NASDAQ consolidation continues

That spike upwards for NASDAQ on Wednesday was awesome, but now we must pay the piper and watch the gains incrementally erode until either we get another big sell-off or another sharp spike upwards - which comes first I couldn't say. A fair amount of consolidation is not unreasonable here, but we seem to jump around a lot rather than consolidate into some clear trend. Welcome to trading ranges.

It is a Friday again, so a good fraction of speculators will tend to close out positions ahead of the weekend when anything can happen. This means selling if people are net long, or buying if people are net short.

I personally don't trust market moves on Fridays and Mondays since there is so much of that action that is related to taking off positions ahead of the weekend and then putting them back on on Monday, so that a gain on Friday can be erased on Monday or a loss on Friday can mean a gain on Monday.

This whole week is a bit weird due to the fact that Monday was a holiday, coupled with the fact that we have to deal with the whole "sell in May and go away" calendar trading pattern sentiment. Too many people have probably front-run that pattern, and now we will see a weird combination of "sell the rumor and buy the news" buying as people come back into the market after selling in April and people who actually are going to sell and go away.

It is also the last trading day of the month, so there could be some extra volatility as people square away positions and consider realizing gains or losses and consider fresh positions for the coming month.

NASDAQ futures are down moderately, indicating a moderate pullback at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. Whether people pile on to the opening pullback and kick off a big sell-off, or buy dips and rally for the rest of the day, or we just see a lot of trend-less volatility with either a modest gain or loss at the end of the day are all equal probability outcomes. Either way, volatility is a certainty.

The dollar, GDP, the Fed, and all manner of other excuses will be bandied about, but the real issue is money flows and whether hedge funds decide that the path of least resistance to higher short-term profits is up to a new high or yet another erratic swing downwards in the wide trading range of 4850 to 5100.

I remain concerned that we haven't established decent technical support in the 5050 or 5000 ranges, which are precursors to any sustainable advance above the 5100 level. We may need to test the 5030 level one more time to establish more definitively that that is indeed an area of support. We really do need to see a couple more decent upwards bounces after declines into the 5050 and 5000 ranges before we can advance to a new and higher trading range. But that is also predicated on seeing more fresh money flow into the market - without fresh money, we are doomed to bouncing around in a wide trading range.

I wouldn't be surprised at all if we close above 5100 again within a couple of days, or even today for that matter.

What's in store for June? Unless we see some more fresh money or the hedge funds decide to take on more risk, June could be a relatively flat but volatile month, maybe like July was last year. It will be the end of the quarter for hedge funds, which means they have to balance trading more aggressively to produce gains for the quarter and possibly some closing of some positions to meet demand for withdrawing of cash, which usually can occur only on a quarterly basis. Whether they will be net buying or selling to close positions will depend on whether they will be closing long or short positions. IOW, expect even more volatility.

-- Jack Krupansky