Thursday, April 16, 2015

NASDAQ stubbornly lingering at the crossroads, lacking conviction

Sure, a 34-point gain is a nice thing, and it is great to see NASDAQ close above 5000 again, but... it was all too halfhearted, with less than a 1% gain and a pullback from the peak into the close. It was more of a check mark, been there, done that, kind of thing than a solid move with real conviction. IOW, there was nothing in yesterday's trading that inspired great confidence. That said, it is always true that a bull market climbs a wall of worry.

Some of the gain on Wednesday may simply have been the forced buying of short covering, in which case we can expect to see some renewed downwards pressure as soon any lingering buying pressure peters out.

We remain at a crossroads, with equal probabilities for a breakout to new highs, a reversal and trading back down in the wide trading range, or volatile trading within a narrower range at these crossroads.

The big unknown is the net fresh money flows - is new money flowing into the stock market from retail investors and institutional investors such as pension funds, or is money flowing out of the stock market. Absent fresh money, hedge funds will quickly revert to trading swings in a wide trading range.

In any case, the hedge funds remain in charge and volatility is the game plan.

NASDAQ futures are down moderately, indicating a moderate pullback at the open. There is no great catalyst, other than lingering anxiety over a suspected earnings recession. The worry is that a lot of companies will meet reduced Q1 targets, but offer weak guidance going forward. As always, futures and the opening move are not reliable indicators of the trend for the rest of the day,

A bit of profit-taking is not unwarranted after the recent advance. Typically that is the default if there is not sufficient fresh money flowing into the market, and especially when that flow is uneven.

My tax checks are now officially in the mail. It will take a few days before the cash is debited from my checking account, and then I can focus on adjusting my cash reserves to figure out exactly how much capital I can allocate for trading.

My main focus today will be on the Virtu (VIRT) and Etsy (ETSY) IPOs this morning. High frequency trading and crafts - what a great combination that perfectly represents the wide diversity of our modern economy! I'll buy some of each at the open, put in limit orders to sell half at a 10% gain, and sell that half at the end of the day if they go nowhere, and then trade on 5% dips after today.

-- Jack Krupansky

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