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

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