Friday, January 30, 2015

NASDAQ getting near end of consolidation phase

Today could well be the day that finally closes the door on the consolidation phase for the recent advance. Speculators and traders made several runs at breaking support for NASDAQ at 4600, but failed, and were less successful with each attempt. That strongly suggests that some deep-pocket hedge funds were using those dips as buying opportunities. Today could be the final test, with NASDAQ futures down moderately for no great reason, but that is probably more of a test rather than an outright bet on a steep decline for the day.

NASDAQ futures are down moderately, and remained steady even after the weak GDP report, indicating a moderate dip at the open. But, as always, the action at the open is not a strong indicator of how the rest of the day will play out. People may indeed pile on for a steep sell-off, or they may buy the dip with enthusiasm. Or, we could see weakness or at least lackluster enthusiasm for much of the day, with the final trend only becoming apparent late in the day.

The advance late in the day yesterday was quite welcome, but also smacked of being a bit of the kind of forced buying you tend to see in a short-squeeze short-covering rally, which means that we booked the gain for the day, but those angry shorts will be back soon enough and with a vengeance. They alone could be the cause of futures being down so much this morning.

My main thought is that the negativity of NASDAQ futures this morning is primarily a test of whether there really is any significant enthusiasm for buying dips in this range. If not, a continued sell-off is warranted. But barring that, it's just a test to pass for the recent advance to resume, which is my primary expectation.

Today is a Friday, so a fair fraction of short-term speculators will tend to close out positions ahead of the weekend, when anything can happen. They will sell if they really are net long, or they will buy if they are net short. We don't have a Greek election this weekend, but we do have the aftershocks of the anti-austerity crowd winning last Sunday's Greek election. I personally think the new guys in charge in Greece are a lot more pragmatic and willing to compromise than people give them credit for.

I'll pick up some shares of Shack Shack (SHAK) at the open after the IPO begins trading. I'll also sell half on a 10% gain.

I'll be a buyer of Lending Club (LC) on all big dips, and may do short-term trades on smaller swings as well.

-- Jack Krupansky

Thursday, January 29, 2015

NASDAQ consolidation continues

Although the FOMC statement contained no new news about the path of monetary policy, it is no surprise that the market treated a non-event as a negative event. Maybe some traders were expecting more than the consensus, or whatever. In any case, it is very typical for the market to over-react to a Fed statement, and I typically need to remind people that it usually takes a couple of days for dust to finally settle and for the market to resume normal trading. A pending Fed statement can slow trading volume as people hold off and wait to see how other people react, and that results in people watching people waiting for themselves to react, which is kind of silly, but that's Wall Street and the mentality of traders.

The consolidation process for the recent advance continues. We'll finish it up any day now, but certainly within a week. Even for hedge funds that do intend to push for a new 1-year high, it's also tempting to let stocks fall a bit to get a better entry price.

NASDAQ futures are up modestly, indicating a modest pop at the open, but as we have seen on so many occasions, the opening move is not infrequently a poor indicator of the market's direction for the rest of the day. It's a coin flip whether the hedge funds will hold off and let stocks get cheaper, or whether and when they will flip the switch and jump in with a more risk-on bias to continue the advance.

NASDAQ was showing signs of a capitulation at the end of the day on Wednesday, where the market declined into the close, as if people were throwing in the towel and giving up. That's the kind of sign we look for to tell when a swing is bottoming. In this case it is a consolidation swing within a larger advance swing.

We could see another little bout of anxiety today, especially if the market doesn't take quick enough for ADHD-afflicted traders, but this would most likely be a new bottom for the consolidation, a final buying opportunity before the advance finally resumes its climb towards a new 1-year high for NASDAQ. But... just because this is rational and a higher probability is certainly no guarantee that it will actually happen. Again, it could take a couple more days for this to all play out.

Some of the reactions to specific earnings report are sensible and some are not. In some cases we do indeed see a bit of the traditional "buy the rumor, sell the news" trading pattern of Wall Street traders. This can certainly cause a lot of market volatility, but should not concern true long-term investors, other than to provide them with more buyable dips.

-- Jack Krupansky

Wednesday, January 28, 2015

NASDAQ to continue the consolidation process

The sharp downward move in NASDAQ on Tuesday may have been more of a one-time fluke due to the impact of the weather event in the NYC area, but was also perfectly reasonable as part of the consolidation process, where people are trying to discover whether the recent advance has completely run out of steam, or is about to get its second wind to push to a new 1-year high and further. Today is the opposite of yesterday, with enthusiasm over positive earnings reports rather than despair over negative reports. But, nonetheless, the overall context here is the consolidation process.

NASDAQ futures are up sharply, so we can expect a sharp pop at the open, but of course, as usual, it is a coin flip whether people will pile on to extend the opening rally, or whether they will instead sell into any and all rallies. It will be all based on what stance people are taking as to whether the recent advance is really over or is simply consolidating before getting its second wind.

The rally today may or may not be enough to fully erase the deficit from yesterday, but it will still take a few more days to finish the consolidation process in any case and to see confirmation of the short-term trend, one way or the other.

Once again, it is all up to the hedge funds to decide whether they want to continue shifting to more of a risk-on bias or whether and when they want to flip the switch off to go to a risk-off bias and trade the market down in its trading range again. I do think they want to play the market higher, if only to get a better entry price for short positions for their next swing, but they may also attempt some short-term plays, like yesterday, to get better long entry prices before continuing the advance.

The U.S. economy does continue to improve and strengthen, but in an uneven and moderately sluggish manner, which confuses a lot of people, but is a solid positive for true, long-term investors with their eye on the long ball rather than the short game. To me, the short game simply means opportunities to buy on dips.

I bought more Apple (AAPL) on the dip yesterday, but I am already overly long Apple, so I will have the tough decision to make whether and when to sell my dip purchase on this rally.

BTW, fed funds futures are still pointing to October for liftoff for the Fed, but with a second hike to 0.75% not occurring until January. That is all subject to change as the economy evolves over the coming six months, but right now, that's how people are actually betting and hedging.

-- Jack Krupansky

Tuesday, January 27, 2015

NASDAQ headed for a day of more serious consolidation

We were lucky to actually see modest gains for NASDAQ for the preceding two trading sessions despite the interest in consolidation after the recent advance. Today we likely will not be so lucky. Nominally we will see weakness due to alleged disappointment with quarterly reports, but a lot of that may simply be traders reaching for any available news to justify a trading move. It is perfectly reasonable to see a serious attempt to consolidate after such a strong advance. Sure, it could turn out to be a turning point and lead to a renewed downtrend, but  that looks less likely than a day or two or three of consolidation before the advance continues.

The weather will also be a factor in the New York area, disrupting travel for a fair number of market participants, and leaving many in a sour mood for the day.

NASDAQ futures are down sharply, indicating a sharp decline at the open, but whether people really do follow through with a full-blown sell-off, or whether people buy the dip remains to be seen.

I'll be a buyer of Microsoft (MSFT) on any serious declines.

-- Jack Krupansky

Monday, January 26, 2015

NASDAQ will continue to consolidate before continuing advance

NASDAQ actually hung in there fairly well on Friday despite the mere 8-point gain. We had a fair amount of consolidation without giving up too much. We are likely to see more of that today. People are not quite ready to truly believe that we our out of the woods yet and on a path to a new 1-year high within the next two weeks. We're barely 1.25% away from that goal right now.

