NASDAQ consolidation continues

After the halfhearted NASDAQ recovery bounce on Monday, it comes as no surprise to see the hedge funds making a more determined push to sell off the market in futures this morning. That's the natural thing for them to do. That said, this does not necessarily mean that they are committed to dragging the selling beyond today. One very credible scenario is that quite a few hedge funds would be more than happy to see the market advance, but simply would prefer a cheaper entry price, which sharply lower futures prices assure at the open. So, we could see a big dip at the open and then a recovery for the rest of the day. Or, maybe maybe a halfhearted recovery from the initial dip, and then a bigger dip further into the day before recovering. Or, an outright sell-off from open to close, but then we could see a sharp recovery tomorrow. There are a lot of different patterns for this to play out. Or, maybe the hedge funds are indeed staking out outright bets on further declines and we could see days or weeks of selling (and occasional relief rallies) before the downward swing plays out, and they then flip their bias back to risk-on to head back up through the 5000 level to a near all time high for NASDAQ.

Sure, some of this purported weakness may be tied to anxiety about the Fed. I accept that. Just because the likely path of interest rates is that liftoff won't be until September, rates will remain low for the entire rest of the year, and even a year from now will be relatively low, that doesn't mean that your average hedge fund trader actually understands and believes in that outlook. And it doesn't stop their traders from talking trash to attempt to manipulate the market in the short-term to gain a price advantage.

Strong dollar? Sure, that does have some actual effect on businesses, but it's a positive too, so the effects tend to net out. Mostly it's just an excuse to cover technical moves based on underlying technical sentiment, and fodder for trash talking in an attempt to manipulate the market.

I'm sure we'll continue to see plenty of market volatility right through the Fed FOMC announcement next Wednesday, and probably for a couple of days afterwards before the dust settles.

Fed funds futures did pull back a little yesterday - the odds for a second hike in October are now a little less than a coin flip, and December is the likely time frame for the second hike. The odds of liftoff in June are only 21%. Even in July the odds are only 43%, well below even a coin flip. The economic data would have to by a lot stronger to change this picture. On the jobs front, it isn't just the headline unemployment rate, but the overall utilization and part-time and underemployed workers as well. And wage growth is too anemic as well for the Fed to move as sooner and as faster as a lot of market chatter would suggest. The Fed, including Yellen, have acknowledged all of this, but... there are plenty of market participants who are more than happy to talk as if the Fed hadn't said a word. That's life on Wall Street.

-- Jack Krupansky