Wednesday, October 22, 2014

NASDAQ poised for a little consolidation before next leg up

Traders and speculators will certainly have to pause and digest these big gains that we've had lately in NASDAQ, a little "consolidation", before any additional leg up in the coming days. A fair chunk of the gains were most likely due to a short squeeze as speculators bought to cover short positions to protect their gains, but I'm sure some decent fraction of the buying was due to short-term speculators who switched to a "risk on" posture. The two big questions are whether additional speculators will similarly switch their bias, and at price level these risk-on speculators will reverse again and cash out those long gains and resume shorting. IOW, whether we are going to stay in a relatively narrow trading range here or are heading up towards the upper edge of the broader trading range and maybe even a new NASDAQ high for the year.
NASDAQ futures are down slightly, indicating a very modest dip at the open, probably on the expectation that there are plenty of speculators who got caught in the short squeeze and are itching to reopen their short positions at a better price. So, the big question here is the degree to which people pile on to any opening dip for any deeper consolidation, or whether they buy the dips during the day, or whether they sell into any further rallies during the day. Whether today becomes a modest up day or a down day is really a true 50/50 coin flip.
I almost sold a couple of my dip positions yesterday, but... I'd prefer to let them ride until NASDAQ gets further up towards the upper portion of the broader trading range. But I do indeed intend to start raising my reserve cash level as any additional NASDAQ gains occur.
In any case, all of this recent activity is "technical", based on stock trading charts and trading volume, not based on actual business and economic fundamentals, which really haven't changed much at all in the past couple of months. My mantra is the same: The economy continues to incrementally improve, albeit at too sluggish and inconsistent a pace for your average ADD-afflicted Wall Street trader or short-term speculator.
-- Jack Krupansky

Tuesday, October 21, 2014

NASDAQ poised to test its new legs

Monday was a mixed but still semi-decent day for NASDAQ. On the negative side, my concern is that a large chunk of the gain was likely simply short covering, a classic short squeeze, but on the positive side I strongly suspect that a healthy chunk of the buying was by hedge funds that at least tentatively have switched from a "risk off" bias to a "risk on" posture and really do intend to run NASDAQ back up towards the upper edge of its broader trading range. IOW, the desire for a 10% "correction" has run its course, so the path of least resistance is to retrace the path in the broader trading range. That said, we could also be in a narrower trading range and the nice pop may fizzle  and reverse within a few days. Still, this does have more of the feel of last May when the emergent "correction" fizzled out and NASDAQ leapt towards the sky, again.
NASDAQ futures are up moderately strongly this morning, maybe on relief that Apple (AAPL) had decent quarterly results yesterday afternoon, suggesting a nice pop at the open. The big question is whether enthusiasm builds after that opening pop, or fizzles quickly and we see intensive selling into rallies. That latter could happen, but it just feels like the former is more likely. Still, it could take a few more days before the specter of a 10% correction is behind us.
My dip buying is now likely behind me as I focus on whether to sell some of these dip positions at 5% or 10% or 15% gains or keep them until NASDAQ gets closer to the upper edge of its broader trading range.
-- Jack Krupansky

Monday, October 20, 2014

NASDAQ poised to test durability of new base

NASDAQ finally had a semi-decent dead-cat bounce on Friday, so now traders and short-term speculators will be inclined to test and see if the new base actually holds. There is resistance on the upside with the January and March peaks, so we could see some narrow range trading for a bit here,  especially since the next two weeks are focused on anxiety waiting for the Fed meeting that will officially end QE buying just before the end of the month.
NASDAQ futures are down modestly, indicating a modest dip at the open, but the question is whether short-term speculators pile on to resume a sell-or or at least to test the new base, or if some of the more adventurous short-term speculators may be reversing their "risk off" bias to "risk on" to get the jump on the less adventurous cynical speculators and take advantage of the swing trade back towards the upper end of the broader trading range as the October anxiety starts to subside.
Futures are not a fully reliable predictor of even the direction of the trend for the rest of the day, and very frequently are a head-fake and the market then trends in the opposite direction for the rest of the day.
We could see some incremental selling today due to speculators who were forced to close out short positions during the dead-cat bounce on Friday and will seek to re-open those same short positions today, either at the opening dip or by selling into any subsequent rallies during the day. Just about any rally during the day today will be suspect as yet another dead-cat bounce.
I would rate the durability of the new base at about 50/50, so... flip a coin. Well, actually, I'd bet it as 35-45% odds to a new short-term low and 55-65% odds to the upside, not necessarily today, but over the next few days. The big wildcard here is not the economy or business fundamentals, but simply what short-term "risk on" vs. "risk off" trading bias posture a lot of the hedge funds take. Do they still have a ton of free cash that they want to throw at new bets to the downside, or... are they ready to cash out their profits from their short positions and place long bets to play the swing trade back towards the upper edge of the broader trading range? In truth, I have no way of knowing where these guys stand, but just that it does matter to the short-term direction of the market.
I still have cash available to take advantage of additional big dips, but I'm not expecting that to happen. I may pick up some more Bank of America (BAC) and TD Bank (TD), and am considering some Suburban Propane (SPH) as well. The latter two have decent dividends and the former has plenty of upside as they incrementally dig out of the remains of the financial crisis.
-- Jack Krupansky