It is very possible that we could see some evaporation of the recent gains, but maybe that's lot quite as likely as a continued advance.

It is also very possible that on one of the inevitable dips that we'll see during consolidation, just when people seem ready to throw in the towel to protect recent gains, that out of the blue a bunch of the hedge funds will decide to catch people leaning the wrong way and go whole-hog risk-on to kick off the next leg upwards to that new 1-year high above the December peak. That's not a slam dunk by any means, but well within the realm of possibility for this year's stock market, with wide swings in a trading range, coupled with occasional new 1-year highs and new short-term lows.

NASDAQ futures are actually up moderately, after having been down moderately sharply overnight in reaction to the stunning victory of the far-left anti-austerity party in the Greek election, indicating a moderate pop at the open, but it is a coin flip whether people are really ready to pile on for further gains so quickly, or whether they are more in the mood for more consolidation and will sell into rallies.

Hedge funds are trying to take a run at pounding Lending Club (LC) into the ground, as their almost always do with new, hot stocks. They could well succeed at driving the stock down to new post-IPO lows, but I will be a buying of any further dips. I'm a long-term holder, but I'll also take some extra positions for trading short-term swings of 5% or more.

I sold half of my Box (BOX) position for a 10% gain, but I'll be a buyer on any big dips below my entry price of $20.20.

GoPro (GPRO) has a lot of volatile swings worth trading. I have a long-term position, but these wild swings are too tempting.

Oil (OIL) remains in its rough trading range as the bullish and bearish hedge funds continue to duke it out. Maybe we will see $40 oil before a bounce to $50, but we are no longer on a trend for that to be a slam dunk. I'll continue to play 5% swings.

Oh, and earnings season remains underway. Reactions to both positive and negative reports vary greatly, making it a great time to book gains and to pick up deals on dips.

-- Jack Krupansky

Saturday, January 24, 2015

Is Greece about to implode?

Is Greece about to implode with the expected election on Sunday of a far-left anti-austerity party that has nominally promised to cancel out the commitment to the EU deal to bail Greece out of its financial debt crisis?

In a word: No. As in yes, I am quite optimistic that Greece will not implode as a result of Sunday's election.

Mr. Tsipras and his Syriza party have indeed nominally made such as promise, but he has also made repeated public statements indicating that he has no intention of committing economic suicide.

My expectation is that he will indeed seek to renegotiate the EU debt bailout deal to make its terms at least somewhat less onerous, but I strongly suspect that the overall debt deal will remain largely intact even if the terms are indeed a bit less austere than the Germans would prefer.

I predict that Greece will remain in the EU and the euro.

I predict that Mr.  Syriza will be at least somewhat more generous with government services and aid for the unemployed, not so much as to make the EU bailout deal unworkable, but also not quite as much as the Greek citizenry might prefer. I think that will work out. I think most Greeks know that they need to suffer some amount of pain to get out of their predicament, so long as they can feel that the government is being more responsive to their needs than the demands of current corrupt officials.

As far as whether Syriza gets a sufficient majority or is able to form a successful coalition and what that coalition might be, all bets are off, but I think that will all work out as well.

Sure, there will be a lot of anxiety until this all plays out, but I predict that Mr. Tsipras and Syriza will be just the kind of breath of fresh air that Greeks - and Europeans in general - need to come together and start to really come to terms with cleaning up their own mess.

I am optimistic for Mr. Tsipras and Syriza and wish them well.

-- Jack Krupansky

Friday, January 23, 2015

NASDAQ poised for a breather and a little consolidation

Okay, we've had a nice with NASDAQ run since the bottom last Friday, but at some point we need to see some consolidation before a further advance to assure people that we have a solid foundation for another leg up. Whether consolidation happens today or Monday or Tuesday is unknown, but somewhere in here it can be expected. In short, we are overdue for a little breather.

We can give credit to European Central Bank President Mario Draghi for a fair fraction of the advance yesterday. His quantitative easing monetary policy announcement probably caused some short covering. The down side is that these shorts could return to the market soon enough.

NASDAQ futures are up modestly, indicating a modest pop at the open, but it is a coin flip whether people build on that pop for a strong new leg of the advance, or whether they sell into any rally remains a coin flip. It's also a Friday ahead of a weekend, when anything can happen (including the election in Greece which could soothe or trouble Europe some more), so some fraction of speculators are likely to close out positions in advance of the weekend. Whether they are net long and will sell or are net short and with buy is unknown.

I don't think I'll be getting an allocation of the Box (BOX) IPO, so I plan on buying shares at the open. Just a modest position, and then add to it on dips.

Oil (OIL) continues its range trading as it continues to seek its bottom, but without any enthusiasm this week for either a major bullish or a major bearish move. The death of the Saudi king will juice volatility, but shouldn't be a game-changer.

-- Jack Krupansky

Thursday, January 22, 2015

NASDAQ remains volatile as it seeks to find its new trend

Once again we had a very mixed bag for NASDAQ on Wednesday, with a moderate dip at the open, then a sharp recovery bounce, and then a partial sell-off of those gains. The net was moderately positive, but with a bit too much tentativeness and lack of commitment. The good news is that we have two days of building on Friday's rally. We are still at risk of a sell-off of these gains, but so far the mixed bags have netted to a positive trend. Again, I still think we have a solid chance that Thursday and Friday really were the bottom of the swing down off the  December peak, although I do also have to admit that this is no slam dunk and risks abound.

We'll see some extra volatility today due to reaction to the announcement of the quantitative easing monetary policy (QE) by the European Central Back (ECB). This announcement was a slam dunk and much anticipated, so any initial buying enthusiasm could well be sold off. OTOH, there will be a lot of relief that this uncertainty has been removed.

NASDAQ futures are up moderately sharply, indicating a healthy pop at the open, but once again we have the uncertainty of whether people really will pile on to the opening pop for an extended rally, or whether we will see more selling into any rallies. For example, the net rally of the past two or three days may have been a rally in anticipation of the ECB QE, so now we could well see a classic example of "buy the rumor, but sell the news."

My bottom line is that I remain fully invested and optimistic, but with reserves to take advantage of any dips.

Pricing for the IPO of Box (BOX) occurs tonight. I have registered an indication of interest (IOI) with Fidelity, but I have yet to get an allocation for any IPO from them. In any case, I expect that by 11:00 AM tomorrow I will be a shareholder of Box. I'll open a modest position at the open and then buy more on dips and maybe play swings as well.

I'm a buyer of Lending Club (LC) on any dips. This is a long-term bet for me, but I may play 5% swings as well.

Oil (OIL) has been hanging in there surprisingly well after the recent bear market. We're still in a trading range as the bullish and bearish speculative camps duke it out, but you have to be at least a bit optimistic even as the risks for a further bearish move are very real. I'll continue to play 5% swings.

