Thursday, April 02, 2015

NASDAQ stumbling around in its trading range

This week continues to be a bit weird. Tomorrow is a trading holiday due to Good Friday, so that throws everything off. Today will trade sort of like a Friday, with some fraction of speculative market participants closing out short-term positions ahead of the weekend, when anything can happen. That could mean more buying if they were net short, or more selling if they were net long.

People are anxiously awaiting the monthly employment report, which comes out tomorrow morning, but... tomorrow is a trading holiday, so that makes things doubly weird. So, expect a lot of extra volatility as twitchy traders attempt to cope with this trading anomaly.

The net net is that NASDAQ remains in a wide trading range, and maybe even in a narrower sub-range of that wider range. It is all up to the hedge funds as they themselves get jerked around by end of quarter withdrawals and uneven inflows.

NASDAQ futures are down moderately, indicating a moderate pullback at the open, but as always we need to accept the fact that futures and the opening move are not reliable indicators of the market trend for the rest of the day. Yesterday we saw a dip at the open, with the low for the day at 10 AM, but then the market trended higher for the rest of the day, closing 30 points above that morning low. It was still a moderate loss for the day, but not as bad as early sentiment and early trading would have suggested. Volatility indeed.

Some people believe in seasonal trading, and "Sell in May and go away" is one of the top trading patterns. Even there, there is dispute over whether May is early or late May or even mid June or the beginning of April (or even February!), not to mention the fact that some traders will try to jump the gun to get an edge on their fellow traders. I would simply note that these are only statistical patterns, so even if they work on average (at least sometimes), they frequently don't work every time. Still, it is a reality of the market. Personally, I see it more as the froth overlying the underlying market.

The economy still continues to improve incrementally, albeit at too slow and uneven a pace to satisfy twitchy Wall Street traders. Sure, there is some concern that the fall and winter were a lot weaker than expected, with plenty of quarterly reports and outlooks that were weaker than expected, but a fair number of people expect the spring and summer to be a lot stronger. Again, even more cause for volatility.

Fed funds futures continue to point to October as the most likely time frame for liftoff of interest rates. June is still very unlikely, but of course this all will be data-driven, but that means the Fed FOMC interpretation of the data not necessarily the raw headline numbers. The Fed also tries to figure out how to factor out transitory factors. Futures point to a second hike in either January or March, with the fed funds target rate no higher than 0.75% a year from now. This is all very supportive of stocks.

I'm still on limited trading for the next few weeks as I cope with raising cash for tax time. That leaves me with a much more limited amount of trading capital, so I have to be much more judicious with trading positions, at least for the moment.

-- Jack Krupansky

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