Wednesday, February 18, 2015

NASDAQ due for more consolidation

It was nice that NASDAQ actually managed to close modestly higher on Tuesday, but most of the day was spent consolidating after the recent strong gains. That's good news all around, but the bad news is that the level of consolidation was minimal, so a fair amount more consolidation is needed so that NASDAQ will have a firm base to build a sustainable next leg of the advance.

Incidentally, NASDAQ last closed above this level back on March 27, 2000 (at 4959), and first closed above this level on March 3, 2000 (at 4915). NASDAQ has spent a grand total of only 5 days above this closing level, back in 2000, the old dot-com glory days. We are just short of the 4900 level by a mere 73 cents.

NASDAQ spent a grand total of 20 days above the 4700 level in 2000, a record that we have already broken at 37 days - so far, and counting - in 2014 and 2015. This time we've done it in a period spanning three months (so far), which is a lot better and more sustainable than the month in 2000. NASDAQ closed above the 4800 level for only 12 days in 2000. We're at 4, so far.

NASDAQ futures are mixed to slightly down this morning, indicating a weak opening, down (or up) only modestly. IOW, pointing towards another day of consolidation, with no clear trend. Once again, the opening move is not a reliable indicator of how stocks will trend for the rest of the day. We could see another flat day, a renewed rally, or a modest to moderate sell-off. Traditionally, when an advance runs out of steam, a weak day like yesterday is frequently followed by an outright sell-off as the bears feel more emboldened to short stocks. And hedge funds seek action regardless of the direction, so if the trend is not moving higher strongly enough, they would just as soon see the trend move downwards.

I offer no promises as to where the market is headed in the near term, other than that we will see a lot of volatility. I lean towards a continuation of the recent advance, but a fair amount of consolidation is overdue as well. A good mix of rallies and consolidation has the best shot at giving us a sustainable advance, in contrast with the flash in a pan spike above 5000 that we saw in 2000.

Some people believe in absolute patterns and that we are reliving the dot-com days of 2000. I'm more of a Mark Twain kind of guy - he famously said that history doesn't repeat - it rhymes. IOW, there are similarities, but one would be wise not to extrapolate beyond the few similarities that are real.

Incidentally, the breaching of the 4900 level on March 3, 2000 was via a 160-point rally. 100-point rallies were common in those days, 7 in March alone, but rare these days, which is further evidence that history only rhymes rather than literally repeats.

I'll continue to look for sharp dips to buy, as well as cashing out 5% advances on my trading positions, even as I remain a long-term buy and hold for my investment portfolio.

-- Jack Krupansky

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