-- Jack Krupansky

Wednesday, January 21, 2015

NASDAQ continues test of Friday's bounce

NASDAQ had a mixed day yesterday, with futures up strongly and a nice pop at the open, then an immediate reversal and ski run down to moderately red for awhile, but then another reversal and eventually a moderate rally into the close. Although NASDAQ closed the day with a moderate gain, it actually closed slightly lower than the opening level, which is a decidedly mixed bag. So, today the test resumes, this time on the flip side with futures pointing to a moderate decline on the open. Once again, futures are an unreliable indicator of how stocks will trade through the day, although technically they did a great job of pointing to the closing level yesterday, but that was more of a fluke.

I expect today to be another day of consolidation, with some people continuing to book profits from Friday, while others are buying stocks that are still very depressed from their December level. How that all balances out for the overall market indexes is unclear, but once people have completed the bulk of their rebalancing we will then start to see the trend emerge. Again, it's not a slam dunk that Friday was the bottom, so we need to see a confirmation of either resuming the advance within the next few days, or we risk seeing a renewed sell-off to set a lower low within a week.

One likely scenario for today is a dip at the open followed by a rally with people buying the dip. Whether that rally sticks for the day is another matter. A close that is only moderately higher or moderately lower is the more likely scenario, but certainly not a slam dunk. We remain in an all bets are off market.

Basically, people are still trying to decide whether Thursday and Friday were really the bottom for the swing off the December peak. It's all in the hands of the hedge funds and whether they will resume shifting from a risk-off to risk-on bias.

For my personal portfolio, Tuesday was a very mixed day, roughly flat with half my stocks up and half down.

I need to decide whether to sell some of my Netflix (NFLX) that I bought recently to add to my longer-term position. Capturing a 20% gain is certainly tempting. I'm in for the long term, but the stock does have a lot of volatility worth playing.

Oil (OIL) continues to bounce around seeking its bottom. The good news is that it's been in a rough trading range for over a week now, volatile, but with no strong sense of the steep downward trend it had until then.

-- Jack Krupansky

Tuesday, January 20, 2015

NASDAQ poised to test if the recovery has legs

A lot of the sharp NASDAQ recovery bounce on Friday could well have been a classic dead-cat bounce and the forced buying of a classic short-squeeze short-covering rally, so we really need to see several days of a continuation of this advance before passing final judgment as to whether Friday constituted the low of this swing downwards in the trading range. It would be no surprise either way to see the advance score a second day of rallying, or for people to sell into this advance since we just saw two weeks ago what can happen to a sharp two-day advance. I remain optimistic that Thursday and Friday were the low for this swing or mini correction, but I do have to acknowledge that it all depends on whether enough of the hedge funds and other speculators flip the switch from a risk-off to risk-on bias.

NASDAQ futures are up sharply, indicating a sharp pop at the open, but the big question is whether people pile on and kick off an even sharper follow-on rally, or whether people remain somewhat cynical and sell into any rallies.

I'm fully invested but with some reserves to buy on any further dips of either the market in general or individual stocks.

Quarterly reporting or earnings season is underway, which will stress individual stocks in both directions, with possible knock-on effects for the overall market. Netflix (NFLX) will be the poster child today and tomorrow with their report coming after the bell today. I am long NFLX with an extra speculative position. The stock fell $100 last time they reported, but I believe that was a fluke. We'll see how they play out tomorrow. This market is currently rather unforgiving of anybody who tries to depend on the specifics of past history and historic trading patterns.

Oil (OIL) is still searching for its bottom, but is showing at least some signs of a willingness to believe that the bottom may be near. We've seen some sharp recover bounces, none of which has really gained a lot of traction, yet, but that is a sign of both the fact that there has been no final capitulation to mark a true, traditional bottom, as well as the fact that so much of the sell-off has been driven by speculation rather than actual supply and actual demand.

-- Jack Krupansky

Saturday, January 17, 2015

Has NASDAQ bottomed?

It is indeed too early to tell, but Thursday and Friday together seem to point in the direction of a near-term bottom for NASDAQ. The index fell 15 points short of hitting the December trough. That's a mixed bag. It's a good sign that try as they might traders and speculators simply weren't able to break down below that previous low. But... this was trading on a Friday ahead of a three-day weekend, so you can't depend too much on market behavior on such a day.

The NASDAQ-100 (QQQ) and Triple Q (TQQQ) did set new lows slightly below the December trough level, so on that score we're on solid ground to continue an upswing back towards the upper edge of the NASDAQ trading range.

Thursday had a little bit of a feel of throw in the towel capitulation at the end of the day. But a little may not be enough.

Friday was poised to to have a decent degree of capitulation with futures down sharply after the close on Thursday, but futures gradually recovered so that NASDAQ opened down only 4 points. I would have been happier and more content to call this bottom if NASDAQ had opened 20 points lower and fell another 50 points before a sharper rebound. Of course, we have to take the market as it is, not as what we want it to be. So once again we had a mixed bag on Friday, not as positive a sign as I would have hoped, but not bad news either.

A good portion of the bounce on Friday may simply have been the forced buying of a short-squeeze short-covering rally. IOW, the buyers were simply closing out short positions to protect profits or limits losses rather than outright betting on the future trend. But just because we had a short squeeze does not tell us whether it was the result of a one-day event or a true change in bias of the hedge funds. I'm betting on the latter, but not with tons of confidence.

Given that Thursday and Friday had that halfhearted feel to me, I'd say that there is a coin flip chance that we could see another move down for NASDAQ before it sets its final low for this swing off of the December peak. But that also means there is a coin flip chance that enough of the hedge funds will decide to protect their gains from shorting the December peak and flip the switch to go from risk-off to a risk-on bias to play the swing upwards in NASDAQ's trading range.

The recent slump is not a full-blown correction - we're only 3.75% off the December peak, what I would call a mini correction, so all the normal rules about capitulation are not in full force. IOW, sure, various trading rules and trading patterns apply, but just not so rigorously. Yes, the rules apply, but don't depend on them to be enforced by a squirrelly market ruled by a wide range of hedge funds all marching to the beat of a different drummer.

Monday is a trading holiday, leaving us with a shortened week which only further undermines all traditional trading rules and trading patterns.

Flip a coin whether NASDAQ futures will be up or down Monday evening, flip another coin whether futures flip-flop early Tuesday morning, flip another coin whether futures are up or down shortly before the open and at the open, flip another coin for whether futures head down or up after that opening move, and flip another coin for whether NASDAQ closes up or down for the day. Literally, these are each independent events. In truth, I wouldn't venture a bet which direction NASDAQ will head on Tuesday, in particular because it will be prone to give up some of Friday's gains, while also having the prospect of attracting money emboldened by the sharp bounce on Friday.

If NASDAQ does open weak on Tuesday, there is a fair chance that the hedge funds and other bearish speculators will sense blood in the water and kick off a renewed round of selling that could completely wipe out Friday's gains, and then some. We've seen this happen before.

Personally, I would expect there to be some intraday weakness on Tuesday as the bears test the durability of this nascent advance. If futures are down before the open it will also likely be part of a test rather than an outright bet on the trend for the whole day. There is frequently a disconnect between futures in the pre-market and the direction of trading for the rest of the day.

I wouldn't be surprised if we have a modest to moderate loss on Tuesday and I would not consider that indicative of the true trend given the sharp pop on Friday. But if we have a couple of days of weakness or mediocre advances (like 25 points or less), the bears will sense weakness and take another run, as we have seen many times in the past.

