Tuesday, February 03, 2015

NASDAQ resumes search for a trend out of current trading range

The sharp pop for NASDAQ late in the day was quite welcome and provided the recovery bounce that I had expected for the day, but belied the profound sense of uncertainty about the short-term trend that volatility showed for the entire rest of the day, with NASDAQ all over the map in both positive and negative territory. In short, NASDAQ remains stuck in a trading range, at least for the moment. Speculators tested support early in the day and were rewarded with a sharp bounce, but that sharp bounce was short-lived and followed by a fair amount of lackluster volatility until the late-day rally.

That late day rally may indeed have been fueled by some of the hedge funds switching more strongly to a risk-on bias, but one day does not make a trend, so now we will have to wait and see if there is any significant follow-through by more hedge funds.

The late day rally may also simply have been more of a short-squeeze short-covering rally, in which case the angry shorts will simply lick their wounds for only a short period of time but then be back with a vengeance soon enough, as we have seen repeatedly over the past month.

NASDAQ futures are up only modestly, indicating a modest pop at the open (maybe, maybe not), but no sense of enthusiasm or commitment. People are probably expecting some consolidation after the sharp rally at the end of the day.

Personally, I'll continue with my current trading strategy of selling trading positions with a 5% to 10% gain and buying on 5% to 10% dips of my favorite names. Meanwhile, my main investment portfolios remain fully invested and positioned for longer-term growth despite the short-term volatility.

What's the outlook for February? Plenty of ongoing volatility for sure, but I do think we are more likely to see a net gain for the month than a net loss.

-- Jack Krupansky

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