Friday, October 17, 2014

NASDAQ poised for a decent dead-cat recovery bounce

As I had suggested, NASDAQ is searching for a base here. Neither the actuality nor the outlook for business or economic fundamentals of the U.S. economy has changed significantly over the past month – this entire "correction" is entirely "technical", a short-term "move." Hedge funds saw an opportunity to move the market and took it. Now that "move" has run out of steam, or so it seems, and traders and short-term speculators are jockeying to determine how real and definitive the emerging "base" really is.
By my own calculation, NASDAQ just barely "touched" a 10% decline from the 2014 peak on Wednesday and then again on Thursday at the open, but in both cases there was an immediate recovery bounce, strongly suggesting that this "correction" is 100% a contrived "technical" move rather than based on fundamentals. Traders and short-term speculators may still try a couple more times to break below that 10% "correction" level, but I suspect that this "mini-correction" swing has mostly run its course. I can see from a lot of my own stock positions that there was a lot of dip buying for the smaller popular momentum stocks, even as the larger-cap big names were weak.
NASDAQ futures are up sharply this morning, indicating a nice bounce at the open, but as always, the question is whether people pile on to that initial pop to build a dramatic short squeeze, or whether people sell into the rally in an attempt to test the durability of this emerging base.
It's also a Friday, so short-term speculators will tend to close out positions in advance of the weekend when anything can happen. In this case we could see buying if people are net short the market.
Whether any recovery bounce today manages to stick through next week remains to be seen. That's why they call it a dead-cat bounce. I think it will, but even for me that is a 50/50 proposition. But I've placed my bets based on my expectation that if we aren't at the bottom, then at least it is relatively near.
I suspect that my dip buying has run its course for this "correction." Now the question is which dip positions I sell for a 5% gain, a 10% gain, and a 15% gain, vs. keep as part of my long-term investments.
-- Jack Krupansky

Thursday, October 16, 2014

NASDAQ again poised to search for a bottom

NASDAQ is certainly taking a wild ride here. Sure, chatter about economic weakness is all the rage now, and is a real issue in Europe, but the U.S. is doing fine and continuing to incrementally improve (more workers getting hired every day.) Don't get confused by monthly volatility in economic reports. It is the longer-term, smoothed trend that matters. As economists like to say, the latest data point in a series does not establish a trend.
NASDAQ did break below it's previous broad trading range, but looks to be forming a base for an even broader trading range.
Traders obsess over things like round numbers for their psychological impact, like 10% as being some magical threshold for a "correction." Fundamentals have no such concept.
NASDAQ did dip a bit below that 10% "correction" level for a bit yesterday, but recovered sharply into the close. That doesn't mean we are out of the woods yet. Traders will try a couple more times to break below that magical psychological barrier. And, to repeat, none of this has to do with business fundamentals or the incremental strengthening of the U.S. economy.
I'll almost certainly buy more Netflix (NFLX) on its 25% opening dip. This type of irrationality by Wall Street traders is a major boon to us investors more focused on the longer term for enduring brands.
Yesterday I picked up more Akamai (AKAM), Banco Santander (SAN), Cypress Semiconductor (CY), Solar City (SCTY), Under Armour (UA), and WorkDay (WDAY) on the dip.
I'll consider picking up more stocks on any additional major dip, after I load up on NetFlix.
-- Jack Krupansky