It will be quite important for NASDAQ to preserve the psychologically important 4600 level and the 4592 level of the the earlier January trough. If both of those go then NASDAQ will likely head south for another test of the bottom we set on Friday, and the December trough after that. That's not my expectation, but that's  what would be in store if NASDAQ sheds 30 points or more on Tuesday or Wednesday.

In any case, we are completely at the mercy of the bias of the hedge fund traders, whether they choose to flip the switch and go more risk-on or go more risk-off.

Even if hedge funds do continue to flip the switch to the risk-on position there is no guarantee that NASDAQ will travel the full distance to the upper edge of the trading range, let alone kick off a new up-leg to a new 1-year high above the December peak. There is indeed a very good chance that will happen, just that it's not guaranteed. Some renegade hedge funds might decide to jump ship early this time and send NASDAQ back down short of the 4800 level.

Welcome to an anything-goes market.

In any case, I do think there is a solid chance that Thursday and Friday was the low and turning point for this down-swing and that we are headed for a January high with a new 1-year high to follow.

-- Jack Krupansky

Has Oil finally bottomed?

Okay, I admit, that I phrased that title a little provocatively, in the sense that even I have to admit that oil could fall a bit more before finally rebounding. But, seriously, we may have seen a near-term bottom, although maybe we could have a significant dead-cat recovery that leads to the final sell-off to the low $40's before oil really starts to stabilize and then rebound to something that more closely relates to actual supply and actual demand rather than the vast levels of speculation that we still see even after all these years since oil first rose out of the $20's.

Indeed, I can't be certain that the bottom is in, but at least I can be certain that we will see tremendous volatility as the competing bear and bull camps struggle mightily to assert their dominance. Just last week alone we saw several 5% moves in both directions in a very short period of time. To me, that's more a sign of bottoming than a one-way trend. Nonetheless, with so much speculation underway, all bets are off as to near-term trend.

Personally, I will continue to buy Oil (OIL) on any 5% dips. But I may also continue to take profits on 5% bounces as well. I may consider playing 3% swings as well, depending on how the market plays out.

As far as the impact on the U.S. economy, the lower price of oil will have a mixed impact. Consumers and chemical and transportation companies will enjoy the lower price of oil, but unfortunately chemical and transportation companies hedge the price of oil by buying long-term oil futures, which means they have already paid a higher price for oil they will use in the months ahead or a year or more, so the positive impact for them will be somewhat muted.

The lower price of oil will certainly negatively impact the oil producers and the wide range of companies that service them, and although this could put a fair number of them out of business and cause them to dramatically cut their investment spending, as well as put highly-paid workers out of work, it will also serve to rationalize the oil sector, so that the survivors will be much better positioned and have the future potential for even greater profitability. Of course, picking winners and losers is a fool's errand. Investment in the oil sector will likely decline, but not likely in a nice, straight, predictable line.

Overall, over time, I see the economic impact of lower price of oil to be mixed and maybe even a net wash, even though it may be an uneven and bumpy path to that net wash, with consumer spending dominating in some periods even as lower oil sector investment dominates in other periods.

The good news is that anxiety over the impact of the lower price of oil will give us stock investors lower entry prices for a wide range of stocks.

As far as the price of oil itself, I wouldn't be surprised to see $40 or even $38 oil, but I wouldn't bet the farm on that prospect. We might indeed see $42 oil, but maybe not before we see $52 oil first. Enjoy the roller-coaster ride.

-- Jack Krupansky

Friday, January 16, 2015

Update to Fed rate outlook for 2015 - 58% chance of Liftoff in October, %56 chance of second hike in January

Yesterday, my revised outlook for Fed rate hikes in 2015 put liftoff in October with a 50% chance, and no further hikes until at least March of 2016. Today, that gets updated to a higher 58% chance of liftoff in October (a hike from the current 0.0% to 0.25% range to 0.50%), and a 56% chance of a second hike to 0.75% in January.

My forecast is based on the fed funds futures probabilities provided by the CMW Group FedWatch web page:

These numbers are based on fed funds futures contract prices, so they are what actual market participants are betting, not the mere whim of some economist or pundit - or even the Federal Reserve itself.

Once again, I didn't expect the outlook to change as quickly as it has these past two days, but... it has. I always defer to reality.

Incidentally, the odds for liftoff in September are now only 39%, and 12% in June, compared to 32% and 8% yesterday.

-- Jack Krupansky

NASDAQ poised for a moment of truth

We may have seen a bit of capitulation and throw in the towel sentiment in NASDAQ yesterday as it traded down with little recovery in the final half hour of trading. Today could well be a classic moment of truth where either the tide turns and NASDAQ turns and trades back up in its wide trading range, or the bulls capitulate and the sell-off deepens and heads towards a full-blown correction. Futures are down sharply, but a little higher than last night, suggesting that at least some fraction of market participants are willing to consider that the opening dip could be the low for the day or that we will see some sort of recovery bounce during the day. Whether that actually happens is indeed a coin flip.

I do expect that we will see a big dip at the open to technically break below the level of the December trough, but whether that kicks off a further sell-off or simply triggers a massive wave of dip-buying and a classic short-squeeze short-covering rally is a coin flip. I do expect that somewhere in here, at least within the next few days that we will see the hedge funds flip the switch and reverse their trading bias from "risk off" to "risk on".

To be clear, I am not saying that today will absolutely be the day that NASDAQ turns around, but simply there is a very significant probability of such an event.

The economy may indeed be taking a little breather in here, but that's actually typical, with GDP showing a lot of quarter to quarter volatility. But so far there are no solid indications that the U.S. economy is doing anything other than continuing to incrementally recover, albeit at too modest and uneven a pace to satisfy your average ADHD-afflicted Wall Street trader or speculator.

I did buy a little Intel (INTC) after the close after their post-earnings dip. It was my first after-hours trade, ever. I was trading using Fidelity. I also bought a little Bank of America (BAC) that seems oversold.

Oil (OIL) remains unsettled and still seeking its bottom, but is showing some positive signs, although they could indeed be more of the dead-cat variety. I will buy again on the next 5% dip, if that does happen.

I may do a little dip buying at the open, or even in the pre-market just before the open, and certainly more later in the day if a new low is hit.

I have revised my forecast for the outlook for the Fed target interest rate, from a liftoff in September to October and a final rate in December of 0.50% rather than 0.75%. IOW, the Fed will not be an issue for people who had been worrying about rising rates this year.

-- Jack Krupansky

Thursday, January 15, 2015

Revised 2015 Fed Interest Rate Outlook - Liftoff in October, 0.50% at Year-end

Just last Sunday I offered a forecast for the Fed's fed funds target rate in 2015 based on the price of fed funds futures contracts tracked by the CME Group FedWatch web page. Some anxiety about the economy has already spread in the markets since then. My previous forecast was for liftoff, the first hike, to 0.50%, in September, with a further hike to 0.75% by the end of the year. Now, today, based on updated data from CME Group, the probability of liftoff in September is only 32% and just a hair over 50% in October. The chance of a hike in June is now only 8%. The odds of the rate being 0.75% (or higher!) in January 2016 are only about 44%, so the rate is likely to be still at 0.50% in both December and January.

