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

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