Tuesday, May 19, 2015

NASDAQ still at the same old crossroads

It sure was a welcome relief on Monday to see all the negative sentiment at the open turn completely around and give us a moderately up day for NASDAQ. But a gain of less than 1% is not exactly an indicator that we are out of the woods yet. NASDAQ remains a bit below its all-time closing high of 5092 on April 24th. A new high is certainly reachable, but whether it will stick is another matter. It's all up to the hedge funds and whether enough of them switch to a risk-on bias to get us above 5100 on a sustainable basis. But without fresh inflows to retail mutual funds such a move is unlikely to stick.

I think it is likely that many employees are indeed continuing to pump money into retirement accounts, for whatever reasons others have been taking money out of domestic stock mutual funds over the past six weeks. How that trend evolves and whether this may be the week that reverses the recent trend remains to be seen.

We may also be seeing a little bit of relief rallying, relief at the fact that the month of May is half over without any serious sign of the traditional "sell in May and go away" calendar trading pattern.

There is anxiety that Q2 is not going to be as strong as we once expected it to be, but a little weakness in Q2 also helps the overall market since it keeps the Fed rate hike in check. Fed funds futures are still indicating no hike until December and only a second hike next April. So, this Q2 anxiety may be starting to wane as people realize that it is already priced into the market and we are less than six weeks from the onset of Q3.

NASDAQ futures are up moderately this morning, indicating a moderate rally at the open, but as always we have to caution that futures and the opening move are frequently not reliable indicators of the market trend for the rest of the day. Yesterday was a great example of that limitation. We will have to see whether people pile on to the opening rally for a determined push above 5100, or whether they take some money off the table and sell into the rally.

It really is hard to say whether more hedge funds will decide to let the advance run a little bit more, like to 5150 or even 5250 before once again reversing their trading bias to boost their profits by a rapid retracement downwards in the wide trading range from 4850 to 5100. Even a modest change in domestic stock mutual fund money flows could influence their decision.

So, we remain stuck in our trading range and are now once again poised at the crossroads, unsure whether we have the energy to break out to a new, sustainable high above the trading range, or whether to simply take the path of least resistance and continue to trade up and down in the range. The only certainty is volatility - which is a great source of cash even if not emotionally satisfying.

I'll personally probably be doing a little selling to meet my daily and weekly realized gain targets, but otherwise remain fully invested, but with reserves to take advantage of dips and any inevitable correction or mini correction.

-- Jack Krupansky

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