My new, revised forecast is that liftoff will occur in October, and that the fed funds target rate will remain at 0.50% through the end of the year. The CME Group web page doesn't have probability data beyond January. To be clear, there will be only a single hike this year, either in October or December, and a second hike to 0.75% no sooner than February of next year.

In truth it is actually only a 50/50 coin flip whether liftoff occurs in October or December, but I'll go out on a limb and stick with October for now.

And this revised forecast should itself be taken with a grain of salt, coming as it has a mere four days after my previous forecast. I will continue to revise my own forecast as the CME Group FedWatch probabilities change either the month of liftoff or the pace of hikes. That said, I expect that this forecast will hold a bit longer this time.

To be clear, the Fed has not yet made any definitive statements about the pace of hikes after liftoff, so at a minimum we should not presume that rates would rise at a methodical 0.25% pace at every FOMC meeting. I would expect the Fed to start offering preliminary guidance about the presumed pace of hikes at their August Jackson Hole conference, or maybe at their July or September regular FOMC meetings.

The real bottom line here is that no matter what, Fed interest rates will remain very low for the entire year, so any silly talk of rising interest rates hammering stocks this year is pure crap.

-- Jack Krupansky

NASDAQ to take another stab at testing support

NASDAQ did fairly well on Wednesday, testing support at the psychological 4600 level and even managing to close 29 points above its opening level, even if still down moderately for the day. IOW, it could have been a lot worse but it wasn't. Today looks likely to be a more serious test of support at the lower edge of the trading range. Even if NASDAQ does manage to close below the January 6th trough, it has deeper support at the mid-December trough at the 4550 level. Also, it is now not uncommon for NASDAQ to break below support by more than a little and still manage to bounce back fairly sharply. IOW, hedge funds are not afraid to challenge and violate traditionally sacrosanct trading rules.

NASDAQ futures are down sharply, nominally due to Swiss forex issues, indicating a significant drop at the open, but once again it is a coin flip whether people will actually pile on for a further sell-off or whether they will buy the dip. I'll probably buy a little at the open and then later in the day if the sell-off does extend.

We could see a decent recovery bounce sometime today after the opening dip, or the hedge funds may decide to push lower to give themselves a lower entry price if indeed they do intend to get ready to flip over from "risk off" to a "risk on" bias to play another swing upwards in the wider trading range.

There is no guarantee that the hedge funds will continue playing the swings of the trading range as opposed to the sell-off being simply a precursor to a true 10% correction or even a full-blown bear market, but siply a reasonably high probability that the hedge funds are playing their same games.

Earnings season has started, but not yet with a lot of fanfare or enthusiasm. Playing the technical trading range swings seems more interesting to the hedge funds than economic or business fundamentals.

Oil (OIL) remains volatile. We had a nice recovery bounce, but that could likely be simple a dead-cat bounce as the two trading camps duke it out as oil seeks a bottom here in the $40 range.

-- Jack Krupansky

Wednesday, January 14, 2015

NASDAQ poised to test support

The early rally for NASDAQ completely evaporated yesterday as too many people (including me!) sold into the early rally, indicating that there is still a strong "risk off" bias. My suspicion is that speculators are still intent on testing the lower edge of the trading range, down at the 4600 level and down to the early-December trough of 4547. We are already down to within less than 2% of that vicinity, so it's not out of the question. Whether or when the real test occurs is unknown, maybe today or tomorrow, or maybe next week. It's also possible to test it more than once, possibly with one or more dead-cat recovery bounces mixed in there as well. All of this is technical trading based on charts and trading volume, with nothing to do with actual economic or business fundamentals, although traders and speculators love to use any actual news as a cover for their otherwise purely technical moves.

NASDAQ futures are moderately negative, indicating a moderate dip at the open, but whether people pile on for a significant sell-off or buy the dip is a coin flip.

Early yesterday I sold some trading positions that I had bought on recent dips and then opened some new trading positions on the renewed dip in the afternoon. I expect to open additional dip positions today as well.

Oil (OIL) is hanging in there, still seeking a bottom. Plenty of people desperately want to try to run it down to $40, but isn't been a struggle for them so far. Again, most of the current trading is distinctly speculative rather than based purely on economic fundamentals.

-- Jack Krupansky

Tuesday, January 13, 2015

NASDAQ to try again for a bounce, maybe this one will stick

NASDAQ started yesterday positioned modestly above the midpoint of its trading range and with a positive bias in futures, and a nice pop at the open, but immediately headed south. I guess that clarifies the net bias of the hedge funds, at least for that one day. NASDAQ starts today positioned modestly below the midpoint of its trading range and also with a positive bias in futures. Once again, we should see a nice pop at the open, but whether it sticks and people pile on for a recovery rally or whether people sell into this rally the same as they did yesterday and Friday is a coin flip. I suspect that this time the recovery bounce will stick and kick off a moderate short-squeeze short-covering rally. The problem is that such a recovery rally could end up the same as we saw last week, with the angry short-sellers simply waiting a day or two and then pouncing again with the renewed vigor we saw in the past two trading sessions.

The hedge funds may yet seek to test the lower edge of the trading range - that would make sense, but they may also permit, tolerate, and even encourage a recovery bounce here with the expectation that it will be a classic dead-cat bounce that simply provides them with a higher and better entry price for a next wave of short-selling to accelerate the push towards that lower edge of the trading range. Or, maybe enough of them may decide that they have a decent enough bullish re-entry price and flip their bias from "risk off" to "risk on" to give a net boost to fuel an advance back towards the upper edge of the trading range and even to a new 1-year high.

I'll continue to be on the alert for buyable dips, although I'm also looking to cash out for nice gains on some of my recent dip buys. Overall I remain fully invested and positioned for a continuation of the ongoing bull market, regardless of these annoying potholes that we encounter along the way - six of them last year.

Oil (OIL) is still seeking a bottom, with renewed vigor as Goldman and some other analysis suggested that $40 may be closer to the bottom. I personally don't know where the exact bottom is, but I do know that there is value at these prices. Maybe not in the very short term, but eventually this speculative bearish frenzy will run its course since it masks true supply and true demand.

-- Jack Krupansky

Monday, January 12, 2015

NASDAQ may bounce but still struggling to find a direction

NASDAQ whipsawed dramatically last week as the big dogs and heavy hitters got back to their desks from the extended holiday beak and started to assert themselves and show the traders who's in charge. NASDAQ is now only a little above the midpoint of its recent trading range, so it could trade either way. It has plenty of room to trade towards the upper edge of the range and possibly even a new 1-year peak, or back down to test the firmness of support at the September peak.

NASDAQ futures are up moderately, indicating a decent pop at the open, but whether people pile on for a nice advance or once again start selling into all rallies is a coin flip. It could take an hour or two for the heavy hitters to let traders play around before they assert themselves again. The problem is that we don't have any transparency on how the hedge funds may be thinking about shifting their bias between "risk on" and "risk off", which they do on a moment's notice.

-- Jack Krupansky

Sunday, January 11, 2015

Stock market outlook for 2015

To make a long story short, the stock market in general and NASDAQ in particular will face a lot of volatility in 2015. Maybe not as extreme is this first week of trading has been, but the same general pattern. The economic outlook for 2015 is fairly bright, but as uneven as the recovery has been over the past few years. Unfortunately, a lot of the economic brightness of 2015 has already been priced into many stocks. And the big concern is that the prospect of rising interest rates in the second half of the year could reduce the enthusiasm for even higher stock valuations. I think that concern is mostly misplaced, but I do have to acknowledge that the markets don't always follow my lead.

