Friday, July 18, 2014

NASDAQ stuck in trading range, for the moment

With the sharp decline on Thursday, NASDAQ is now firmly stuck in a trading range, well below the recent peak. How long it stays in that range is indeterminate. It may be for the duration of the Q2 reporting season, maybe just a couple of weeks, or the rest of the summer.
 
Hard to say if the jet crash in Ukraine was really the reason for the sell-off, or just a convenient excuse for traditional "buy the rumor, sell the news" for the Q2 reporting season which was always expected to see better reports anyway.
 
A key thing to watch is whether NASDAQ does clearly bounce off the bottom of the trading range, or sets a new short-term low indicating more of a mini-correction. Traders do like to "test support" on occasion to gain confidence about a market before continuing an advance.
 
I used the sell-off to pick up some Google (GOOG) and Workday (WDAY). I sold the rest of my Microsoft (MSFT) call options on the early pop, and replaced them with some short-dated calls that expire shortly after the quarterly report on Tuesday, to capture any further short-term rise in Microsoft with less money at risk. I also picked up a little more Michael Kors (KORS) since it looks like it has been bouncing for the past couple of days, signaling the end of its long decline since its February peak.
 
It's Friday, so short-term speculators will tend to close out positions ahead of a long weekend, when anything can happen. What we don't know if those are net long positions or net short positions, especially after the recent declines and anxiety over Ukraine again, as well as both positive and negative anticipation over the meat of the Q2 reports next week.
 
-- Jack Krupansky

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