Thursday, March 26, 2015

NASDAQ back to swing trading within a range

Well, the really good news is that the obsession with the Fed is now officially over. No sane, credible sources are indicating that the Fed will likely raise rates before the fall. The bad news is that the hedge funds are back in force with their old strategy of swings within a trading range.

We saw it coming on Monday and Tuesday as upwards momentum evaporated and began to crumble. Traders and speculators are addicted to momentum, so if momentum peters out, there's only one thing to do - reverse your risk bias and trade in the other direction, and continue doing so until that momentum peters out as well. Rinse and repeat.

We had half a dozen major trading range swings last year. I don't expect this year to be much different.

How much further down will this swing go? As I said, we are at the complete mercy of the hedge funds. What we can control is when we buy and when we sell, but not what the market itself will do. My personal strategy is simply to keep enough reserves to buy on dips, and then use a reserve of patience to outlast the dips. Hedge funds have a lot more money, but are mostly rather short when it comes to patience. How long did the October dip last? Or the December dip? Or the January dip? Days, weeks, a month or two, that's the time scale for hedge fund swing trading.

We'll be back to NASDAQ 5000 soon enough, but between now and then, nobody can predict the exact timing or the exact path of the market. The two successful strategies are to either simply stay the course, or to buy on dips. Trying to time the swings is well beyond my ability. The best I can do is to acknowledge their existence and take advantage of them as they happen.

NASDAQ futures are down sharply, indicating a big dip at the open, but as always, futures and the opening move are not reliable indicators of the trajectory of the market for the rest of the day.

The news? No, this market move has little to do with any news, nor with anything to do with economic or business fundamentals. It is purely a technical move based on momentum and money flows, or lack thereof. Any references to the news are strictly cover for the underlying technical moves.

-- Jack Krupansky

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