Friday, October 31, 2014

NASDAQ poised for a nice bounce as market seeks its post-Fed feet

Yesterday was a tough day for stocks as they struggled to figure out where they should be now that the Fed is out of the picture "for a considerable time." It will take another two or three days to finish with this-dust settling process.
NASDAQ futures are up sharply, nominally due to the Japanese stock buying program, but in truth that is really more of just a cover by traders who are always reaching for excuses to "shake things up." Sure, we'll see a nice pop at the open, but the question is whether lots of people will pile on for yet another short squeeze or start selling into the rally. It's a Friday, not to mention a lot of people distracted by Halloween, so trading could be somewhat atypical with the weekend in front of us, when anything can happen. The real action will be on Monday when all the serious speculators have had time to digest and more deeply ponder the Fed statement and really start to place their serious post-Fed bets.
The big question is whether short-term speculators (the hedge funds) are looking to start trading down in the broader trading range, or... stage a breakout to new yearly highs for NASDAQ.
I'll be starting to look for opportunities to at least partially exit from some of my recent dip purchases as they hit 5%, 10%, and 15% gains.
-- Jack Krupansky

Thursday, October 30, 2014

NASDAQ seeks adustment after Fed meeting run-up

Okay, great, we finally got the infamous Fed meeting that ended QE buying out of the way. No more discussion needed on that front! So, now NASDAQ needs to find its feet and return to some more natural trend based on actual economic and business fundamentals rather than the positioning and posturing ahead of the Fed meeting. But as I have said, it will still take a couple of days or even a week for the dust to settle.
NASDAQ futures are down moderately this morning, for no great, particular reason, probably just traders wanting to test whether recent gains are indeed durable. So, we will have a moderate dip at the open. But then what? Exactly! We'll see if there really are plenty of people lined up to sell stocks they could have sold yesterday. Or, people who are willing to buy the dip. Ultimately it is a question of exactly how the hedge funds decide to set their bias for the short run here, whether it be "risk on" buying or "risk off" selling. Or more precisely, how many of these hedge funds seek to change or enhance their bias on a daily basis.
A moderate bit of consolidation here would be no surprise at all. Or, renewed hedge fund buying as well. It's not possible to judge the degree to which hedge fund "appetites" for either taking on risk or laying off risk are sated and diminishing or growing. The real net effect is that we will continue to have range trading moderated by longer-term money flows from non-hedge investment managers and retail investors, the latter being hard to discern though all the noise of range trading.
Now that the Fed meeting is history, the next question is when the Fed will start raising rates. The earliest estimate is March, the latest is September, with June as the best guess for the most likely "liftoff" point. All of that is still too far off in the future to have any significant short-term impact on stocks – other than what is already priced into stocks.
The real bottom line here is that the economy continues to incrementally improve – which is why QE buying is no longer needed, duh – which should provide longer-term support for an incrementally rising stock market, although the longer-term trend is rather hard to see when you layer all the hedge-fund range trading on top of it.
I'll consider some more dip buying on any additional 5% dips of any of my stocks.
-- Jack Krupansky

Wednesday, October 29, 2014

NASDAQ poised for volatile trading due to Fed meeting

NASDAQ had a nice rally in advance of the Fed meeting on Tuesday, but it's always difficult to spot the longer-term trend when there is an excess of short-term trading, jockeying, positioning, etc. As expected, the Fed will announce that the QE buying program is now over. As expected, the Fed will also announce that they will keep the fed funds target rate pinned to zero for an extended period of time. As expected, the market (overall) will continue to expect that the fed funds rate will start to rise gradually starting in June or so and end the coming year at around 1% or 1.25% or so. None of that will really change after the Fed makes its announcement at 2:15 PM today or after an hour of the following press conference with its rather mindless questions. But... all day there will be an excess of volatility as short-term traders try to guess not what the Fed will say but how their fellow traders will react to each other's trading. Talk about a dog chasing its tail! Where it all ends up at the proverbial end of the day is anybody's guess. We could see a giant rally at relief that the Fed QE buying program is now behind us, a rally on the news as it were, or... we could be experiencing a bit of classic "buy the rumor, sell the news" trading so that the market could sell off steeply once the news has "printed". And after the moment of the meeting announcement we could see both, with dramatic whipsaw trading in both directions, and maybe even close flat as the dramatic tug of war reaches a stalemate. Either way, tomorrow will be an "adjustment" to whatever happens today. And it will take several days for all the dust to settle and the market finally begins to seek its intermediate term trend.
NASDAQ futures are down moderately, indicating an opening dip as traders feel that a little "consolidation" is warranted after the recent outsized gains, but, as always, there is no clarity as to whether people will pile on to that dip for a broader selloff after the opening dip, or whether people will buy the dip. And given the anxiety over the Fed meeting announcement in the afternoon, none of this initial posturing means very much. In any case, expect a lot of trendless volatility.
I'll be picking up some more Facebook (FB) at its opening dip. Once again, Wall Street has an irrational short-term knee-jerk response to a quarterly report. None of this is about economic or business fundamentals – it's all "technical" and superficial reaction to news to use it as a cover for short-term technical trading and outright market manipulation by hedge funds. Within a few weeks or a month or two the stock will have recovered from this dip.
-- Jack Krupansky