Wednesday, October 15, 2014

NASDAQ testing whether a new base can be formed

Okay, NASDAQ did its dead-cat bounce thing yesterday, albeit not with a lot of conviction. The relative weakness of the bounce leads people to believe that the market has a high risk of heading further down, so... that's what traders will test for in the coming days. None of this has anything to do with business fundamentals or the strength of the U.S. economy – which continues to improvement incrementally as each day, week, month, and quarter passes buy. That doesn't mean that every period of time will be uniformly better than the previous period, but that on a smoothed basis the improvement in the underlying economy is more obvious.
NASDAQ futures are down sharply, not on any particular fundamental news, indicating a significant dip at the open, but the question is whether we see significant selling after that initial dip or whether we start to see people buying the dips. The important thing at this stage is not whether everybody starts buying, but whether enough of the more adventurous speculators start to buy ahead of the pack so that we start to see a tentative "base" start to form. Then, as traders continue to test that base to probe for weakness, the less adventurous speculators will begin to realize that their room for additional profit on the downside is limited.
We're halfway through the month, halfway to getting the Fed meeting which ends the QE buying program behind us, so there will still be plenty of room for cynics to express their anxiety. The question is about those more adventurous hedge funds and exactly when they will be ready to go "risk on" with a bit more commitment.
It will be interesting to see how enthusiastically people respond, positively or negatively to Intel's (INTC) latest quarterly report, not so much initial response today, but how the stock trends over the next few weeks. I have a small position, which I will expand if there is any dramatic weakness.
-- Jack Krupansky

Tuesday, October 14, 2014

NASDAQ poised for a second shot at a dead-cat bounce

NASDAQ did take a shot at a dead-cat bounce on Monday, but it was too halfhearted and there was still too much extreme negative sentiment that hadn't completely played out – and too many hedge funds with cash they hadn't deployed yet – so enthusiasm quickly evaporated and extended the sell-off. But today could be different. We have some initial quarterly reports to help counter the negativity of the sell-off – fighting fire with facts.
NASDAQ futures are up sharply this morning which will assure that a decent short squeeze gets kicked off at the opening, which should in turn cause traders to smell the blood (of shorts) in the water causing them to incite more buying which in turn pumps up the short squeeze buying. Any sustained buying will only encourage short-term speculators to consider reversing their bias from "risk off" to "risk on." Granted, that initial short squeeze could quickly peter out and revert to another selloff as happened yesterday, but this time there will be fewer hedge funds with the necessary fire to passionately throw a lot more money at the market.
If the rally does turn into another rout, I'll be adding to my existing positions.
-- Jack Krupansky

Monday, October 13, 2014

NASDAQ poised for a dead-cat bounce

As I indicated in my previous post, the sharp decline for NASDAQ on Friday was much more a technical matter related to breaking below the lower edge of the broader trading range rather than based on fundamentals of the U.S. economy. Today we will see whether there is any significant follow-through for that technical move.
NASDAQ futures are ambivalent this morning, but almost seem to be pointing to a dead-cat bounce today. Whether hedge funds still have oodles of cash that they are ready to throw at fresh short positions remains to be seen. I strongly suspect that they placed their bets last week and are now much more interested in cashing out their profits, or at least protecting those profits.
It will be interesting to see if "too many people are leaning in the same direction". IOW, if too many people are sitting on short positions and there is no long line of people standing ready to immediately open additional short positions, then we will hit a condition known as "selling exhaustion", in which case traders will note volume falling and reverse their bias and kick off a short squeeze, which is commonly known as a "dead-cat bounce" – because even a dead cat can bounce.
If the market does decline further significantly, I'll be picking up additional stock as indicated in my previous post.
Global growth slowdown? Sure, that's happening, but... the U.S. economy is incrementally picking up steam, so for the coming few years the U.S. will be leading the rest of the world, making U.S. stocks the investment of choice. Don't confuse "trader talk" with the real world economy.
-- Jack Krupansky