Hedge funds will remain in control of short-term market trends, just as we saw in 2014 with six major peaks, each followed by at least a partial or mini correction before continuing to advance.

We appear to be in the middle of a recovery from the mini correction off the peak of late December. In 2014 we had early peaks on January 22 and March 5.

On the one hand, it seems quite reasonable to expect new peaks on the same variable one to four month intervals that we saw in 2014. On the other hand, with stock valuations now a lot more lofty, we could see hedge funds make shorter runs up as well as more of the very brief corrections we saw in the last few months of 2014. Of course, we shouldn't bet too heavily that the stock market will ever be reasonable.

Stocks could get squirrelly later in the spring as we get closer to the time when the Fed is expected to stat raising interest rates, which could impact some dividend-paying stocks and hence stocks in general since anything that affects any of the stocks in a market index will have some effect on all stocks in that market index.

Although the first Fed rate hike is not likely until September, there will be a lot of chatter asserting that the Fed should start hiking rates in June. It will be a competition of voices, which will lead to plenty of volatility. My expectation is that the Fed will finally nail down the time frame and details of the first hike at their annual conference in Jackson Hole, Wyoming in late August. I believe that there is close to zero chance for a Fed rate hike before September.

Even a Fed rate of 0.75% by the end of the year is still too little to have any significant financial impact on most of the stock market. Still, a lot of confusing and conflicting chatter will likely whipsaw markets and give us at least a few short-term peaks and mini corrections throughout the year.

We could see a replay of the trading pattern of mid to late 1999, where people were seriously worried about how Y2K would play out when the calendar rolled over to 2000, but stocks climbed that wall of worry right through the end of the year. Liftoff and that jump to rates of 1.0 and higher can look awfully scary to a lot of people.

Will we see a major, full correction (more than just barely a 10% decline off a peak) in 2015? Sure, it's quite possible, but probably only if we have some equally unlikely major advance of more than 10%.

Will NASDAQ set a new all-time high above its dot-com peak? There is a good chance, since it would take only a 7.3% pop from the current level to hit the all-time closing peak of 5048. I won't give a specific target gain for NASDAQ for 2015, but 7 to 15% is certainly within the realm of reason. We could also see a new peak earlier in the year and then trend down and close the year below that dot-com peak. Anything is possible here.

There will also be plenty of rotation between groups of stocks and individual stocks as well. The leaders of 2014 are not so certain to be the leaders of 2015. Ditto for the laggards of 2014.

I am personally not expecting any specific trading pattern or any specific replay of any historic trading pattern, in large part because we really are in a whole new world here. Not that everything is rosy and wonderful, but that a lot of historical activity simply won't play out the same way is has in the past. As Mark Twain famously said, history doesn't repeat... it rhymes.

For my more detail on my Fed rate hike outlook for 2015:

For more color on how I feel Fed rate hikes will affect stocks:

In short, the bull market will likely continue through 2015, but with plenty of volatility to scare the faint of heart.

-- Jack Krupansky

Will Fed rate hikes crush the stock market?

A lot of common chatter suggests that stocks will suffer when the Fed starts hiking interest rates. This conventional wisdom is half right and half wrong. Fed monetary policy has three modes: accommodative or loose, neutral, and restrictive or tight. It is only when the Fed shifts from neutral to tight monetary policy to slow the economy that stocks could suffer. That doesn't mean that traders and speculators might not attempt to front-run the Fed long before we get to tight monetary policy, but we are literally years from that phase of monetary policy.

Currently, Fed monetary policy is extremely loose or accommodative. When the Fed makes its first rate hike in September monetary policy will remain very loose and have very negligible negative impact on the economy. Even at the end of the year when the fed funds target rate will be up to 0.75%, that is still incredibly loose and accommodative monetary policy. So, again, no headwind for stocks.

A neutral fed funds target rate is probably in the 3% to 4% range, call it 3.5%. The most recent report from the Fed suggested that they see the long-term rate at about 3.75%, in a range between 3.25% and 4.25%..

Even by the end of 2016, the current members of the Fed open market committee are expecting a rate in the 2% to 3% range, which is still well below the neutral range. IOW, even at the end of 2016, which is almost two years away, the Fed interest rate will remain very loose and accommodative, and hence not a worry for stocks.

And even after the Fed does reach neutral monetary policy, that does not mean that restrictive or tight monetary policy is right around the corner. We could see a healthy economy for several more years after that.

Rising interest rates can effect demand for dividend-paying stocks, but only when rates rise to a level so that T-bills and notes pay a comparable rate to the dividend yield. Typically stocks that pay a low dividend, such as under 1% or even 2% or 2.5% are only doing so to attract the attention of mutual funds that only invest in stocks that pay dividends, so a Fed interest rate up to about 3% will not be a problem for such stocks. Even stocks paying only a 2% to 2.5% dividend will remain attractive as long as their earning growth rate is sufficient to fund continual increases in the dividend rate, which is normally the case, especially in a growing economy, which is what we have and will continue to have with accommodative and neutral Fed interest rates.

To summarize, rising Fed interest rates will not offer any significant headwind for stocks for well more than another two years. So there is no need for investors to fret about rising interest rates in 2015.

-- Jack Krupansky

Outlook for Fed rate hikes in 2015 - Liftoff in September, 0.75% at year-end

For a while people had been expected a first Fed rate hike in March, but enthusiasm for that target date has clearly evaporated. If you asked the average market participant today, they would probably say that liftoff will occur in June, but recent Fed funds futures contracts reported by the CME Group indicate only a 17% chance of a first hike in June, a 37% chance in July, and finally a 52% chance in September.

According to Fed funds futures, there is actually still a 2% chance of a first hike in March, but that is probably more of a hedge than an outright bet.

September is nine months away, which is way too far for any reliable economic predictions. Still, I think it is a good bet, since the decision to start rate hikes will likely be more a matter of the passage of enough time without any bad news and with enough gradual improvement so that the Fed can feel confident that they will not have to reverse their decision in the following months, rather than triggering the first hike on some set of economic indicators hitting some specific target numbers.

The Fed will probably start rate hikes at least a few months after a lot of the experts on Wall Street give the Fed the go ahead. The Fed will probably intentionally stay "behind the curve" since their goal is to be conservative rather than to be aggressive and shoot from the hip. So, expect to hear a growing choir of voices clamoring feverishly for rate hikes in April, May, June, and July. By early summer, if not May, expect people to be increasingly repeating the mantra of "the Fed is behind the curve!".

Even if everything does look right for a hike in late June or July, the Fed will probably wait until the summer is over so that everyone is fully prepared for what lies ahead. I expect that they will use their annual policy conference in Jackson Hole, Wyoming in late August to prepare people for what will come in September.

Granted, any number of shocks or surprises could occur in the economy over the next nine months, but that's also enough time for the economy to recover from any minor and even major major hiccups. Besides, predictions and forecasts are always made assuming that events proceed and evolve as expected. But, as of right now, September looks primed to be the point of liftoff.