Tuesday, October 28, 2014

NASDAQ bulls and bears continue jockeying around the Fed meeting

The bullish and bearish speculators seemed to settle on a tie on Monday, although most of my momentum stocks did take a hit as their momentum evaporated. Today futures are up moderately, suggesting that traders are seeking to tip the balance in this bull/bear standoff ahead of the Fed meeting. None of this jockeying really matters until we get a few days past the Fed meeting.
I'm still curious how the Alibaba (BABA) trend will shape up now that the stock is trading above it's IPO open. It's rising, but is that simply a short-term blip or the start of a longer trend.
Once again, Wall Street speculators are over-reacting to a quarterly report, this time for Twitter (TWTR). I'll buy more on the opening dip, and maybe even more if there is a further significant dip later in the day.
-- Jack Krupansky

Monday, October 27, 2014

NASDAQ poised to continue tug of war between speculative bulls and speculative bears

NASDAQ has had a nice run, so it would be no surprise to see a moderate amount of consolidation here, but the big show is the ongoing tug of war between the more bullish speculators and the more bearish speculators. The additional focus of this week will be positioning ahead of the Fed meeting as well as the post-meeting reaction and positioning. No significant news is expected from the meeting announcement on Wednesday, with it being more of a formality for the end of the QE buying program. In truth, the action before the meeting and after the meeting should all net out and reveal the actual medium-term trend. It may take a full week for the dust to settle.
NASDAQ futures are down moderately, indicating a dip at the open, but the question is whether the bias for the day will be to pile on to dips and sell into any recovery rallies, or to buy on dips and extend any gains. Flip a coin – the intraday volatility is likely to be greater than the actual gain or loss for the day.
Now that Alibaba (BABA) is finally in the black from the opening day price on the IPO, it will be interesting to see how people treat this interesting stock.
-- Jack Krupansky

Friday, October 24, 2014

NASDAQ again poised for consolidation of gains

Great, we had another big up day for NASDAQ, which leads us directly to... another great opportunity for at least a bit of consolidation. It does indeed look as if a fair number of hedge funds have shifted to a "risk on" posture, driving this advance. That leaves open the question of what their target is, whether it is the upper portion of the broader trading range (September 2nd peak), a new high for the year, or merely a narrower trading range but still well below the September peak. We'll just have to wait and see what these hedge funds decide. But even if some of the early birds do bail out and revert to a "risk off" bias, there may be enough latecomers as well as retail investors and mutual fund managers to carry the tide higher. For today, the presumed bias is at least a little bit of consolidation. But just because that is the presumed bias does not mean that the majority will follow through on that bias.
It's a Friday again, so a fraction of short-term speculators will tend to close positions ahead of the weekend when anything can happen. Since it has been an up week, those net positions are likely long, which means closing them would result in selling. How big a factor this group will be today is of course unclear.
We will also have a duel between enthusiasm for the Microsoft (MSFT) quarterly report and disappointment over the Amazon (AMZN) quarterly report. I intend to pick up more AMZN on a 10% dip. Once again, Wall Street overreacts to a solid business that they don't fully appreciate – for traders and short-term speculators, the word "investment" is a four-letter word.
NASDAQ futures are down moderately, suggesting a dip at the open, but whether people pile on for a deeper sell-off or buy the dip remains to be seen. If there is a recovery from the opening dip it will also be interesting to see if people pile on to the recovery bounce or whether they sell into any intraday rallies.
Ebola? Just another excuse used by traders as a "cover" for their underlying technical moves, in this case a bias towards consolidation after a big gain.
Looking ahead, we have the infamous Fed meeting on Wednesday, when they will officially end the QE buying program. No surprises expected, but there will be some relief at getting the expected news behind us. Whether NASDAQ rallies ahead of the meeting or after the meeting remains to be seen, but it will be a few days after the meeting before the dust settles and the market starts to discover its trajectory in a post-QE trading posture. Do note that QE itself will not be completely over since the Fed will still be sitting on all of those assets that they have already purchased for years to come.
And plenty of quarterly reports will be flowing in to keep the market bouncing around for the next couple of weeks.
I did sell some of my dip purchases yesterday at 5-15% gains, including Apple (AAPL), Tableau Data (DATA), and a third of my Netflix (NFLX) dip purchase although I intend to let most of it ride and maybe even keep some of it as a long-term holding.
-- Jack Krupansky

