NASDAQ looks to continue the recovery bounce

The fate of NASDAQ remains in the hands of the hedge funds, but futures suggest that traders are willing to believe that we will see a continuation of Friday's recovery bounce as NASDAQ trades within a narrower range, unsure whether 5100 or 4900 is more likely.

I'm not looking for a big jump today, and a moderate decline would help to further consolidate the market, but it really is up to the hedge funds whether they see that they could make more money shorting the market or going long the market. A big leap up or another deep plunge, or volatile trading in a narrower range are equal probabilities at this stage.

Personally, I'm okay with all of this range trading because it helps to establish a solid base of support here in the vicinity of 5000 that will provide support for a more sustainable advance above the 5000 level in the coming months. And it does provide lots of volatility which provides the nice dips of quality stocks that I am currently making my money from.

As of last Wednesday, the latest mutual fund money flow data from the Investment Company Institute indicated another week of dramatic outflows of money from domestic stock mutual funds. That leaves it to retail investors, institutional investors such as pension funds, and the dreaded hedge funds to make up the difference. Traditionally, mutual fund money flows drove the stock market, but hedge funds, with their ability to rapidly switch their risk bias are now more of a driver.

The latest ICI data from last Wednesday also indicated another month of strong money inflows into international mutual funds.

There is still a very real possibility that the dreaded "sell in May and go away" calendar trading pattern may take the lingering wind out of the sails of the stock market, but there may be an equal possibility that hedge funds and others had been front-running the pattern and moved their money out of the market in advance of the traditional onset of that trading pattern. Friday was the beginning of May. The next week will put this trading pattern to the test. I'm betting on the front-running thesis, but I'm also prepared to take advantage of any market dips or mini corrections or big dips in individual stocks.

NASDAQ futures are up moderately, suggesting a moderate rally at the open, but as usual we must caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day.

-- Jack Krupansky