Still on track for starting a new bullish leg for NASDAQ

Although NASDAQ was superficially a bit of a disappointment on Friday with such a meager 5-point gain, especially after being up so strongly early in the session, the really good news is that it bounced back from a deficit, and stayed positive despite significant "sell into any rally" sentiment as well as the traditional tendency for short-term speculators to dump stocks on a Friday before a weekend when geopolitical risks are in play.

 

The good news on the Ukraine front is that the Russians are moving reasonably cautiously, not making any additional antagonistic moves, and actually talking with a reasonably conciliatory tone.

 

This week starts a new month on Tuesday, so we will have a fresh pair of ISM reports and a fresh employment report for the markets to digest.

 

Unless some new event pops up on the radar, we are still on track to start a new bullish leg for NASDAQ any day now. Last Wednesday was the main capitulation, Thursday was a little after shock, and Friday was an initial confirmation that the bottom for this mini-correction is very likely in place. That's not an absolute guarantee, but as close as you can get to one in the stock markets.

 

Don't expect any great clarity from the markets this week, just that NASDAQ should close the week at least modestly higher. There is still plenty of huff-and-puff bearish sentiment out there, and opportunistic hedge funds will want to see a little more clear proof that the bottom is in place before rushing back into the market.

 

-- Jack Krupansky

Still looks like capitulation is behind us

Although NASDAQ did end moderately lower yesterday, it was still consistent with Wednesday being the true capitulation day. There was a sharp spike down at the open and  then a sharp but short-lived dead-cat bounce into positive territory, but the bears were unable to establish a deeper low after that initial spike down. In fact, NASDAQ drifted a little higher through the day, indicating a modest evaporation of the bearish sentiment. Sure, there is still plenty of bearish sentiment out there, but it does appear to have peaked and started to decline.

 

We could see a bounce today, and futures do indicate that, but there could still be a fair amount of "sell into any rally" sentiment out there. Also, today being a Friday, short-term speculators will tend to close out positions ahead of the weekend when anything can happen. The situation in Ukraine still doesn't have a lot of prospect for affecting economic growth in the U.S., but short-term traders can easily get spooked by things like President Obama warning Russia to move troops away from the Ukraine border, combined with significant uncertainty of Russian intentions and how the U.S. and Europe may or may not respond.

 

So, NASDAQ may or may not close higher today, but that won't be a definitive move. Ditto for Monday, when short-term traders will likely focus on re-establishing whatever positions they closed out today.

 

In short, it may still take a few more trading sessions for the aftershocks of the capitulation of the mini-correction to settle out. By Wednesday or Thursday of next week we should see the new trend start to take shape. Regardless, it will continue to be a bumpy road.

 

-- Jack Krupansky

Is this the correction, or more like a coming crash?

That's a MarketWatch headline: "Is this the correction, or more like a coming crash?" Answer: Neither - this is just a mini-correction. Who knows, maybe sometime later this year we might get a true correction (10% decline), but what we are experiencing now is just a faked correction – a lot of hot money (hedge funds) deliberately trying to pile on and push prices down. Sure they can do that for awhile, like they did in January, but soon enough they will run out of steam (money they are willing to allocate to cover short positions) and the market will bounce.

 

-- Jack Krupansky

And we have capitulation for NASDAQ

As dispiriting as the NASDAQ market decline was yesterday, there was a strong hint of silver in that very black cloud, namely that it had the earmarks of capitulation, a day when all the bulls finally threw in the towel, dumped their (short-term) holdings, and refrained from making any dip purchases. There was no bounce at all later in the day – NASDAQ just went down, down, and further down, closing at its low for the day with no hint of any recovery. Yeah, that looks really bad, and it is, but capitulation is what is always needed to mark the turning point for the end of a decline. Sure, we could see a little more weakness, and maybe even a dead-cat bounce followed by a further decline, but the appearance of a strong day of capitulation such as we saw on Wednesday is a very good and very promising sign that a new leg up for this bull market is about to begin. It may take another couple of days, but the writing is on the wall

 

Make no mistake, fundamentals are important, indeed the most important thing, but there is so much hot money flooding the hedge funds that they can swamp fundamentals and result in lots of mini-bubbles and mini-corrections as we have seen in recent months and years. The important thing is that the underlying economy is only getting stronger. Sure, we have have soft spots like a cold winter, but those are mere speed bumps relative to the overall economy.