Thursday, October 23, 2014

NASDAQ poised to size up its resiliency

The "consolidation" for NASDAQ on Wednesday was well within the bounds of reason and quite acceptable given the size of the recent gains and the extent to which a good fraction of those gains was likely simply short covering. Now we need to see whether consolidation has runs its course or not. Once again, flip a coin, and it depends on whether the hedge funds who drove the gains with a "risk on" posture will stick with that bias or decide to reverse and try to play a narrow trading range rather than risk their gains on a further rise in the broader trading range.
NASDAQ futures are up moderately strongly, suggesting a nice pop at the open, but the question is whether that pop kicks off another short squeeze and whether more hedge funds take a "risk on" posture, or... whether more hedge funds abandon their very short-term "risk on" bias and revert to a "risk off" posture and sell into any rallies, as some did on Wednesday.
It will be interesting to see how people position themselves in advance of the quarterly results from Amazon (AMZN) and Microsoft (MSFT).
I'll pick up some more Yelp (YELP) on its big dip this morning. Typical Wall Street over-reaction, but it always creates buying opportunities for us longer-term investors.
-- Jack Krupansky

Wednesday, October 22, 2014

NASDAQ poised for a little consolidation before next leg up

Traders and speculators will certainly have to pause and digest these big gains that we've had lately in NASDAQ, a little "consolidation", before any additional leg up in the coming days. A fair chunk of the gains were most likely due to a short squeeze as speculators bought to cover short positions to protect their gains, but I'm sure some decent fraction of the buying was due to short-term speculators who switched to a "risk on" posture. The two big questions are whether additional speculators will similarly switch their bias, and at price level these risk-on speculators will reverse again and cash out those long gains and resume shorting. IOW, whether we are going to stay in a relatively narrow trading range here or are heading up towards the upper edge of the broader trading range and maybe even a new NASDAQ high for the year.
NASDAQ futures are down slightly, indicating a very modest dip at the open, probably on the expectation that there are plenty of speculators who got caught in the short squeeze and are itching to reopen their short positions at a better price. So, the big question here is the degree to which people pile on to any opening dip for any deeper consolidation, or whether they buy the dips during the day, or whether they sell into any further rallies during the day. Whether today becomes a modest up day or a down day is really a true 50/50 coin flip.
I almost sold a couple of my dip positions yesterday, but... I'd prefer to let them ride until NASDAQ gets further up towards the upper portion of the broader trading range. But I do indeed intend to start raising my reserve cash level as any additional NASDAQ gains occur.
In any case, all of this recent activity is "technical", based on stock trading charts and trading volume, not based on actual business and economic fundamentals, which really haven't changed much at all in the past couple of months. My mantra is the same: The economy continues to incrementally improve, albeit at too sluggish and inconsistent a pace for your average ADD-afflicted Wall Street trader or short-term speculator.
-- Jack Krupansky

Tuesday, October 21, 2014

NASDAQ poised to test its new legs

Monday was a mixed but still semi-decent day for NASDAQ. On the negative side, my concern is that a large chunk of the gain was likely simply short covering, a classic short squeeze, but on the positive side I strongly suspect that a healthy chunk of the buying was by hedge funds that at least tentatively have switched from a "risk off" bias to a "risk on" posture and really do intend to run NASDAQ back up towards the upper edge of its broader trading range. IOW, the desire for a 10% "correction" has run its course, so the path of least resistance is to retrace the path in the broader trading range. That said, we could also be in a narrower trading range and the nice pop may fizzle  and reverse within a few days. Still, this does have more of the feel of last May when the emergent "correction" fizzled out and NASDAQ leapt towards the sky, again.
NASDAQ futures are up moderately strongly this morning, maybe on relief that Apple (AAPL) had decent quarterly results yesterday afternoon, suggesting a nice pop at the open. The big question is whether enthusiasm builds after that opening pop, or fizzles quickly and we see intensive selling into rallies. That latter could happen, but it just feels like the former is more likely. Still, it could take a few more days before the specter of a 10% correction is behind us.
My dip buying is now likely behind me as I focus on whether to sell some of these dip positions at 5% or 10% or 15% gains or keep them until NASDAQ gets closer to the upper edge of its broader trading range.
-- Jack Krupansky