The CME Group FedWatch web page suggests that the Fed will make a quarter point hike in September, October, and December, so the Fed funds target rate should close the year at 0.75%.

Sure, that is a healthy bump from essentially zero, but is still way too low to have any significant impact on the vast majority of companies. Sure, the stock market may react in late 2015 to expectations of higher rates in 2016, but once again, that is still too fat out in the future for ADHD-afflicted Wall Street traders and short-term speculators.

The CME Group FedWatch web page:

-- Jack Krupansky

Friday, January 09, 2015

NASDAQ poised for a breather

The two-day NASDAQ rally was quite impressive, but will be a hard act to follow. It wouldn't be unexpected for NASDAQ to take a little breather for a little consolidation at this stage even if it is indeed headed for a new 52-week high shortly.

There is still the possibility that this latest advance might be little more than a big dead-cat bounce or short squeeze short-covering rally, so it will take a anther few days or even a week for the dust to settle and the trend to become more clear.

Sure, I'll settle for the big win, but I'm still cautious about what lies ahead.

NASDAQ futures are up moderately on the positive jobs report, indicating a moderate pop at the open, but as usual it is a coin flip whether people will pile on to that initial pop for a sustained rally, or whether they will sell into that rally for either a modest amount of consolidation or even a renewed sell-off.

It's also a Friday, so a fair portion of short-term speculators will tend to close out positions ahead of the weekend when anything could happen. But, if their open positions are short positions, closing means buying, so the net effect is uncertain.

Banco Santander (SAN) had been a big win for me and I had great confidence in them as a Latin America play and for their dividend, but their decision to chop two-thirds of their dividend is too much. I even managed to buy some more yesterday on the dip before I read the news - 99.99% of the time I do read the news carefully before any dip buy, but SAN had been so reliable before, until now. Well, I'm done with them now and will be dumping my entire position, at a steep loss, at the open. Good riddance. I have plenty of more interesting stocks I would like to buy, like Electronic Arts (EA) and Garmin (GRMN), or even TD Bank (TD) or Bank of America (BAC). And there are a bunch of biotech stocks I am looking at as well - some that pay a better dividend than the new SAN dividend.

Oil (OIL) is still unsettled, but at least isn't diving as sharply lately. I'm convinced that a lot of the recent sell-off is more speculative than about actual supply and demand. Oil used to be a safe bet for speculative intermediaries, but now that its not, people are struggling to figure out what the new normal is for oil. We certainly may not have reached a bottom yet, but I will continue on 5% dips.

CMD FedWatch is reporting only a 56% chance of a Fed rate liftoff in even September, and a 75% chance in October, so forget about a Fed hike in June or before the end of the Summer. There is only a 17% chance of a Fed hike in June.

-- Jack Krupansky

Thursday, January 08, 2015

NASDAQ seeks confirmation of trend

The sharp NASDAQ  recovery bounce on Wednesday was great, but will it last or was it simply a classic dead-cat bounce ("even a dead cat can bounce")? It may have simply been a traditional short-covering rally where too many people were too short and traders simply exploited that temporary excess. OTOH, although the first 40 minutes of trading may have been such a short-covering rally, followed by an hour and a quarter of moderate selling off of that rally, some serious buying did kick in late in the morning and held up for the rest of the day. That second-wind rally may indeed have been some of the hedge funds shifting to a "risk on" bias". Maybe and maybe not. It will take another couple of days for that shift was real and durable.

NASDAQ futures are up sharply this morning, indicating a big pop at the open. This has the prospect of turbo-boosting any short-covering rally, but whether it is sustainable or simply ends with a lot of renewed selling into rallies is a coin flip.

Again, the big question is not whether traders can engineer short-covering rallies, but whether a sufficient portion of the hedge funds shift to a "risk on" bias to push NASDAQ all the way back up through its trading range and even begin a new leg up from the December peak.

In any case, the big dogs and heavy hitters (e.g., the hedge fund managers) are now back from their extended holiday beaks and gradually beginning to exert control. But that doesn't mean that we will see a smooth trend. Volatility will continue. A longer-term trend will re-emerge, but could be rather difficult to discern under all of the volatility.

There is still a fair chance that speculators will try again to push NASDAQ down below the September peak and even below the December trough. But flip a coin whether such a push is really a bear market trend or actually simply a deeper setup for a more extended bullish push up through the trading range to a new one-year peak.

Oil (OIL) is still struggling to finds its bottom. It's overdue for a recovery bounce, but whether that's a true bottom or simply a bear market rally remains to be seen. I remain prepared to buy on any additional 5% dips.

-- Jack Krupansky

Wednesday, January 07, 2015

NASDAQ to take another shot at a recovery bounce

Okay, I think we finally have the deck cleared and most of the big dogs and heavy hitters are back from the holiday break, limbered up, and ready to make a serious move. Whether that move is up or down I do not and cannot know. Sure, the bias of the hedge funds was clearly "risk off" for Monday and Tuesday, but that could simply have been a "setup" to position the market for their ultimate bias that they will choose today. Sure, they may indeed retain that "risk off" bias, but they are just as likely to reverse to a "risk on" bias, especially since NASDAQ is sitting at the low end of its trading range.

NASDAQ is positioned a little below its September peak, but more than a percent above the December trough. That's an okay place to be. I wouldn't be surprised if traders and bearish speculators took another shot at firming up a bearish trend below the December trough, but it is just as likely that hedge funds will take the path of least resistance and play the range trade by reversing to a "risk on" bias and let NASDAQ trade back towards the upper edge of its trading range.

Although NASDAQ futures are indeed priced for a big pop at the open, history has shown that although the futures reliably indicate the opening move, they are a rather unreliable indicator of how trading will trend as the day progresses, as we saw last Friday with a big pop at the open that reversed and turned into a loss for the day. Or the moderate pop at the open yesterday - we know how badly that movie ended. So, prepare to flip a coin as to whether people pile on to the initial pop for a significant short-covering rally, or whether they continue to sell into rallies as we saw yesterday.

I suspect that traders are indeed attempting to incite a short squeeze, where a sizable fraction of the bearish speculators are forced to buy to cover their short position due to "hitting their stops" as the market rises against them. And as they do that buying they only push the market higher which causes even more "short stops" to get "busted", causing even more "forced buying". Rinse and repeat. A classic Short-covering rally. It's happen before, so it could indeed happen today. Or not. It's a possibility but not an absolute certainty. The bad news is that a short-covering rally is not by itself sustainable since the shorts simply wait for the dust to settle and only come back with a vengeance on another day. The real question is whether enough hedge funds reverse their bias to "risk on" to play the trading range.

Overall I remain bullish and fully invested, but still cautious and with reserves to exploit any dips.

Oil (OIL) may not have set a true bottom yet, but it's a real value here, so I will continue to buy 5% dips.

I remain prepared to do more dip buying if the market does continue to head south.

-- Jack Krupansky

Tuesday, January 06, 2015

NASDAQ poised for a volatile day and maybe a recovery bounce

Monday was a day of transition for NASDAQ, being the first trading day after the slow trading of the holiday season. It was the first day with all of the big dogs and heavy hitters back at their desks after an extended holiday break. It was their chance to revise and even reverse any trading that occurred while they were at the beach or on the slopes. That said, my experience is that the very first day back from the holidays is not a great indicator of what lies ahead since everybody is trying to second guess and front-run what the deep-pocket players will be doing once they get serious. In fact, it might take another day or even two to finally clear the deck of this transition trading before we get to the real money movement that will characterize the next few weeks.

