Tuesday, June 10, 2014

NASDAQ poised for breakout or a breather

NASDAQ limped upwards moderately on Monday, but not with a lot of conviction, with quite a few former momentum leaders showing losses for the day. Futures are down again today, suggesting that traders once again think NASDAQ is due for a breather and some consolidation and more likely to trade back down rather than break out of its trading range to a new high above the former near-term peak on March 5, 2014.
 
NASDAQ only needs a hair over half a percent to top that March 5, 2014 near-term peak. Sure, it's clearly within striking range, but the weak action for former momentum leaders raises a bright yellow flag.
 
The important thing is that it is not so much a matter of the chart price numbers as a question of how much sidelined money will be enticed into the market. If just a few hedge funds become just a little more bullish or just a modest fraction of retail investors jump back into the market, that March peak would be gone in a heartbeat, but all it takes is a little more bearish sentiment to bend the curve and send NASDAQ tumbling down in its trading range.
 
I continue to expect this week to be a volatile struggle for direction. NASDAQ lost virtually all of its early gains on Monday, but then bounced back and regained half of them. Not a sterling example of a market with conviction. But, a lot of this lack of conviction is likely due to simple anxiety over where the breakout above the March peak will occur – and stick.
 
I still refer to the past three months as a "mini-correction" for NASDAQ. It wasn't quite enough to qualify as a 10% market correction, but 8% is close enough and three months (so far) is certainly long enough to qualify for a correction in all but name. Still, I think mini-correction and trading range are more apt descriptions for NASDAQ over this recent period.
 
Another factor is that the Dow and S&P have rallied over that three month period, with a bit of sector rotation out of NASDAQ and its former momentum leaders, so maybe the hedge funds might choose to rotate again, back to NASDAQ and its former momentum leaders.
 
The bottom line is to expect some more volatility and anything goes in terms of sharp moves higher or lower.
 
-- Jack Krupansky

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