Friday, April 24, 2015

NASDAQ still lingering a bit too close to the same old crossroads

It is of course super-great that NASDAQ manage to score a new all-time closing high above the dot-com era peak of 5049. I wish I felt a lot better about that, but... well... I don't. We're still only a stone's throw away from the tired old wide trading range. We're going to need to close above the 5150 level for at least a couple of weeks before we can have a sense of conviction that the old trading range is behind us. And we still haven't set a fresh all-time intra-day trading high, which was 5,132.52 on March 10, 2000. We need to close well above that level before we can really breath a sigh of relief that the dot-com era is finally ancient history.

Besides the ongoing hand-wringing over weak earnings and outlooks, my main concern is that there isn't yet sufficient net inflows of fresh money from retail investors and institutional investors such as pension funds to power a strong advance from here and counteract the tendency of hedge funds to stage artificial reversals to capitalize on trading wide swings in a wide trading range.

I remain a bit disturbed by the fact that we haven't seen many big up days, like more than even 1%, but as they say, a bull market climbs a wall of worry, and a slower, steadier rise is probably more sustainable than a sharper move upwards.

I would personally prefer to see NASDAQ linger a bit longer in the low 5000 range, with a decent mix of down days so that we establish a solid base that can provide decent support for a more sustainable advance, but we have to work with the market we have, not the one we want.

One possible scenario (among many) is that the hedge funds may push NASDAQ up to 5250 or so and then revert to trading in the 5000 to 5200 range for months. That could also leave the door open to at least a mini-correction to revisit the old trading range even if only briefly, such as happened last October. None of this has anything to do with long-term economic and business fundamentals, but is what happens when there is not a sufficient mass of fresh investment money flowing into the market.

NASDAQ futures are up moderately sharply,due to enthusiasm for some of the quarterly reports from yesterday after the close, suggesting a decent pop at the open. As always, we must caution that futures and the opening move are not reliable indicators of the market trend for the rest of the day.

It's a Friday again, so some fraction of short-term speculators will tend to close out positions ahead of the weekend when anything can happen. If they are net long, especially considering the recent march to a fresh all-time high, that could mean some selling, but if enough people are still short because they don't believe the new peak will stick, it could mean some serious buying to cover those short positions.

The main thing I will be looking for today is whether we see some decent follow-through buying build on the opening rally and see that rise through the afternoon and into the close. The default would be to see a fair amount of selling into rallies throughout the day so that we end up with another half-percentage point gain as we have seen in other recent sessions. Still, it is possible that we could see a blowout rise today, to close above the 5100 level, in which case we could see some more serious profit-taking and consolidation next week.

My wash sale rule restriction ends with today, so on Monday I can once again start freely trading a bunch more of the high-volatility stocks on dips.

Overall I remain very long the market, especially with my retirement accounts. I remain optimistic about the future, but I do expect the road to be quite bumpy and the terrain quite challenging.

-- Jack Krupansky

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