Tuesday, May 12, 2015

NASDAQ continues to writhe in its trading range

Did I mention that NASDAQ remains trapped in its trading range? A week ago, when the market was also plunging I suggested that NASDAQ might close above 5000 gain as early as Friday, and it did. But... I also posed the question of how many times NASDAQ would have to do so before it sticks - and here we are. Once again, even as the market is poised for another plunge, on unspecified factors that might relate to a purported global sell-off of the bond market, we could close above 5000 for the umpteenth time within a matter of a few days. But, just as we saw last week, who knows how many more of these rally/plunge cycles we will see play out before we safely and soundly close above the 5100 level.

There's bound to be an outright correction some time in the future - we should have one or two each year for good measure, but it is laughable the way people worry that every down day may be the start of a correction.

NASDAQ futures are down sharply, indicating a sharp pullback at the open, but as always we must caution that futures and the opening move are not reliable indicators of the market trend for the rest of the day. Sure, this could be another 70-point down day, or even 100 points, but the sell-off could also lose steam within an hour or two and turn into a rally of equal or greater magnitude. Or the market may simply bounce around for a more modest net loss or gain. The only certainty is volatility.

The main message from the markets on Monday was that the rally from Friday had run out of steam. We do seem to be in a market environment where both the advances and sell-offs are more abbreviated. Traders and hedge funds tend to have a predictable reaction - if the market loses momentum in one direction, then its time to reverse your trading bias and bet on a move in the opposite direction. Rinse and repeat. This is the essence of the trading range. The wildcard is net money flows - will fresh money come in to push the market above its range, or will people pull more money out of the market to drop it below the bottom of its previous range. The problem with hedge funds is that they can rapidly decide to shift money in or out of the market, but they can only do that for a relatively short period before even their money runs out of steam, and then they reverse to play the opposite direction. The current trading range for NASDAQ is roughly 4850 to 5100.

My response is to continue buying on big dips,cashing out on the inevitable rebounds. Granted, the timing of rebounds can be dicey, which is why patience and flexibility are required and are my key defenses in this crazy bouncy-castle market.

-- Jack Krupansky

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