Tuesday, July 08, 2014

NASDAQ poised for volatility

Okay, we finally had a little consolidation for NASDAQ after its recent rally, which is a healthy thing in any case. Now the big question is where to next. NASDAQ could consolidate awhile longer, continue slogging upwards, or reverse and trend downwards, all with equal probability, even if the longer-term trend is still up.
 
The big uncertainty is whether short-term speculators will be taking a "risk on" or "risk off" bias heading into the quarterly reporting season. They may have fueled the recent rally as part of a "buy the rumor and sell the news" strategy, and decide to reverse and bet for the downside now that the news will be taking center stage. Hard to tell – I don't have any inside track on what happens at hedge funds.
 
I'm fairly confident that NASDAQ will be higher come September, but we could also see some serious dips and wild volatility along the way.
 
NASDAQ futures are down modestly this morning, suggesting a dip at the open, but the question is whether people will pile on to push the market down or buy the dip. And if and when there is any dip buying, whether it will quickly peter out and turn into a "sell into any rally" decline. Most likely, we will see a mix of both, with NASDAQ ending moderately up or down by 5 to 25 points. But a big selloff is certainly not out of the question given that we are only one day back from a long holiday week of slow trading. OTOH, if short-term speculators take a "risk on" stance, NASDAQ could set another near-term high.
 
-- Jack Krupansky

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