Tuesday, February 17, 2015

NASDAQ needs to consolidate a little before moving higher

NASDAQ had a very solid advance last week, but as they say on Wall Street, it may have gotten a little ahead of itself. The best thing at this stage would be to see a little consolidation and base building so that NASDAQ can make a sustainable advance from this level. We don't need the kind of mania that would simply result in a sharp spike up only to be immediately followed with a sharp spike down. That said, the market rarely moves in a nice smooth rational manner. So, be prepared for NASDAQ to move up, down, or sideways with equal probability.

NASDAQ futures are up modestly, indicating a modest pop at the open, but as always the opening move is not a reliable indicator of either the magnitude or even direction of the trend for the rest of the day. Flip a coin whether people pile on to the buying at the open and extend the rally, or whether they sell into any rallies and turn the rally into a sell-off.

Greece and Ukraine and oil are as volatile as ever - no change on that front. Sure, the market may suffer some additional anxiety on these fronts, but they are old news and mostly priced into the markets already.

The complex dance to find a path to a negotiated debt settlement with Greece remains underway and still on track even though that track is certainly not a straight line. Trust me, the fix is in - the leaders in Europe know all too well that they are not willing to see the shock of Greece leaving the Euro. Sure, they are not comfortable or willing to cut a deal yet, but eventually they will in fact cut a deal, as distasteful as they may find it. Don't be confused by all the public theater that this process involves.

The Ukraine ceasefire is going about as well as anybody could or should have expected. The fate of that one key town was never settled in the deal to begin with, and both sides knew that they wanted to try to grab the upper hand before the ceasefire commenced on Saturday. But besides that one key town the overall deal will mostly hold, in a rough fashion, subject to some delays, at least for now. The ceasefire was never intended to be the end-all, just the next step in a complex process, a process that can only end when the U.S. and Europe recognize Russian security interests in the region. They have to agree to not extend NATO presence into eastern Ukraine and not to permit U.S. ballistic missile defense systems to be based in Ukraine. That could take a while.

The recent advance of oil may have been real with a firm bottom, but there is a fair chance that it was a dead-cat bounce that will quickly enough reverse and trade back down. Whether it will trade down far enough to set a new low is unknown, but traders and speculators would be happier if they could see a solid test of the bottom before betting a lot on a further advance. That said, this whole episode is so fraught with speculative activity and outrageous rhetorical narrative that actual fundamentals are almost completely ignored. We do indeed hear plenty of narrative, but with very little transparency to back up the stories being told.

The U.S. economy remains reasonably solid and continues to improve, albeit at the kind of uneven and sluggish pace that confuses and confounds a lot on Wall Street types. And the Fed remains on track for a liftoff of interest rates in September (not June.)

I'm well positioned to profit from a continued advance of NASDAQ, but also prepared to take advantage of any dips along the way.

-- Jack Krupansky

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