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

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