NASDAQ set for another test of durability of the breakout

NASDAQ managed to survive its first test yesterday, preserving the breakout from its trading range, and then some. It's still too early to call it a clean new leg of the advance, but yesterday was a good sign. Today will be another test of the durability of this breakout. We could see a little consolidation at this stage as well; markets rarely move in straight lines for very long.

 

Futures are up modestly, suggesting a modest pop at the open, but the big question remains whether people will pile on to the rally or start selling into it.

 

The bears have been held at bay for a number of days now, but sooner or later the buying pressure will dwindle and even evaporate, and that's when the more patient bears will pounce and traders will reverse their bias to "risk off." Whether that happens today, this week, next week, or next month remains to be seen, as does the response of more bullish speculators and investors who are also patiently waiting with their money on the sidelines for a more clear and convincing sign that the market is solid enough for them to take a more definitive "risk on" posture.

 

And all of this is occurring in the context of the summer doldrums of slow trading, so regardless of where we end up come Labor Day, it will be a whole new ballgame once the "serious hitters" get back from their extended summer vacations.

 

Meanwhile the underlying U.S. economy continues to incrementally improve, albeit in a somewhat sluggish and bumpy manner, which will continue to support an incrementally advancing stock market. Sure, we will need to exercise caution if the market "gets too far ahead of itself", but given the performance of the market year to date, that doesn't seem to be an imminent problem at all.

 

I will continue to incrementally take some profits to raise my cash reserves so that I can buy on any significant dips.

 

-- Jack Krupansky