Wednesday, July 02, 2014

NASDAQ scores a clean breakout, but now what?

Okay, finally, NASDAQ has officially (by my tally) scored a break out above the March near-term peak. A 50-point gain on Tuesday puts NASDAQ an even 100 points or 2.3% above the March peak. And... we've closed above that March peak for 9 out of the past 10 trading sessions. Close enough for me to score this as a clean breakout.
 
That said, there is some concern that a lot of this action is simply a lot of short-term speculative hot money that can flow out just as quickly as it flowed in. The real question is to what extent longer-term money managers and even retail investors are investing for the long term as opposed to very short-term momentum speculation.
 
It is worth noting that NASDAQ pulled back from its intraday peak by about a dozen points. That's a mix of good and bad, but certainly healthier than if NASDAQ had run up a lot higher into the close. Yesterday I noted that anything bigger than a 50-point gain would worry me a more of a classic short squeeze than a sustainable rally. Well, yesterday was right at the threshold, so the jury is still out.
 
Where we head now is an open question and depends on money flows more than market technicals or economic and business fundamentals. A gradually improving economy will clearly support a rising stock market, but sometimes markets get ahead of themselves or lag behind the curve for extended periods.
 
Futures are up modestly again, but once again the big question is whether short term speculators pile on or sell into any rally or buy on dips.
 
I myself did sell a little yesterday to raise my cash reserves, which are still too low for comfort, but overall I am fully invested and primarily looking for buyable dips. I do have a short list of stocks I want to buy on dips, but only to the extent that I can maintain and increase my cash reserves as the market moves higher.
 
Part of my selling was "rolling" call options, so I kept the same exposure, but with less money at risk. In one case, Stratasys (SSYS), I sold the call option and bought a smaller position of the actual stock since the call premium was above my threshold. I also sold a couple of shares of Priceline (PCLN) that I had purchased a couple of weeks ago on a dip, with the intention of dumping them after a 5% gain – I made a 4.7% gain. Normally I don't like to do such short-term speculation, but these buyable dips are looking increasingly attractive.
 
I'm going to be buying more LinkedIn (LNKD), especially on dips. It has certainly underperformed over the past year, but I really believe in the company as a "keeper" – even if it takes a year or more for the market to catch up with me.
 
Ditto for Twitter (TWTR), although I think I have enough exposure now from my dip purchases, which I will continue.
 
-- Jack Krupansky

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