Monday, April 06, 2015

NASDAQ to focus on volatility despite jobs number

The purportedly weak jobs report from Friday, when the markets were closed, will get the attention today, but as I frequently note, a lot of market movement is strictly technical in nature and driven in large part by shifting risk bias adjustments by the hedge funds, so that actual fundamental news is used more as cover for those underlying technical movements rather than a guide to the longer-term trend for the market.

Sure, we'll see a big hit at the open, but the remainder of the day is anybody's guess, other than that we can expect plenty of volatility.

The main question is whether the hedge funds will use the news as cover for a broader and deeper sell-off, or as a fake-out to get too many people leaning in a risk-off bias, and then... pull the rug out from under them, and actually switch to a stronger risk-on bias to kick off a big forced-buying, short-covering, short-squeeze rally. Seriously, it could go either way, or anywhere in between.

The real truth is that this supposedly weak jobs number is not so weak, well within the margin of error for this data series, and the mere fact that it holds the Fed in check for a longer period is a net positive for stocks.

Good economists will remind you that you should never treat the latest number in a data series as an indication of a trend. Sure, Wall Street traders do that all the time, but that is no guide for the long run, which is what true investors are interested in. Or at least supposed to be interested in.

Some are chattering that we should worry about a recession. Some are chattering about an earnings recession. Well, a lot of people chatter. (Do I chatter too?!!) It is best to ignore most of the chatter, and focus on the needles in the chattering haystacks - your own best thinking on the underlying fundamentals for the economy and individual businesses for the long term.

Personally, I would not read too much into reduced earnings outlooks. In fact, we should applaud the prospect of companies being courageous enough to be conservative in guidance. At this stage, we are more likely to see positive earnings surprises in the coming quarter, especially now that guidance is much more conservative.

NASDAQ remains in a trading range, and will remain there was awhile, with plenty of volatility. Get used to it. Nonetheless, the underlying long-term trend is higher.

NASDAQ futures are down sharply, indicating a sharp decline at the open, but there is no certainty that this will lead to a much deeper sell-off or merely quickly lead to selling exhaustion and be a buyable dip. As always, futures and the opening move are not reliable indicators of the trend for the rest of the day.

Sitting here trying to imagine what calculations are going on in the heads of the hedge funds traders... is not an easy task, other that to fall back on the one certainty, volatility.

I may do a little buying around 10 AM and then later in the day. I certainly can't predict the depth of the reaction to the weak jobs number, but I can predict that eventually we will bounce back, even if I can't predict exactly when or the exact path the market will follow in the meantime.

-- Jack Krupansky

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