NASDAQ poised to test whether a breakout can be sustained

The big NASDAQ gain on Friday was nice, but it smelled a little but like a short squeeze, so we need to see some stronger evidence that the new high for the year will stick and not simply mark a new higher edge of yet another trading range. We're still in the process of waiting for the dust to settle now that the Fed meeting with the end of the QE buying program is behind us. People will be listening carefully as the various Fed officials start weighing in with their own personal perspectives as to how the Fed will proceed with starting to "normalize" monetary policy, especially the timing of "liftoff" for interest rates. Now that investors and speculators, especially hedge funds, have had an entire weekend to digest the Fed meeting announcement, people will start adjusting their bets today and tomorrow.

 

NASDAQ futures  are down modestly, indicating that traders expect a little consolidation after the big gains on Friday, but the modest nature of futures strongly suggests that nobody is at all sure which way the markets will trend after the open, whether bearish speculators will re-open short positions they were squeezed out of on Friday, or whether more bullish speculators will seize this opportunity to build a more durable breakout and establish a new leg up for the market. This uncertainty suggests a likelihood of volatility, or potentially a continuation of the short squeeze.

 

Anxiety and uncertainty over the election will also temper the markets. On the one hand there is a lot of uncertainty, but there is also a decent likelihood that the Republicans will seize control of the Senate, providing a more business-friendly Congress that will appeal to markets. But even if the Democrats do manage to cling to a slight advantage in the Senate, Congress will remain gridlocked, which is usually the best outcome for Wall Street – Washington is kept at bay and unable to pass many new laws that might rock the boat. The markets could rally in advance of the election results, as a lot of the more adventurous Wall Street market participants seek to get a leg up on their brethren.

 

Today I get to attend the semi-annual meeting of the Shadow Open Market Committee, where Dallas Fed president Richard Fisher will give the keynote address for the symposium entitled "Preparing to Normalize Monetary Policy."

 

-- Jack Krupansky