Monday, February 09, 2015

NASDAQ consolidates again, short of upper edge of trading range

Friday was a great opportunity for NASDAQ to test the upper edge of its wide trading range, but the test quickly ran out of steam and succumbed to a bout of profit-taking. Sure, some of that may nominally have been some anxiety over Greece, but the crisis in Greece has been a fairly known quantity, so it's hard to justify a market move solely on Greece. Sure, the overnight weakness in NASDAQ futures is probably the result of result of lingering anxiety over Greece as well, but in truth Greece is simply being used as an excuse for consolidation.

The big question is whether this is just a little consolidation before the advance continues, or whether enough hedge funds are flipping the switch again to reverse their bias from risk-on to risk-off so that we might begin trading back down in the wide trading range, again.

Actually, we may be locked into a somewhat narrower trading range, below the current 1-year high from December and above the recent low in December as well. This happens when people give up hope for a big move up or down and start taking profits and buying dips sooner and everybody starts doing the same thing.

Eventually, the medium-term trend does reassert itself over the short-term trading range volatility, but that can be an extended process, which is why we get stuck in trading ranges so often and sometimes for so long, such as we experienced from March through June last year.

NASDAQ future are down moderately sharply, nominally on anxiety over Greece, indicating a big dip at the open, but as always, the opening move is not a reliable indicator of either the magnitude or even direction of trading for the rest of the day. It is a coin flip for whether people will pile on for an extended sell-off, or simply buy the dip. There is a fair chance that we could simply see some modest to moderate consolidation over the course of the day. But we could also see a strong recovery if hedge funds can sense that too many people are leaning too heavily in a negative bias, in which case a significant short-squeeze short-covering rally can be instigated.

I will of course be buying dips.

To reiterate from my recent posts, Greece is going to get resolved, for sure, even if there is a fair amount of strong and provocative talk on all sides in the short-term as the negotiations progress, and the Fed is not going to be raising interest rates within the next few months, likely not until September.

-- Jack Krupansky


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