Friday, May 08, 2015

NASDAQ continues to zing around in its trading range

Who knows, maybe NASDAQ will extend its recover rally today, or not, but the main point is that we will remain in a wide trading range, without any sense of an intermediate trend. We are still closer to the bottom of the trading range than the top, so a rise over the next week or so is more likely than a decline, but there is no certainty of a daily basis other than volatility.

The nice bounce on Thursday was a relief, but there is no guarantee that it wasn't a classic dead-cat bounce with more selling next week. My own conviction is that we remain range-bound, but with a slow and gradual shifting of that range upwards over a time frame of several months.

People seemed incredibly relieved at the jobs report this morning. It was actually fairly mediocre, but it was a great relief that it wasn't a lot worse given the sluggish winter.

NASDAQ futures are up sharply, indicating a sharp rally at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the trend for the rest of the day. The big question is whether people sell into the opening rally, or whether they pile on and kick off a bout of forced-buying short covering. A short squeeze can deliver an impressive-looking gain, but the problem is that the shorts will be back with a vengeance soon enough.

It is a Friday again, so some fraction of short-term speculators will tend to close out positions ahead of the weekend when anything could happen. If net long, they will sell, but if net short they will buy to close out short positions. It is hard to know whether people will want to be long or short the market next week, so that only adds to the volatility.

A nice gain for the day feels more likely than not to me, but not a guarantee, and the bigger question is whether we really have passed the turning point for this particular downswing in the trading range, or whether the bears are merely consolidating before taking a more determined swipe at the market next week. I don't think the latter is the most likely scenario, but it is a real possibility.

Personally, I remain overweight in growth stocks, but will continue to focus my short-term trading on buying big dips for 5% gains over a one to three week time frame, although that can stretch to a month or more or even a few months at times.

-- Jack Krupansky

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