Monday, October 20, 2014

NASDAQ poised to test durability of new base

NASDAQ finally had a semi-decent dead-cat bounce on Friday, so now traders and short-term speculators will be inclined to test and see if the new base actually holds. There is resistance on the upside with the January and March peaks, so we could see some narrow range trading for a bit here,  especially since the next two weeks are focused on anxiety waiting for the Fed meeting that will officially end QE buying just before the end of the month.
NASDAQ futures are down modestly, indicating a modest dip at the open, but the question is whether short-term speculators pile on to resume a sell-or or at least to test the new base, or if some of the more adventurous short-term speculators may be reversing their "risk off" bias to "risk on" to get the jump on the less adventurous cynical speculators and take advantage of the swing trade back towards the upper end of the broader trading range as the October anxiety starts to subside.
Futures are not a fully reliable predictor of even the direction of the trend for the rest of the day, and very frequently are a head-fake and the market then trends in the opposite direction for the rest of the day.
We could see some incremental selling today due to speculators who were forced to close out short positions during the dead-cat bounce on Friday and will seek to re-open those same short positions today, either at the opening dip or by selling into any subsequent rallies during the day. Just about any rally during the day today will be suspect as yet another dead-cat bounce.
I would rate the durability of the new base at about 50/50, so... flip a coin. Well, actually, I'd bet it as 35-45% odds to a new short-term low and 55-65% odds to the upside, not necessarily today, but over the next few days. The big wildcard here is not the economy or business fundamentals, but simply what short-term "risk on" vs. "risk off" trading bias posture a lot of the hedge funds take. Do they still have a ton of free cash that they want to throw at new bets to the downside, or... are they ready to cash out their profits from their short positions and place long bets to play the swing trade back towards the upper edge of the broader trading range? In truth, I have no way of knowing where these guys stand, but just that it does matter to the short-term direction of the market.
I still have cash available to take advantage of additional big dips, but I'm not expecting that to happen. I may pick up some more Bank of America (BAC) and TD Bank (TD), and am considering some Suburban Propane (SPH) as well. The latter two have decent dividends and the former has plenty of upside as they incrementally dig out of the remains of the financial crisis.
-- Jack Krupansky

Friday, October 17, 2014

NASDAQ poised for a decent dead-cat recovery bounce

As I had suggested, NASDAQ is searching for a base here. Neither the actuality nor the outlook for business or economic fundamentals of the U.S. economy has changed significantly over the past month – this entire "correction" is entirely "technical", a short-term "move." Hedge funds saw an opportunity to move the market and took it. Now that "move" has run out of steam, or so it seems, and traders and short-term speculators are jockeying to determine how real and definitive the emerging "base" really is.
By my own calculation, NASDAQ just barely "touched" a 10% decline from the 2014 peak on Wednesday and then again on Thursday at the open, but in both cases there was an immediate recovery bounce, strongly suggesting that this "correction" is 100% a contrived "technical" move rather than based on fundamentals. Traders and short-term speculators may still try a couple more times to break below that 10% "correction" level, but I suspect that this "mini-correction" swing has mostly run its course. I can see from a lot of my own stock positions that there was a lot of dip buying for the smaller popular momentum stocks, even as the larger-cap big names were weak.
NASDAQ futures are up sharply this morning, indicating a nice bounce at the open, but as always, the question is whether people pile on to that initial pop to build a dramatic short squeeze, or whether people sell into the rally in an attempt to test the durability of this emerging base.
It's also a Friday, so short-term speculators will tend to close out positions in advance of the weekend when anything can happen. In this case we could see buying if people are net short the market.
Whether any recovery bounce today manages to stick through next week remains to be seen. That's why they call it a dead-cat bounce. I think it will, but even for me that is a 50/50 proposition. But I've placed my bets based on my expectation that if we aren't at the bottom, then at least it is relatively near.
I suspect that my dip buying has run its course for this "correction." Now the question is which dip positions I sell for a 5% gain, a 10% gain, and a 15% gain, vs. keep as part of my long-term investments.
-- Jack Krupansky

