Wednesday, March 04, 2015

NASDAQ poised for more consolidation before continuing 5000 advance

That was a semi-decent amount of consolidation for NASDAQ on Tuesday. After a strong advance it is important to see a healthy amount of consolidation to eliminate a good amount of the froth from the market so that a further advance will be more sustainable and have a firmer base to build on that can provide better support on any eventual pullbacks. There is no magic formula for calculating how much consolidation is needed, but more is usually better. That said, it is still all about money flows and net risk bias of hedge funds, so whether we consolidate more in a trading range, or we see a sell-off in a bout of serious profit taking, or we continue the advance with only minimal consolidation is not a slam dunk is indeterminate - all three are equally probable. Sure, I lean towards a continuation of the advance after only a modest amount of additional consolidation, but the last time I checked, the market did not consider me to be its master.

NASDAQ futures are down moderately, indicating a moderate pullback at the open as traders expect that consolidation will continue, but futures and the opening move are not a reliable indicator of the trajectory of trading for the rest of the day. We could indeed see people pile on to the decline to take profits and see a dramatic sell-off, but we could equally likely see people buy on dips, as they did during the steeper declines yesterday. Or, we could see a fair amount of relatively narrow range trading as the market treads water waiting for some news event to give traders a reason for more enthusiasm one direction or the other. Some are waiting for the jobs report later in the week.

The 5000 level is still within easy reach. We could see it get hit several more times before we build a solid enough base in a trading range to support a sustainable advance above it. That could take days or weeks - or possibly months, although that is less likely. Either way, we can expect a lot of volatility.

-- Jack Krupansky

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