Tuesday, March 03, 2015

NASDAQ due for a breather, but... a new all-time closing high beckons

NASDAQ has had quite a run recently. Normally, we should expect that there would be a fair amount of consolidation along the way, but the past month has been rather exceptional. NASDAQ is seriously overdue for some serious consolidation, but a doctor's orders are not always a patient's behavior. Everything hangs on money flows and the risk bias of the hedge funds. As long as fresh money in flowing into the market (e.g., IRA contributions) and the hedge funds are hot to maintain a risk-on bias, NASDAQ can continue to move higher. But when the music stops, consolidation will seriously kick in. Money flows are usually fairly uneven, so it is more likely that occasionally we will see modest dips and slow days than some massive correction, but as soon as fresh money flows dry up, the hedge funds are likely to revert to their swing trading ways. The good news is that those swings can take the place of a true 10% correction.

NASDAQ futures are down modestly, indicating a modest pullback at the open, but whether that dip causes enough people to flip to a risk-off bias and kicks off a sell-off, or whether people just pile on and buy the dip is a coin flip. NASDAQ really could use a breather, but money flows can override that.

We have now taken out two of six important psychological milestones, trading above 5000, and closing above 5000. The next two important psychological milestones are closing above the March 2000 closing peak of 5049, and trading above the March 2000 intra-day peak of 5133. The fifth psychological milestone will be to close above the March 2000 intra-day peak. The final psychological milestone here will be to close above that March 2000 intra-day peak for more than a couple of weeks to establish a clear technical base of support above the March peak so that the March 2000 peaks can be solidly relegated to ancient history, rather than being a limit that NASDAQ cannot exceed.

I would say that NASDAQ will need to have at least two weeks of closing above 5200 before we can conclude that the 5000 level is safely behind us. Even then, we are likely to have at least a mini correction sometime this year which will test whether support holds within the 5000 to 5200 range. It's very possible that we could eventually see a dip down towards the 4900 level as part of such a test.

I'm prepared for both some near-term potholes and some sunny days as well. 

-- Jack Krupansky

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