Saturday, October 11, 2014

NASDAQ breaks below its broader trading range as hedge funds flex their muscles

NASDAQ had been "dangerously flirting" with the lower edge of its broader trading range for some time, so it was really only a coin flip probability of whether or when it might break below that lower edge. That "break" occurred on Friday. The bottom line is that there was no significant buying enthusiasm at the lower edge. Traders don't like inactivity, so in the absence of activity they will create some of their own and reverse their positions and bet on a move in the opposite direction.
Friday illustrated the power of hedge funds as well. They are not long term investors like the big mutual funds. They are speculative in nature. Sure, they will sometimes "invest" in the larger "name" stocks – but only to the extent that the momentum is in their favor, and as soon as momentum peters out... they bail out. And... they are not hesitant to place massive short position bets when they feel that there is blood in the water, such as happened over the past week and on Friday in particular when there was a complete lack of commitment to buying as NASDAQ probed the lower edge of its broader trading range.
So, what does this mean? Actually, not very much! It's hard to say how much money the hedge funds deployed last week on their downward short bets, nor do we know how much more money they might be willing to bet, nor do we know how patient they intend to be at holding those short positions. The problem with hedge funds and short positions is that the only way to exit them is to start buying the stocks, which puts upwards pressure on the price, which limits their gains. So, they have to be careful with the size of their short positions so that their own exit doesn't crush their own profits. And if another hedge fund starts exiting ahead of them, well, it's called... a short squeeze, which is not good for hedge funds with large short positions.
In short (ha, ha!), there is no telling whether the sell-off, still a "mini-correction", is hitting its limits or merely getting started for a true (10% or more) full-blown correction, but it is likely just opportunistic short-term trading and speculation as people wait for the Fed meeting and the end of the QE buying program to be behind us at the end of the month.
Besides, the fundamental driver for U.S. stocks is the health and outlook of the U.S. economy, and the U.S. economy continues to incrementally improve (more people working as every day, week, month, and quarter tick by) – which is the primary impetus for the end of the QE buying program in the first place.
Now, I need to work on my short list of preferred momentum stocks to pick up if there is any further dip of NASDAQ. Maybe a couple of chip stocks, like maybe some more Cypress Semiconductor (CY) or NVIDIA (NVDA) or Qualcomm (QCOM) or Applied Materials. I'm also considering some more Banco Santander (SAN) or TD Bank (TD).
-- Jack Krupansky

Friday, October 10, 2014

NASDAQ still grappling with the lower edge of the broader trading range

NASDAQ is still "desperately flirting" with the lower edge of the broader trading range, demarcated by the August low and the March peak. We're seeing dramatic whipsaw volatility as traders and short-term speculators can't make up their minds and make a commitment to either an outright breakdown and full-blown correction or to merely trade back higher into the broader trading range. The good news is that this volatility also has the effect of "creating a base" for a new "up-leg". Whether NASDAQ stabilizes in the next day or two or takes a full week or two or the rest of the month (which would put the Fed meeting behind us) is of course unknown, but at least so far this is all simply trading range behavior.
As a side note, the low and close for the day on Thursday were still higher than the intraday low on Wednesday. Interesting. But consistent with mere trading range volatility.
NASDAQ futures are down strongly, suggesting a big dip at the open, but whether people pile on for a deeper sell-off after the open or start buying the dips during the day remains to be seen.
And it is a Friday, so some fraction of speculators will tend to close out positions ahead of the weekend when anything can happen. If those are net short positions, then we could see a nice recovery bounce... or not.
In any case, this is all simply short-term trading and speculative activity and not any indication of where the markets might be headed in the months ahead.
-- Jack Krupansky

Thursday, October 09, 2014

NASDAQ needs to adjust to yet another short squeeze

That was a nice pop for NASDAQ on Wednesday, but... it smelled like a classic short squeeze, with selling reach "selling exhaustion" (and proximity to the lower edge of the trading range), which led to traders reversing their bias, at least for the day, and betting on the upside which put pressure on the shorts to cover and protect their gains from short selling. The Fed minutes really didn't say anything new and different, so that was just a cover, an excuse, for traders to ply their short-term trades.
NASDAQ futures are down moderately, suggesting a dip at the open. This is probably recognition by traders that the pop yesterday was indeed a short squeeze, so that bears with cash are now ready to pounce again with new and deeper short positions. Still, futures don't tell us how people will trade after the opening trades have completed – will they pile on for a renewed sell-off, or will they buy the dips and extend the short squeeze?
In any case, we are still in a broader trading range, and the extent of these short squeezes strongly suggests that the sell-off is almost purely classic range trading rather than true investors doing any significant selling of investment, rather than trading, positions.
The bottom line is to expect plenty more of this trendless volatility in the broader trading range.
-- Jack Krupansky

