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

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