Thursday, October 16, 2014

NASDAQ again poised to search for a bottom

NASDAQ is certainly taking a wild ride here. Sure, chatter about economic weakness is all the rage now, and is a real issue in Europe, but the U.S. is doing fine and continuing to incrementally improve (more workers getting hired every day.) Don't get confused by monthly volatility in economic reports. It is the longer-term, smoothed trend that matters. As economists like to say, the latest data point in a series does not establish a trend.
NASDAQ did break below it's previous broad trading range, but looks to be forming a base for an even broader trading range.
Traders obsess over things like round numbers for their psychological impact, like 10% as being some magical threshold for a "correction." Fundamentals have no such concept.
NASDAQ did dip a bit below that 10% "correction" level for a bit yesterday, but recovered sharply into the close. That doesn't mean we are out of the woods yet. Traders will try a couple more times to break below that magical psychological barrier. And, to repeat, none of this has to do with business fundamentals or the incremental strengthening of the U.S. economy.
I'll almost certainly buy more Netflix (NFLX) on its 25% opening dip. This type of irrationality by Wall Street traders is a major boon to us investors more focused on the longer term for enduring brands.
Yesterday I picked up more Akamai (AKAM), Banco Santander (SAN), Cypress Semiconductor (CY), Solar City (SCTY), Under Armour (UA), and WorkDay (WDAY) on the dip.
I'll consider picking up more stocks on any additional major dip, after I load up on NetFlix.
-- Jack Krupansky

Wednesday, October 15, 2014

NASDAQ testing whether a new base can be formed

Okay, NASDAQ did its dead-cat bounce thing yesterday, albeit not with a lot of conviction. The relative weakness of the bounce leads people to believe that the market has a high risk of heading further down, so... that's what traders will test for in the coming days. None of this has anything to do with business fundamentals or the strength of the U.S. economy – which continues to improvement incrementally as each day, week, month, and quarter passes buy. That doesn't mean that every period of time will be uniformly better than the previous period, but that on a smoothed basis the improvement in the underlying economy is more obvious.
NASDAQ futures are down sharply, not on any particular fundamental news, indicating a significant dip at the open, but the question is whether we see significant selling after that initial dip or whether we start to see people buying the dips. The important thing at this stage is not whether everybody starts buying, but whether enough of the more adventurous speculators start to buy ahead of the pack so that we start to see a tentative "base" start to form. Then, as traders continue to test that base to probe for weakness, the less adventurous speculators will begin to realize that their room for additional profit on the downside is limited.
We're halfway through the month, halfway to getting the Fed meeting which ends the QE buying program behind us, so there will still be plenty of room for cynics to express their anxiety. The question is about those more adventurous hedge funds and exactly when they will be ready to go "risk on" with a bit more commitment.
It will be interesting to see how enthusiastically people respond, positively or negatively to Intel's (INTC) latest quarterly report, not so much initial response today, but how the stock trends over the next few weeks. I have a small position, which I will expand if there is any dramatic weakness.
-- Jack Krupansky

Tuesday, October 14, 2014

NASDAQ poised for a second shot at a dead-cat bounce

NASDAQ did take a shot at a dead-cat bounce on Monday, but it was too halfhearted and there was still too much extreme negative sentiment that hadn't completely played out – and too many hedge funds with cash they hadn't deployed yet – so enthusiasm quickly evaporated and extended the sell-off. But today could be different. We have some initial quarterly reports to help counter the negativity of the sell-off – fighting fire with facts.
NASDAQ futures are up sharply this morning which will assure that a decent short squeeze gets kicked off at the opening, which should in turn cause traders to smell the blood (of shorts) in the water causing them to incite more buying which in turn pumps up the short squeeze buying. Any sustained buying will only encourage short-term speculators to consider reversing their bias from "risk off" to "risk on." Granted, that initial short squeeze could quickly peter out and revert to another selloff as happened yesterday, but this time there will be fewer hedge funds with the necessary fire to passionately throw a lot more money at the market.
If the rally does turn into another rout, I'll be adding to my existing positions.
-- Jack Krupansky