Wednesday, October 08, 2014

NASDAQ continues to probe lower bound of broader trading range

Not to repeat everything I have said recently, and it is all still relevant, but the "throw in the towel" sell-off for NASDAQ on Tuesday was still well within the current, broader trading range, with the August dip and March peak demarcating the lower edge of that range.
NASDAQ futures are up a little, indicating a very modest bounce at the open, but the question remains whether people pile on with a lot of dip buying or just continue to sell into any rallies here. It could go either way. I mean, one of these days the short-term trend (a mini-correction) will indeed reverse, but whether that reversal happens today or tomorrow or next week is too unpredictable to tell.
I may pick up a little more QQQ to profit from the dip. QQQ is still more than 2% above it's dip level in August.
-- Jack Krupansky

Tuesday, October 07, 2014

NASDAQ still trying to test whether the current trading range will hold

Monday's trading for NASDAQ was a perfect example of what the day after a big short squeeze looks like – traders start the day with positive sentiment which quickly runs out of steam because the previous day's buying was mostly short covering, and then sentiment flips over and runs negative for the rest of the day. Today the opening sentiment complements that euphoria, starting out negative mostly because the previous day ended on a down note. This is all typical volatility that one finds in a trading range.
NASDAQ futures are down moderately, suggesting a dip at the open, but whether people pile on for a bigger sell-off or start buying into the dip is not predicted by the futures (they should offer a post-futures contract for that!). We could in fact see a bigger dip in the morning, and then a significant recovery from that dip, or at least a modest bounce from the dip late in the day, or... this may morph into a throw-in-the towel sell-off right into the close.
Another factor is that since there was a large opening "gap" on Friday, traditional traders will feel a moral obligation to "fill the gap", by selling off until NASDAQ has traded down to completely erase Friday's gap, and then we will be back to square one. A bounce would likely occur at that point, but is not preordained.
All of this is mere trading range behavior and has nothing to do with the state of the U.S. economy or the prospects for American businesses over the coming year, which is all true investors should care about.
Ebola, geopolitics, the Fed meeting later this month, kicking off the quarterly reporting season, etc., etc., etc.? They are all just noise used by traders as cover for their underlying technical (not fundamentals) sentiment.
But by the end of the day we may get a better read as to whether the current, broader NASDAQ trading range will hold up.
-- Jack Krupansky

Monday, October 06, 2014

NASDAQ poised to test whether we are still in a broad trading range

The big rise of NASDAQ on Friday certainly smelled like a classic short squeeze after hitting "selling exhaustion" on Thursday. So, now the big test is to see if those short sellers can snap right back and kick off a renewed selloff or whether they really have thrown in the towel for the moment and might actually prefer to bet on NASDAQ moving back up in its broader trading range, at least for a bit.
We still have over three weeks before the Federal Reserve action to formally end their QE asset buying program. Their meeting is on October 28 and 29, but give the market at least a couple of days, or in this case a full week, for the dust to settle, so we are really talking about a full month before the overhanging dark cloud of "the end of QE" is safely behind us. Note that the Fed will continue to hold the assets that they have purchased, so QE, minus purchase of new assets, will continue for the indefinite future.
NASDAQ futures are up moderately, suggesting a pop at the open, but the question is always whether that is merely a setup and we need to see whether people do indeed pile on to that initial pop or sell into any rallies.
For the record, June does sound like a reasonable time frame for "lift off" for the slow march to raise Fed interest rates eventually back up to "neutral" in another two years or so. IOW, don't expect higher Fed rates to have any actual impact on the economy for another two years, or whenever the Fed starts raising rates ABOVE neutral (roughly the 3% range), into the range considered "restrictive monetary policy." I mean, the economy is indeed improving and the recovery is still in progress, but it is still likely to take at least another two years to complete the recovery and to get back to something even remotely resembling normal, especially on the employment front. We still have a gross oversupply of workers, which may actually increase if productivity grows faster than GDP.
-- Jack Krupansky