 

-- Jack Krupansky

What's behind the dip?

Ukraine? China? No, the recent dip in the stock market is just the garden variety of modest correction that occurs all the time in any bull market. People start to feel that stocks are overpriced, and then they go "risk off" and take some money off the table.

 

When will the dip be over? Hard to say – it may already be over, or it way persist for awhile longer.

 

What I do know is that this is in fact a buyable dip. That's not to say that stocks might not dip further, just that they are likely to recover the lost ground in a relatively short period.

 

The economy? It appears to be doing fine, not great, but not terrible, and the U.S. economy is the primary driver of U.S. stock prices.

 

Ukraine and China were just excuses or cover to kick off a modest correction.

 

Now, let me see what stocks I don't already have in my portfolio to pick up at a decent discount to recent prices.

 

A few are: EMC, WDAY, QCOM, NVDA, SSYS, AMAT.

 

-- Jack Krupansky

A day of testing

Futures indicate that the stock markets will open sharply higher, but that's not the end of the story. Whether purported anxiety over Ukraine lingers for a few more days remains unknown, even if the actual financial impact on U.S. stocks is clearly minimal to nonexistent. The question today is whether the bounce is real or a classic dead-cat bounce. IOW, whether bearish traders and speculators use any bounce as an opportunity to "sell into any rally."

 

One scenario is that the market opens sharply higher but then the rally gradually evaporates to either just a modest gain or an outright loss.

 

Another scenario is that the higher open kicks off a short squeeze which attracts bullish speculators and the markets close even higher than the open.

 

And, of course, we could have a classic back and forth struggle with the market gains growing and diminishing all day long and flip a coin whether the close is up or down.

 

The important thing is that the close today will not be a reliable indicator of the actual medium and long-term market trend, it will just be a reaction to yesterday's reaction.

 

My belief is that the market will continue with a modest if erratic upwards trend for months, if not longer.

 

-- Jack Krupansky

Ukraine risk?

Ultimately, the Ukraine crisis means very little to American stocks and bonds, but sometimes traders like to use any possible crisis as an excuse to push stocks down, even if they eventually bounce right back. Treasuries could rise a little as some people see a safe haven.

 

Flip a coin as to whether the markets react significantly to the Ukraine crisis this week. There's at least a 50/50 chance that any reaction will be short-lived and quickly be reversed. And if there is any significant dip at the open on Monday, it could quickly reverse and result in a significant bounce.

 

If futures are down sharply just before the open, I would then expect for stocks to see a loss at the open and then recover somewhat for the rest of the day.

 

If futures are down sharply early and then recover much of that decline, I would expect the market to open without too big a loss or even a modest gain, but then decline moderately through the rest of the day.

 

If futures are fairly tepid for most of the early morning, I would expect the market to behave as if Ukraine was not an issue, IOW, just as it did on any given day last week.

 

In short, there's no good reason to expect a major market decline due to Ukraine, but traders and short-term speculators are not known for taking the long view when sentiment is sour.

 

Actually, I hope there will be a significant dip – to give me a cheaper entry price for the new positions I will be opening over the next couple of weeks for my 2013 retirement contributions. I'll do a couple of buys on Monday, and then continue that pattern all week.

 

Shaeffer's Research will come out with a new Weekend Trader option recommendation at 7 PM on Sunday. That will be one of my Monday trades. I'm in the middle of a one-month trial of that service.

 

-- Jack Krupansky