Wednesday, April 08, 2015

NASDAQ gets ready to get ready for earnings season

Sure, it's kind of depressing being stuck in a trading range, but that's par for the course when valuations are stretched. Some argue that stocks are very overvalued, while some argue that they are not. It all depends on your valuation model, and there are enough different models and enough different and subjective criteria for evaluating those models that everybody goes off in their own direction. Personally, I'm not worried, but I do recognize that the fear factor does result in additional volatility due to reduced confidence in stock prices vs. perceived value.

Earnings season is upon us and has a very good prospect for being the main driver of market momentum for the next month or two. There is some anxiety that we are in an earnings recession, but that is balanced by the fact that the outlook for Q2 was so thoroughly and severely cut in Q1 that companies have a very low bar that they should easily be able to leap over in Q2.

The Fed? Hah! That allegedly weak jobs number from Friday leaves the Fed essentially out of the picture for a good six months, which is well beyond the near-term radar of traders and short-term speculators. June? Only a measly 6% chance of a hike - essentially no way. There is now only a 50% coin flip chance of liftoff even in October, and a relatively weak 61% chance for December. September? A skimpy 32% chance, a hedge, not a bet. IOW, October is a maybe, with December as the likely time frame for liftoff - unless they economy does indeed strengthen significantly in the next two quarters. I do personally believe that the economy will indeed strengthen incrementally over the next two quarters, but how strong that growth will be is a matter of intense (and fruitless!) debate and will simply be a matter of waiting and watching it play out.

NASDAQ futures are up modestly, indicating a modest pop at the open, but as always futures and the opening move are not reliable indicators of the trend for the rest of the day.

NASDAQ was volatile but weak yesterday. That was bad news and suggests that enthusiasm for a renewed march to 5000 is evaporating, but I wouldn't read too much into that one day. The hedge funds are not known for acting methodically like clockwork. I think that they are in a circling mode, patiently waiting for the right time to pounce, either for a bullish move or a bearish move, with not a lot of certainty as to which it will be. They may indeed make another push to the downside, but there really is a fairly decent chance that they will see more profits to the upside, even if the trajectory to get there is very volatile on a daily and intra-day basis.

There is also some emerging enthusiasm for a recovery in Europe. The strong dollar and European weakness has been dogging companies that have a significant international exposure, so even just a hint of a perception of possible potential for improvement could be a significant boost for U.S. companies and stocks.

-- Jack Krupansky

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