Monday, October 13, 2014

NASDAQ poised for a dead-cat bounce

As I indicated in my previous post, the sharp decline for NASDAQ on Friday was much more a technical matter related to breaking below the lower edge of the broader trading range rather than based on fundamentals of the U.S. economy. Today we will see whether there is any significant follow-through for that technical move.
NASDAQ futures are ambivalent this morning, but almost seem to be pointing to a dead-cat bounce today. Whether hedge funds still have oodles of cash that they are ready to throw at fresh short positions remains to be seen. I strongly suspect that they placed their bets last week and are now much more interested in cashing out their profits, or at least protecting those profits.
It will be interesting to see if "too many people are leaning in the same direction". IOW, if too many people are sitting on short positions and there is no long line of people standing ready to immediately open additional short positions, then we will hit a condition known as "selling exhaustion", in which case traders will note volume falling and reverse their bias and kick off a short squeeze, which is commonly known as a "dead-cat bounce" – because even a dead cat can bounce.
If the market does decline further significantly, I'll be picking up additional stock as indicated in my previous post.
Global growth slowdown? Sure, that's happening, but... the U.S. economy is incrementally picking up steam, so for the coming few years the U.S. will be leading the rest of the world, making U.S. stocks the investment of choice. Don't confuse "trader talk" with the real world economy.
-- Jack Krupansky

Saturday, October 11, 2014

NASDAQ breaks below its broader trading range as hedge funds flex their muscles

NASDAQ had been "dangerously flirting" with the lower edge of its broader trading range for some time, so it was really only a coin flip probability of whether or when it might break below that lower edge. That "break" occurred on Friday. The bottom line is that there was no significant buying enthusiasm at the lower edge. Traders don't like inactivity, so in the absence of activity they will create some of their own and reverse their positions and bet on a move in the opposite direction.
Friday illustrated the power of hedge funds as well. They are not long term investors like the big mutual funds. They are speculative in nature. Sure, they will sometimes "invest" in the larger "name" stocks – but only to the extent that the momentum is in their favor, and as soon as momentum peters out... they bail out. And... they are not hesitant to place massive short position bets when they feel that there is blood in the water, such as happened over the past week and on Friday in particular when there was a complete lack of commitment to buying as NASDAQ probed the lower edge of its broader trading range.
So, what does this mean? Actually, not very much! It's hard to say how much money the hedge funds deployed last week on their downward short bets, nor do we know how much more money they might be willing to bet, nor do we know how patient they intend to be at holding those short positions. The problem with hedge funds and short positions is that the only way to exit them is to start buying the stocks, which puts upwards pressure on the price, which limits their gains. So, they have to be careful with the size of their short positions so that their own exit doesn't crush their own profits. And if another hedge fund starts exiting ahead of them, well, it's called... a short squeeze, which is not good for hedge funds with large short positions.
In short (ha, ha!), there is no telling whether the sell-off, still a "mini-correction", is hitting its limits or merely getting started for a true (10% or more) full-blown correction, but it is likely just opportunistic short-term trading and speculation as people wait for the Fed meeting and the end of the QE buying program to be behind us at the end of the month.
Besides, the fundamental driver for U.S. stocks is the health and outlook of the U.S. economy, and the U.S. economy continues to incrementally improve (more people working as every day, week, month, and quarter tick by) – which is the primary impetus for the end of the QE buying program in the first place.
Now, I need to work on my short list of preferred momentum stocks to pick up if there is any further dip of NASDAQ. Maybe a couple of chip stocks, like maybe some more Cypress Semiconductor (CY) or NVIDIA (NVDA) or Qualcomm (QCOM) or Applied Materials. I'm also considering some more Banco Santander (SAN) or TD Bank (TD).
-- Jack Krupansky

Friday, October 10, 2014

NASDAQ still grappling with the lower edge of the broader trading range

NASDAQ is still "desperately flirting" with the lower edge of the broader trading range, demarcated by the August low and the March peak. We're seeing dramatic whipsaw volatility as traders and short-term speculators can't make up their minds and make a commitment to either an outright breakdown and full-blown correction or to merely trade back higher into the broader trading range. The good news is that this volatility also has the effect of "creating a base" for a new "up-leg". Whether NASDAQ stabilizes in the next day or two or takes a full week or two or the rest of the month (which would put the Fed meeting behind us) is of course unknown, but at least so far this is all simply trading range behavior.
As a side note, the low and close for the day on Thursday were still higher than the intraday low on Wednesday. Interesting. But consistent with mere trading range volatility.
NASDAQ futures are down strongly, suggesting a big dip at the open, but whether people pile on for a deeper sell-off after the open or start buying the dips during the day remains to be seen.
And it is a Friday, so some fraction of speculators will tend to close out positions ahead of the weekend when anything can happen. If those are net short positions, then we could see a nice recovery bounce... or not.
In any case, this is all simply short-term trading and speculative activity and not any indication of where the markets might be headed in the months ahead.
-- Jack Krupansky

