Wednesday, May 20, 2015

NASDAQ still undecided about short-term trend

It is certainly frustrating, but NASDAQ is really having a tough time deciding on some sort of short-term trend and sticking with it. We are currently sitting near the upper edge of the wide trading range, with no sense of conviction as to whether we will break out to a new high or roll over and dive back down towards the lower portion of the range. Lacking any strong catalysts, the default behavior will be to simply meander in the range. Hedge funds of course hold all the keys - they may decide to add risk and push for that new high, or they may decide to take off some risk and bet of a short-term decline. Ultimately they will bet on the path of least resistance, but that will change on a moment by moment basis.

Being near the upper edge of the trading range and with momentum that has faltered, the path of least resistance would appear to be downwards, but it isn't always that simple. Sometimes too many minor players bet too heavily on the obvious while a few deep-pocket players hang loose until the end and then slam the market with contrarian trades which catch the too-cocky early betters off balance and the obvious suddenly fails and momentum gets restored. There is no guarantee that this will happen today, but it is a distinct possibility.

NASDAQ futures are up modestly but fluctuating, indicating a mixed open, possibly up a little or possibly down a little. 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. Whether people buy dips, pile on to rallies, sell into rallies, or panic and a minor dip turns into a rout remains to be seen.

My personal feeling is that NASDAQ will move a bit higher over the remainder of the month, but with enough volatility to scare off all but the hardiest of roller-coaster enthusiasts.

I'll be playing some IPO's, but mainly I am looking for buyable dips of quality companies.

-- Jack Krupansky

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