Monday, March 23, 2015

NASDAQ waits for the hedge funds to make their next move

Hey, NASDAQ has closed above the magical psychological 5000 level again, and by a decent margin. Great... but now what? It will still take a few more days for the markets to fully digest the revised Fed rate outlook from last Wednesday, so don't get too excited either way by whatever happens for the next couple of days. In fact, we may have to wait until next week before judging the revised market trend.

Meanwhile, we are just as at the mercy of the hedge funds as we have been for the past few years. Will more of them flip the switch and take a stronger risk-on bias for a new leg up to the advance, or will more of them flip the switch the other way to more of a risk-off bias and take their profits off the table and even bet on a near-term decline to profit from the swing trade back down in the trading range? Unknown, completely unknown. You might as well flip a coin. There is indeed a solid chance that on net they will gamble for a further advance, but profit-taking is a good bet too. Volatility is a solid bet too as this tug of war plays out in the coming days.

NASDAQ is getting close to uncharted territory, literally. There have been only two closes above this level, back on March 9 and 10 in 2000 during the peak of the dot-com boom and bubble. And NASDAQ traded at this level on only five occasions, on March 9, 10, 13, 24, and 27 in 2000. All of that is ancient history and there is no reason to expect any exact repetition, but nonetheless traders always look to history as their primary guide to the future. Besides Friday, when NASDAQ opened above 5000, stayed above 5000, and closed above 5000, we have only had one other day this year when NASDAQ even traded above 5000, on March 2, and that was only for a mere half hour into the close, too brief to merit treatment as more than a mere fluctuation than any kind of indicator of a trend.

NASDAQ futures are down modestly, indicating a modest pullback at the open, which would still leave NASDAQ positioned 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.

The simplest outlook for the next couple of day's is that NASDAQ is once again overdue for a breather and needs a few days of consolidation before making its next definitive move. But of course Wall Street rarely does exactly whatever the doctor orders. Again, volatility will be king, so expect some interesting, buyable dips for selected stocks regardless of the overall market trend.

-- Jack Krupansky

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