Wednesday, April 29, 2015

NASDAQ needs to consolidate a bit more

The recent upwards momentum of NASDAQ has clearly faltered, but there is no clarity as to whether that is simply because a modest amount of consolidation is needed with any extended advance, or whether this upwards swing attempting to break out of the old trading range has ended and the hedge funds may simply be waiting for the best time to kick off a big push for the next downward swing in the revised trading range.

It was heartening to see that an early push downwards on Tuesday quickly ran out of steam and NASDAQ managed to recover almost all of those early losses. Heartening, but it doesn't mean that we are out of the woods by any measure. It is upwards momentum that the market needs, not simply the lack of downwards momentum.

In any case, more consolidation is warranted here before any further big advance.

So, we still have equal probabilities for the for all three directions - either renewed upwards momentum, or a downwards push back down into the revised trading range, or trading in a narrower range. By default, we are in the latter, stuck in the 5000 to 5100 range. In truth, I prefer the latter, so that we can build a decent amount of technical support to serve as a solid base for a new leg up for the advance a little further down the road. In any case, volatility remains king.

Earnings season is indeed driving a lot of stocks, but in all directions, sharply up, sharply down, and sideways, which results in a market that is on average sideways.

Some fraction of market participants are waiting on the Fed FOMC announcement this afternoon before placing bigger bets, but the news will likely be that there is no new news. No press conference will occur after the release of the announcement, so there is no real opportunity to explain any significant change, so there is no expectation on the part of the Fed itself for any major change. Still, there are a lot of people waiting on their hands for the Fed to confirm that they are not changing anything. The Fed has already confirmed that they will remain data-driven, so it is merely a matter of waiting for the data to pick up enough for a real Fed move to be more of a slam dunk. Everybody knows that Q1 was rather sluggish, and that Q2 is expected to pick up, but nobody knows by how much, or what Q3 will be like. Personally, I still expect Fed rate liftoff to be roughly in the October time frame, but fed funds futures are currently pointing to December as the time frame for liftoff of interest rates. Futures are currently indicating only a coin-flip chance of a second hike in March. In any case, interest rates will remain quite low for quite some time, so no worry for stocks.

NASDAQ futures are down moderately, indicating a further pullback at the open. People are getting antsy about the fact that upwards momentum has petered out, which typically presages a downswing unless there is some some great new catalyst coupled with significant inflows of fresh money to fuel a renewal of upwards momentum. As always, we must caution that futures and the opening move frequently are not reliable indicators of the actual trend for the rest of the day.

-- Jack Krupansky

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