NASDAQ could bounce, but will it stick?

We saw a nice, semi-decent bounce in NASDAQ on Thursday, but much of that eroded on Friday. That could be a bad sign, but I never get excited by modest to moderate losses on Fridays since so many speculators tend to dump positions ahead of the weekend when anything can happen. NASDAQ is indeed overdue for a more decent bounce after the recent declines, but bounces are common in down markets as well as up markets. A decent bounce would be well over 1%, maybe 65 points. NASDAQ could also continue to erode until it finally is able to marshal the enthusiasm for multiple decent gains in a relatively short interval of time.

Is the recent market weakness all about the Fed, removal of the patient language, and the strong dollar? Partially, a little, but mostly those factors are simply used as headline cover for speculators taking advantage of the occasional evaporation of strong upwards buying pressure to force some consolidation and downward swings in a wide trading range. Traders like to make money, even when nothing important is happening.

NASDAQ could bounce but then make another desperate lunge downwards to test the support of the December market peak around the 4800 level. Or maybe not. Traders and speculators would likely wish to try to do that test, but the hedge funds are in the driver's seat here and it all amounts to what net risk bias they choice to take on in the coming days. It is not uncommon for them to wait for moments when too many people are leaning in the same direction, and precisely then to reverse their trading bias to force a dramatic short-covering short squeeze rally (or sell-off at the other end of the trading range.)

Fed funds futures are still pointing to September for liftoff, with only a 19% chance of liftoff in June and a 40% chance in July. Futures also still point to a fed funds target rate of only 0.75% at the end of the year, and less than a coin flip of even hitting 1.00% in January or before the FOMC meeting next March, so rates will remain quite low for a full year, which is well beyond the normal horizon for trading and most speculation in the stock market. The mindless chatter of a hike being likely in June is just that - mindless, but Wall Street is famous for mindless behavior - traders need something to do between the too-infrequent occurrences of sane behavior.

NASDAQ futures are up moderately, indicating a moderate rally at the open, but as always futures and the opening move are not reliable indicators of the trend for the rest of the day. The big question is whether the rally will essentially fizzle and result in either another loss or maybe just a moderate gain, or whether it sparks some real enthusiasm and we finally do get a true, decent, outsize bounce of well more than 1%. We could indeed see such a bounce today, or tomorrow, or sometime this week, but whether it marks (or confirms) the turning point of the next upwards swing of the market is a true coin flip.

Some people may wait for the Fed to weigh in on Wednesday, but a lot of people on Wall Street are prone to jumping the gun. Expect a lot of volatility. We could also see a strong advance before the FOMC announcement on Wednesday, but then actually see a sell-off. It may also depend on what words the FOMC uses to describe the thought processes they went through when removing the patient language. No matter what, volatility will prevail.

-- Jack Krupansky