Thursday, February 19, 2015

NASDAQ breather continues

Okay, we had two good days of modest consolidation for NASDAQ on Tuesday and Wednesday, and even managed to inch higher despite the anxiety over whether the recent advance had come too far too fast. Unfortunately, we probably need more of that to consolidate gains sufficiently such that we can begin building a solid and sustainable next leg of the advance and avoid the fate of NASDAQ when it last reached these levels back in the dot-com era in 2000. Back then, stocks zoomed up without looking back, but today investors are always looking over their shoulder, which may be dispiriting, but helps to assure than we are not in a blind mania.

The hedge funds are fully in control of this market, but they are not a homogeneous group by a long shot, and as the past two days have shown, they can be all over the map. Right now, the more bullish hedge funds are duking it out with the more bearish hedge funds over whether the market has more upside or is due for at least another mini correction. And a lot of hedge funds are agnostic about market direction and are simply playing swings and always looking to get the jump on their peers in terms of both sticking with trends that are working, but catching the turning points as well. The big uncertainty is how much longer bullish hedge funds will retain a risk-on bias, how many hedge funds with a risk-off bias will switch to a risk-on bias to fuel the advance, and when the bullish hedge funds will say that enough is enough and reverse to a risk-off bias to send NASDAQ back down into its trading range before the next advance down the road. In short, there is no certainty on that front, other than volatility.

I wouldn't read too much into the history of NASDAQ in 2000, but some people do. I mean, markets set and break highs all the time, but just not every time, so this time is no different. In truth, whether NASDAQ will remain above 4900 or break 5000 or even 5500 is completely independent of what happened in 2000, but a lot of people depend on history as a reference point, even though the economic and business outlook for the U.S. economy is all that really matters for the long run.

It wouldn't surprise me if we had another mini correction of sorts somewhere in here, but a quick review of the chart for the past two years will show you that these market moves give the appearance of having no rhyme or reason. Some more consolidation makes a lot of sense to me, but the market rarely moves in a straight and sensible line. In truth, all market moves are simply the sum of all curves - the sum total of the individual actions of individual market participants, whether they be retail investors, pension fund managers, hedge fund managers, hedge fund traders, or mutual fund managers and traders.

NASDAQ futures are up modestly but volatile, indicating a mixed open that may or may not be higher, but close to flat in any case. Once again, futures and the opening move are not a reliable indicator of the trajectory of stocks throughout the rest of the day. It wouldn't surprise me if NASDAQ ended the day up sharply, down sharply, up moderately, down moderately, up modestly, down modestly, or dead flat, all with about equal probability. I know, that's not terribly useful, other than to forecast a fair amount of volatility. My two most likely outcomes for the day are a moderate, corrective decline, or a modest to moderate advance.

Greece, Ukraine/Russia, and oil remain quite volatile, but everything is still moving towards a quasi reasonable resolution, even if the paths are uncertain and plenty of potholes and detours occur along the way.

I remain fully invested in my investment portfolio, and fairly heavily long in my trading portfolio, but with reserves to take advantage of further dips.

I'll continue to be a dip buyer and trade volatility of quality stocks.

-- Jack Krupansky

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