Thursday, June 19, 2014

NASDAQ hits new near-term peak, but no solid breakout yet

It's great that NASDAQ finally managed a new near-term peak, 5 points above the former near-term (on a closing level) peak of March 5, 2014. This is a very positive development, but... not quite a true breakout. Double tops and double bottoms don't guarantee a solid trend, and sometimes lead to reversals. So, the question of the day and week is whether NASDAQ can remain at these levels in a sustainable manner. A little consolidation would be fine, though.
It's worth noting that NASDAQ was down much of the day yesterday, and a lot of the late-day euphoria could well have been the rather dovish announcement from the Federal Reserve. In general, I usually say that it always takes at least a couple of days for the dust to settle after any Fed announcement. So, let's see where NASDAQ closes next Tuesday and Wednesday before drawing any conclusions.
Personally, I wouldn't conclude that NASDAQ has safely left the March peak behind until it tacks on another 2%, which would mean hitting the 4450 level and staying above that level for at least two weeks.
Futures are up modestly this morning, indicating that NASDAQ will start with a positive bias, but the question remains whether short term speculators have a net "risk on" or "risk off" bias, either building on pops and buying on dips, or selling into any rally and shorting any dips. Only time can tell. But short-term speculators can be rather fickle, riding the trend... until they suddenly reverse and drive the trend the other way. Let's see how long they ride the current bullish trend. Maybe we'll have a repeat of last summer, or maybe not.
The real wildcard here are mutual funds and retail investors. With the economy incrementally improving, maybe incrementally more retail investors will shift from bond funds to stocks and the mutual fund money managers will have no choice but to fund the stock market bull run. Maybe, or maybe not. The point is to be prepared for anything.
I'm fairly fully invested with only modest reserves at this stage, so personally I need to be taking a little money off the table as stocks move up, so that I have reserves to take advantage of the inevitable dips.
-- Jack Krupansky


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