Monday, June 09, 2014

NASDAQ facing another moment of truth

NASDAQ posted another week of healthy gains and is now poised about 1.25% below it's near-term peak on March 5, 2014. Futures are down modestly, indicating that traders are biased towards NASDAQ taking a breather and consolidating a little, but futures aren't necessarily a great indicator of how sidelined money will play out as the day progresses and finally ends.
 
The infamous "sell in May and go away" traditional seasonal trading pattern is now effectively behind us, as a no-show. Ukraine is muddling along. The U.S. economy is plugging along. Q1 and the bad weather of the winter are now behind us. The end of Fed taper is still months away. Rising Fed rates are even further away. Q2 is near its end. In short, everything is positioned for an ongoing bull market, with one major uncertainty – how much sidelined money is poised to jump into the market vs. people anxious to "take some money off the table" to protect their profits.
 
NASDAQ is poised to either break  out of its trading range bounded by the March 5th peak, or to trade back down in that range.
 
Anything could happen at this stage. Up or down 5 (or less) to 20 points. Up or down 50 points. Even up or down 100 or more points. Arguments can be made for all of these very short-term outcomes. Nonetheless, I do believe that NASDAQ will continue its gradual recovery from the April 11, 2014 trough (higher lows), albeit with a lot of volatility and occasional trading ranges along the way.
 
One concern is that a fair amount of the NASDAQ recovery from that trough has been a rotation into more traditional technology stocks such as Apple and Microsoft, while quite a few of the former momentum leaders have languished. How that rotation will continue and evolves will be interesting to see. Rotation makes the market shift around, but doesn't really help that much in the long run – only additional in flows of sidelined cash can do that.
 
-- Jack Krupansky

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