Thursday, October 09, 2014

NASDAQ needs to adjust to yet another short squeeze

That was a nice pop for NASDAQ on Wednesday, but... it smelled like a classic short squeeze, with selling reach "selling exhaustion" (and proximity to the lower edge of the trading range), which led to traders reversing their bias, at least for the day, and betting on the upside which put pressure on the shorts to cover and protect their gains from short selling. The Fed minutes really didn't say anything new and different, so that was just a cover, an excuse, for traders to ply their short-term trades.
NASDAQ futures are down moderately, suggesting a dip at the open. This is probably recognition by traders that the pop yesterday was indeed a short squeeze, so that bears with cash are now ready to pounce again with new and deeper short positions. Still, futures don't tell us how people will trade after the opening trades have completed – will they pile on for a renewed sell-off, or will they buy the dips and extend the short squeeze?
In any case, we are still in a broader trading range, and the extent of these short squeezes strongly suggests that the sell-off is almost purely classic range trading rather than true investors doing any significant selling of investment, rather than trading, positions.
The bottom line is to expect plenty more of this trendless volatility in the broader trading range.
-- Jack Krupansky

Wednesday, October 08, 2014

NASDAQ continues to probe lower bound of broader trading range

Not to repeat everything I have said recently, and it is all still relevant, but the "throw in the towel" sell-off for NASDAQ on Tuesday was still well within the current, broader trading range, with the August dip and March peak demarcating the lower edge of that range.
NASDAQ futures are up a little, indicating a very modest bounce at the open, but the question remains whether people pile on with a lot of dip buying or just continue to sell into any rallies here. It could go either way. I mean, one of these days the short-term trend (a mini-correction) will indeed reverse, but whether that reversal happens today or tomorrow or next week is too unpredictable to tell.
I may pick up a little more QQQ to profit from the dip. QQQ is still more than 2% above it's dip level in August.
-- Jack Krupansky

Tuesday, October 07, 2014

NASDAQ still trying to test whether the current trading range will hold

Monday's trading for NASDAQ was a perfect example of what the day after a big short squeeze looks like – traders start the day with positive sentiment which quickly runs out of steam because the previous day's buying was mostly short covering, and then sentiment flips over and runs negative for the rest of the day. Today the opening sentiment complements that euphoria, starting out negative mostly because the previous day ended on a down note. This is all typical volatility that one finds in a trading range.
NASDAQ futures are down moderately, suggesting a dip at the open, but whether people pile on for a bigger sell-off or start buying into the dip is not predicted by the futures (they should offer a post-futures contract for that!). We could in fact see a bigger dip in the morning, and then a significant recovery from that dip, or at least a modest bounce from the dip late in the day, or... this may morph into a throw-in-the towel sell-off right into the close.
Another factor is that since there was a large opening "gap" on Friday, traditional traders will feel a moral obligation to "fill the gap", by selling off until NASDAQ has traded down to completely erase Friday's gap, and then we will be back to square one. A bounce would likely occur at that point, but is not preordained.
All of this is mere trading range behavior and has nothing to do with the state of the U.S. economy or the prospects for American businesses over the coming year, which is all true investors should care about.
Ebola, geopolitics, the Fed meeting later this month, kicking off the quarterly reporting season, etc., etc., etc.? They are all just noise used by traders as cover for their underlying technical (not fundamentals) sentiment.
But by the end of the day we may get a better read as to whether the current, broader NASDAQ trading range will hold up.
-- Jack Krupansky

Monday, October 06, 2014

NASDAQ poised to test whether we are still in a broad trading range

The big rise of NASDAQ on Friday certainly smelled like a classic short squeeze after hitting "selling exhaustion" on Thursday. So, now the big test is to see if those short sellers can snap right back and kick off a renewed selloff or whether they really have thrown in the towel for the moment and might actually prefer to bet on NASDAQ moving back up in its broader trading range, at least for a bit.
We still have over three weeks before the Federal Reserve action to formally end their QE asset buying program. Their meeting is on October 28 and 29, but give the market at least a couple of days, or in this case a full week, for the dust to settle, so we are really talking about a full month before the overhanging dark cloud of "the end of QE" is safely behind us. Note that the Fed will continue to hold the assets that they have purchased, so QE, minus purchase of new assets, will continue for the indefinite future.
NASDAQ futures are up moderately, suggesting a pop at the open, but the question is always whether that is merely a setup and we need to see whether people do indeed pile on to that initial pop or sell into any rallies.
For the record, June does sound like a reasonable time frame for "lift off" for the slow march to raise Fed interest rates eventually back up to "neutral" in another two years or so. IOW, don't expect higher Fed rates to have any actual impact on the economy for another two years, or whenever the Fed starts raising rates ABOVE neutral (roughly the 3% range), into the range considered "restrictive monetary policy." I mean, the economy is indeed improving and the recovery is still in progress, but it is still likely to take at least another two years to complete the recovery and to get back to something even remotely resembling normal, especially on the employment front. We still have a gross oversupply of workers, which may actually increase if productivity grows faster than GDP.
-- Jack Krupansky

