Tuesday, April 07, 2015

NASDAQ to continue wandering in its trading range

That was a halfway-decent bounce-back and rally for NASDAQ on Monday, but only superficially. We still have memories of the days when 30 points was a big deal, but up here near the 5000 level it amounts to little more than half a point - 0.62%. The bounce from the sharp 33-point decline at the open was more impressive, but the net gain for the day was less than that early morning bounce. Further, NASDAQ closed at a lower level than it was at at 12:30 PM. IOW, this was not a rally that had legs. It was most likely driven by the forced buying of short covering, by those who thought that the weak jobs number was going to be a real negative for the market. The real bottom line is that there was no significant evidence of any real enthusiasm for buying.

In short, NASDAQ remains locked in its wide trading range. That's not a completely bad thing, but it does mean that volatility is the name of the main short game. Sure, the long-term upwards trend remains intact, which is great news for serious, long-term investors (like me with my retirement accounts), but it does just feel more than a little unsettling for everybody else. But if you like volatility, you are set in spades.

The relatively weak jobs number from Friday did have the effect of pushing out expectations for the first Fed rate hike move - from October to December. Fed funds futures now show a 61% chance for liftoff in December and only a 48% chance in October, and 30% chance in September. Personally, I think the data will evolve to still make October the likely time frame for liftoff. But the bottom line is still that the fed funds target rate is not likely to be greater than 0.75% an entire year from now, which is well beyond the visibility of stock traders. That's good news for stocks.

NASDAQ 5000 is still coming (again), even if the path will be rather indirect, bumpy, and unpredictable. It's less than 2% away. The really good news is that all of this range trading does an excellent job of building a very solid support base upon which a sustainable advance above the 5000 level can be built. Traders like to see that kind of thing.

NASDAQ futures are up modestly, indicating a modest pop at the open, but as always (just look at yesterday!), futures and the opening move are not reliable indicators of the trajectory of the market for the rest of the day.

-- Jack Krupansky

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