I think of December as a half month, with serious business taking a break on the 15th. In fact, the trading on Monday took NASDAQ back to almost exactly where it was on December 17th. So, we are back to square one, and now we can build a market that has the full team fielded.

I do see the hedge funds as being mostly in charge of the markets these days, so we will continue to see lots of heavy swings as they flip flop between "risk on" and "risk off". As I said, Monday was a transition day, so we don't yet what risk bias these guys will assume until they feel that they have cleared the deck.

Since Monday was such a strong move, today will be yet another transition day as people react to the reaction of Monday. Some people will be prepared for a recovery bounce, even if only a transitory dead-cat bounce, while others such as the perma-bears are assuming the worst.

Me, I don't try to bet exactly how the market will act on a given day, but instead simply try to be ready for all of the likely possibilities. I'd prefer an up day, but I also love snapping up bargains on dips.

NASDAQ is near the lower edge of its wider trading range supported by the September peak, so unless we really are headed for a solid correction or outright bear market the tendency would be for hedge funds to reverse and play the swing back to the upper reaches of the trading range.

NASDAQ futures are up moderately, indicating a moderate recovery pop at the open, but futures have been bouncing around and had been negative earlier, so the exact bias at the open is not cast in stone. As always, the bias at the open is not a great indicator of how trading will play out as the day progresses - we could see people sell into any opening pop to kickoff a new leg down in the sell-off, or we could see dip buying and people piling on to build a strong recovery rally. There are probably plenty of people short the market right now, so a strong enough bounce could cause a major short squeeze and short-covering rally, but that would not be a good indicator of how the market will trade in the days ahead since forced covering of shorts simply means the shorts will be waiting to pounce again in the days ahead.

In short, I wouldn't read too much into any market action today. I'd combine today and Monday as one transition trading period, and look to trading on Wednesday and Thursday as more indicative of the risk bias of hedge funds going forward.

Oil (OIL) did hit the magical $50 level, so I did buy some more. Exactly where the bottom is I do not know, but anywhere in here is a value opportunity.

I did do a lot of buying late in the day, the list is too long to give here - see my StockTalk feed.

-- Jack Krupansky

Monday, January 05, 2015

NASDAQ awaits direction for the new year

NASDAQ is still locked within a trading range with little sense of direction. It touched a high for 2014 slightly above 4800, but had no momentum to speak of. The Santa Claus rally and end of year window dressing and tax loss selling  petered out, and now people are wondering what's next.

Technically Friday was the first trading session of the year, but it was sandwiched into a holiday week right ahead of a weekend, so I wouldn't read much into it at all. Today is really the first real trading session of the year after the holidays. Even so, it will take a couple of days for all of big dogs and heavy hitters of the hedge funds to get back to their desks and into a groove after the extended holiday break. I personally don''t consider the Monday of the first full trading week of a new year to be an indicator of what's next. Let's see where things are come Wednesday.

Even though to economy continues to plod along just fine, it does so in a semi-sluggish and inconsistent manner which ADHD-afflicted Wall Street traders can't get their heads around, so we don't get any consistency in trading activity. That's why we have all this start-go-stop, rinse and repeat trading action.

NASDAQ futures are down modestly, indicating a modest slip at the open. Whether people pile on for a significant sell-off or buy the dip for a reversal into a rally is a coin flip.

Oil (OIL) seems poised for a run down to $50, but not with a lot of conviction. I would buy again at $50.

I'm looking at NVIDIA (NVDA) and FedEx (FDX), as well as some dip purchases of Solar City (SCTY), 3D Systems (DDD), and Stratasys (SSYS). I may sell some of my Cypress Semiconductor (CY) to lock in profits and raise cash reserves.

-- Jack Krupansky

Saturday, January 03, 2015

My Lending Club return for 2014 was 11.69%

I have been investing in Lending Club (LC) loans since May 2009. Lending Club reports that my Net Annualized Return is 9.40%. My manually calculated total return for 2014 is 11.69%. I had 3 loans default and charged off in 2014, compared to 7 in 2013 and 12 in 2012.

I enter the new year with 137 loans that are current and only 3 loans that look likely to default. That's a very solid start.

I only invest in 3-year loans - 5-year loans feel too risky for me, with a credible chance that two recession-like episodes might be encountered in that more extended period. I also only invest is loans with a credit score of at least 700, or maybe 695 on rare occasion. I don't invest in small business loans due to their high risk. I invest in all geographic areas of the country and all types of employment. I don't discriminate on loan purpose - most loans are for credit consolidation.

Interest rates for my loans are now typically in the 10% to 13% range. In the old days I was shooting for 15% to 20% with low-end credit scores of 660, but the number of defaults kind of spooked me. I invest with much more confidence now.

Overall I am reasonably happy with my returns. 2011 and 2012 were a bit dicey with actual returns of only 4.43% and 6.04% due to a lot of defaults as employment was still going through a significant adjustment phase during that stage of the economic recovery after the financial crisis of 2008. And I had a lot of loans with relatively low credit scores (660) as well.

My only hesitancy now is that although the near-term economic outlook looks bright for the next year or two, beyond that there is a significant chance that we'll hit a recession, which could put a damper on my returns. Still, I'm happy with my loan portfolio as it is. And I do reinvest 100% of my loan payments.

I still manually select loans, but I am considering the automated plan.

If you hate big banks, this is the best way to fight them - by stealing away their most profitable business of consumer loans and credit card balances.

A Lending Cub loan portfolio could be a great tool for funding your 3-5 year retirement income needs since the loans are both earning interest and kicking off a significant amount of cash flow with principal return. Fund the loans in fat years when other retirement assets are doing well. Or in times like now when interest rates on CDs are so low.

The stock is bouncing around - much as the entire market is - and will be volatile for the next year and a half, but I have great confidence that it will be a real financial powerhouse in the years to come. I'll be buying more next week.

-- Jack Krupansky

Friday, January 02, 2015

NASDAQ still struggling through the holiday trading seasson

It may technically be the first day of the new year, but today is still part of a slow-trading holiday week for NASDAQ, and hence noise as we wait for the big dogs and heavy hitters to return to their desks from their long holiday break next week. The sharp decline on Wednesday seemed a bit excessive and unwarranted, so a recovery bounce today would not be unexpected.

NASDAQ futures are up moderately, indicating a nice pop at the open, but whether a decent rally builds on that open or people once again sell into any rallies is a coin flip.

It is not unusual to see buying enthusiasm on the first day or two of a new year. The heavy hitters will wait to see if that enthusiasm is infectious before piling on or wiping out that initial enthusiasm. I'd wait until Wednesday to decide whether the start of the year is strong or weak.

I'm still working on tuning my portfolio allocation and trading strategies for 2015. I remain aggressively invested, but will continue to raise cash for reserves, and buy any big dips on quality stocks. I'm looking at a list of biotech stocks as well. Suggestions are welcome.

-- Jack Krupansky