Friday, October 03, 2014

NASDAQ on track to remain in its broader trading range

Sure, it's been a wild ride, but one should never confuse volatility with a "trend". NASDAQ managed to bounce back and even move up a little after some dramatic intraday negativity. We're not out of the woods yet, but at least we can still see some sunshine. Nonetheless, NASDAQ does indeed remain in a broader trading range. At worst, you can say that we have had a "mini-correction".
NASDAQ futures are up strongly this morning, suggesting a dramatic short squeeze pop at the open. But... what happens after that initial pop and after the short sellers have covered their positions is anybody's guess. We could indeed see a strong recovery bounce for the rest of the day as traders pile on and more shorts buy to preserve their gains from the recent selling (or limit their losses if they shorted late in the game), or... we could see people selling and shorting into any rallying.
And it's a Friday, so a lot of short-term players will tend to close out positions (like buying to cover short positions) ahead of the weekend, when anything can happen.
As the latest employment report confirms, the economy continues to incrementally improve, also confirming that the recent sell-off and anxiety is seriously misguided.
-- Jack Krupansky

Thursday, October 02, 2014

NASDAQ still within a somewhat broader trading range

Yeah, that was a dramatic drop for NASDAQ on Wednesday, and did smash through the bottom of the previous, narrow trading range, but... it may not be as bad as it seems. Traders actually hate being trapped in a narrow range, so now they have more breathing room. There was no true economic, business, or technical reason for the market to stay in such a narrow range anyway. That said, we still have no true trend for the market, just continued careening in a trading range.
To be clear, the big decline on Wednesday in no way is a statement about business prospects or the U.S. economy in general. It was much more about "market technicals" and "chart levels" and "trading volume".
I would venture to bet that NASDAQ will close out the month of October at a higher level that it started, although we could see more declines as trading range volatility continues.
NASDAQ futures are up modestly, suggesting a modest pop at the open. This could simply be a classic dead-cat bounce (even a dead cat can bounce), so it will be interesting to see whether much buying materializes after the open, or whether people just keep selling into any rally.
Yes, it is very possible that the sell-off will continue, but... at least right now it doesn't feel that way. I mean, we could have some incremental, modest further declines, but a full-blown correction doesn't yet seem to be in the cards.
-- Jack Krupansky

Wednesday, October 01, 2014

NASDAQ testing lower edge of its trading range

NASDAQ is still struggling to find a new trend, stuck in a fairly narrow trading range. It bounced against the lower edge of its trading range a bunch of times over the past two days, but has shown no real conviction to either break down below the trading range, or to bound higher away from that bottom edge. Traders will valiantly try to test that edge again today.
NASDAQ futures are moderately down this morning, indicating a dip at the open, but as we have seen for the past two days the market participants who are active after the open can frequently have a completely different idea of where they think the market is headed. So, the big question for today is whether a dip at the open leads to people piling on for a selloff that leads NASDAQ down below the recent trading range, or... people buy the dip and we either continue to hover near this lower edge of the trading range or maybe finally bounce and head back towards the upper edge of the trading range.
I would note that sometimes the edge of a trading range can be rather soft than hard and the market can actually move a bit beyond the hard edge but still manage to recover within a few days, so breaching the edge is not necessarily a definitive trigger leading to a true trend change. The main point for the recent market is a complete lack of conviction in either direction.
I did pick up a little EBAY yesterday. It looks poised for a dip as shorts return after the pop yesterday. I'll buy more after a 5% dip.
I also picked up some Cypress Semiconductor (CY) as a speculative play. It has a 4.46% dividend yield, although earnings are weak, so there is not a "safe cover" on that dividend.
And I also picked up some more Banco Santander (SAN). The dividend yield is 8.66% and does have a safe cover.
I have both of those stocks in my "synthetic savings account", which keeps a sizeable chunk of my free cash in the brokerage money market fund, but has a fraction of the money in a handful of stocks, so that the stock dividends more than offset the very meager return on the money market fund. There is plenty of raw cash immediately available in the account without selling an investment assets to meet any "rainy day" cash needs, but overall the money earns a decent return.
-- Jack Krupansky