Tuesday, March 24, 2015

NASDAQ desperately needs to consolidate at these levels

It's great that NASDAQ has managed to close above the magical psychological level of 5000 again - for two consecutive days, but we've been there before and we know how that movie ended, so we desperately need to do something different this time. The main trick is building levels of support so that when inevitable corrective action does occur, traders have perches to rely on, rather than immediately reverting to a free fall. It is also imperative to have enough range trading to squeeze out as much froth as possible so that the market doesn't lurch between meteoric rises and free fall. Actually, so far, this time has indeed fit that bill and is likely to continue to do so. There really is more than enough cynicism out there and a fairly minimal level of complacency, so that a repeat of the badness of the dot-com boom is much less likely, at least for the time-being. Who knows, maybe a year or two from now the story will be much different, but for now, the level of caution in the market is downright awesome, which is a good sign for patient investors and patient speculators, and for traders of all stripes who love volatility.

Now, whether NASDAQ hangs out here and establishes solid support just above the 5000 level remains to be seen, but it does indeed have a decent probability. Sure, we could surge up again towards 5100 or even 5200 in short order, or pull back to 4900 or even 4800 again, but a moderate level of volatile range trading is the most likely outcome given the players and the economic and financial conditions at this time.

NASDAQ futures are up modestly this morning, indicating a modest pop at the open, possibly in relief that there was not more serious profit-taking yesterday after Friday's close well above the 5000 level. As always, futures and the opening move are not reliable indicators of how the market will trend for the rest of the day.

It may still take a few more days for the markets to settle into a groove and fully adjust to the full ramifications of the Fed's announcement last Wednesday, but we seem to be getting there. Trading today and tomorrow might finally get us over the hump. Fed officials have been giving speeches this week to fine tune their overall message from last week, but there have been no major revelations or sea changes.

Fed funds futures are shifting around a bit, but the overall picture remains unchanged - Liftoff for Fed rates will occur in the October time frame, the rate will probably be 0.50% at the end of the year, a second hike will occur in January, and even a year from now, after the March 2016 FOMC meeting that rate will only be 0.75%, which is still quite low and will remain quite supportive for stocks. The probability of liftoff in October is 63%. September is still an outside possibility if the economy picks up, but right now is only a 43% chance, well less than a coin flip.

-- Jack Krupansky

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