Friday, December 19, 2014

NASDAQ due for a breather of sorts

The massive two-day rally for NASDAQ was quite impressive, but I wouldn't get your hopes up for a nice, tidy linear extrapolation of that trend. IOW, NASDAQ is due for a breather and a little consolidation before it decides where to go next. That is not to say we couldn't see a modest or even moderate follow-through rally, just that we should be aware of the possibilities.

NASDAQ is now in the upper portion of its loose, wide trading range, not quite a full 1% below it's recent pre-holiday peak slightly below the psychological 4800 level.

It is unknown how much of the two-day rally was simply a traditional short squeeze with forced buying for people who were too short the market vs. hedge funds who deliberately switched their trading bias from "risk off" to "risk on". It was probably a combination of both. We'll see soon enough, but maybe not until after the holidays.

Futures are up moderately, indicating a modest to moderate pop at the open, but it's not so certain whether people will really pile on to extend the rally or whether they will start taking a "risk off" bias and begin selling into rallies. It could be either a very volatile day or maybe a slumber fest as people focus on the weekend and holidays.

Today is a Friday, so some fraction of short-term speculators will tend to close positions ahead of the weekend when anything can happen. Worse, next week is arguably the biggest holiday week of the year. Christmas is on Thursday, but that means Wednesday is kind of a wasted trading day with the markets closing at 1 PM. The markets are open Friday, but... how many people will be focused on anything other than their new toys? And a fair fraction of market participants will just go ahead and take off Monday and Tuesday to have a whole week, and maybe the whole following New Years week as well. So, I wouldn't expect a ton of heavy, serious trading from now until the first full week of January, which would be the week of Monday, January 5, 2015.

Meanwhile, we could well see a little bit of a "Santa Claus Rally", and maybe that's partially what we saw the past two days, as well as traditional "window dressing" buying before the end of the quarter and year, although I do think that the hedge funds with their highly variable and quirky investment strategies and allocation models are a much more dominant factor in the markets these days than the traditional retail mutual funds.

I did sell a little of my Tesla (TSLA) dip purchases on a nice 7% gain, to lock in profits and start raising my reserves for future dip purchases.

Oil is still struggling to find its "groove". It had a two-day rally and then a breather yesterday, but is up solidly this morning. It's still possible that it could re-test its low to try for a $50 handle, but there's a fair chance that short-term speculators have spent their wad and will gradually begin taking profits, pushing prices back up, at least a little. I am still long the Oil ETF (OIL). I'll buy more on any 5% dip, and sell incrementally on 5% gains.

-- Jack Krupansky

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