Thursday, July 17, 2014

NASDAQ poised for more volatility, seeking direction

Wednesday was an interesting test for NASDAQ, with a great opportunity for a rally on the back of a strong rise in Intel (INTC), but besides a rally by Microsoft (MSFT), people mostly sold into the rally, cutting two thirds of the initial 30-point pop at the open. Not surprising, but not so pleasant either. This is a mixed bag, with enthusiasm for solid quarterly reports, but generally selling off the broader market.
 
And there is lingering negativity towards social media and other momentum stocks based on comments from Fed Chairperson Yellen on Tuesday about these stocks being overvalued when she said that "Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched." Sure, short-term bearish speculators will milk this kind of "news" for all it's worth, but soon enough their own momentum will peter out and we'll see a nice pop in all of them as those bearish speculators take their profits.
 
NASDAQ futures are down moderately sharply, for no specific reason that I can see – it's a fielder's choice for traders to pick their excuse du jour, but overall I think it's a broad "buy the rumor, sell the news" effect based on the widely-held perception that Q2 reports would be relatively decent.
 
I did indeed sell off my short-dated Intel options at the open, for a very nice two-day profit, and decided to buy a smaller long stock position for the long run that was a quarter the size of my original position. So, I'm still in the Intel game, but not overweighted.
 
I also sold off two thirds of my Microsoft call options since the stock had a very nice pop. I'm still way overweight with Microsoft and I also have some call options that position me to capture any further gains, like the pop expected this morning based on big layoffs, but with minimal downside risk.
 
I'm anxiously looking to pick up some Sandisk (SNDK) this morning on its big dip. It's a solid company with great prospects, but... Wall Street traders and speculators don't usually look to the long term. I may buy half my desired position at the open and then the other half this afternoon in case it swoons further, or I may just buy the full position at the open to cut the hassle. It will only be a relatively modest position anyway, so a couple of percent won't make a big difference in my day.
 
-- Jack Krupansky

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