Monday, April 13, 2015

NASDAQ pausing at a crossroads

NASDAQ hasn't had any recent strong rally days, but has nonetheless managed to crawl back up to within spitting distance of the magical psychological 5000 level. So what's next? Ummm... Uhhhh... nobody's really sure. NASDAQ is poised near the upper edge of its wide trading range, where normally it might reverse and head back down. We are faced with the prospect of a so-called earnings recession this quarter. Stock valuations really are a bit on the high side. Ultimately it is a question of money flows and whether retail and institutional investors will be allocating more money to U.S. stocks. And we remain at the mercy of the hedge funds who can and do reallocate their stock exposures on an almost daily basis. There is also the traditional "sell in May and go away" dispirit looming just a few weeks away and more than a few people may be inclined to jump the gun. So, NASDAQ has arrived at a crossroads.

The are basically three ways the market could move right now. Hedge fund bulls could assert control and put the NASDAQ 5000 level in the rear-view mirror. Or hedge fund bears might take charge again and drag the market down towards the lower edge of the wide trading range. Or we could wobble within a narrow trading range at these levels, while more preliminary quarterly earnings reports come out for Q1 and revised outlooks for Q2 are issued, impatiently waiting until the bulls and bears make up their minds. Or, as sometimes actually is the case, the market could indeed climb the proverbial wall of worry and incrementally move upwards by a couple of percent in the coming weeks as actual news provides the usual mix of both positive and negative news.

The more rational move for the market would be to take a breather and wait for confirmation on at least a few key quarterly reports before heading up or down, but I can't recall a time when the market was particularly rational.

The really good news still is that all of this tentative movement in a trading range is establishing a really solid base of technical support for a further market advance that would leave the 5000 level behind as a bit of ancient history, with the dot-com era being more of a historical footnote than our primary guide.

I'm still optimistic that we have a decent amount of upside ahead of us, but it is always unwise to call the market direction with too much confidence. I personally am indeed long and overweight the market, but with semi-decent cash reserves so that I can take advantage of dips as well.

NASDAQ futures are hovering with just a modestly negative tone, as if traders were in favor of the market taking a breather and a little bit of profit-taking. This suggests the market may dip a little at the open. As usual, we must bear in mind that futures and the opening market move are not reliable indicators of how the market will trend for the rest of the day.

In truth, my primary financial focus for the week is paying my taxes and estimated taxes on the Wednesday the 15th. Last year was a great year for me, my best ever, so my liability is significantly greater than my previous estimated payments. This year is not shaping up for me to be anywhere near as good, so I am faced with the tough call of deciding how much to pay for estimated taxes. My accountant says I'll be okay as long as I pay 90% of actual tax due for the coming year, so now I have to project that number. It might be easier for me to guess where the stock market is going! In any case, all of this tax anxiety will be behind me sometime on Wednesday when the checks go in the mail. Electronic payment is a possibility, and my preference, but keeping the cash a few extra days is a preference as well.

-- Jack Krupansky

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