Thursday, April 23, 2015

NASDAQ still hesitating at the crossroads

It sure is great that NASDAQ has managed to hit a 15-year closing high, is above the magical psychological 5000 level again, and has even closed above that level for two consecutive days, again. But... the trading action has been far too hesitant and tentative, with very few big days - the only recent big day was right after a big down day. Net-net, we are not out of the woods yet, and have merely been expanding the wide trading range rather than definitively advancing out of that trading range.

My overall evaluation stands - we remain at a crossroads and have equal probability of breaking out of the trading range, or reversing and trading back down in the trading range, or trading in a narrower range. The mere fact that we set a fresh 15-year closing high yesterday and are within a pebble's throw of a new all-time high for NASDAQ is a testament to the underlying resilience of market, the overall U.S. economy, and American businesses, but people are still overly-cautious despite all of that. Absent a more robust inflow of fresh cash from retail investors and institutional investors such as pension funds, we are at the complete mercy of the hedge funds, who are more than happy to play the swing trades in a trading range whenever momentum peters out for even a millisecond.

Earnings season remains the primary focus of the market. The reports have been quite mixed, with something for everyone, bulls and bears. Overall, I would say, that things are in fact as bad as expected, but are at least not much worse than expected - overall that is, not for individual stocks. The fact that the overall market has trended up is more a tribute to investors and medium-term speculators looking beyond the short-term to the coming quarters rather than obsessing over the spilled milk of Q1.

NASDAQ futures are down modestly to moderately, indicating a modest to moderate pullback at the open. A little profit-taking and consolidation after the recent advance is to be expected. Whether such profit-taking and consolidation does materialize is only speculation at this stage. As always, we have to note that futures and the opening move are not reliable indicators of the market trend for the rest of the day.

Today and tomorrow are my last two days under restriction of the wash sale rule since I took some big trading losses a month ago to raise cash for my taxes and retirement account contribution. There are a list of stocks that I would like to be trading more actively, but couldn't unless I wanted to give up the tax deduction of those losses. On Monday I'm free and clear. I'll also have less capital to trade with, but I plan on doing more trades of a smaller size, coupled with a new brokerage account that has much smaller commissions. I may reduce my target gain from 5% to 3% to increase my trading velocity as well. I may also allocate cash between short-term trades of one to three weeks and medium-term trades of one month to one year since there are quite a few stocks that get depressed by hedge funds but eventually bounce back after some months.

-- Jack Krupansky

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