market correction. I'm not one of them, but I recognize that these people do exist and that their negative psychology may have an impact on the market. But anything that causes the stock market to rise at a more measured pace, albeit with significant volatility, is actually a good thing.
 
I'm not sure how I will play LinkedIn (LNKD) and Tesla (TSLA) into their reports after the close. I'm still overweight on both, even though I sold some extra dip purchases yesterday and last week to protect my nice gains. I'll wait to see how the stocks trade into the close. I don't plan to sell any more, but if either dips significantly into the close, I will consider buying an "extra" position. And I would certainly buy any big dips tomorrow.
 
I sold my "extra" position of Yelp (YELP) to protect a 7% gain. But now, I may buy it back if there is a deep enough dip. I'm not too overweight on it.
 
I sold more of my Facebook (FB) since I am still way overweight and I'm not sure it will rise too far from here before it dips again. I'd rather have a little cash for dip buys.
 
Ditto for Twitter (TWTR). It is a long-term holding for me, but I have to protect some of my profits as well as being prepared to take advantage of the frequent seemingly irrational dips.
 
-- Jack Krupansky