Thursday, May 14, 2015

NASDAQ takes a shot at trying to jump out of its trading range

The rally at the open on Wednesday was a bit of a disappointment - clearly people sold into the rally, it ran out of steam, and NASDAQ barely closed in the green, with a lot of momentum stocks taking a hit. Nominally that is a bad sign, but it appears that traders are intent at taking another shot at a rally today. But if the same things happen today and this second attempt falters, then it could get ugly. In any case, this is all typical of trading in a range. One of these days we will indeed lurch or lunge out of the range, either to the upside or to the down side, but for now, we just lurch and lunge in all directions. Flip a coin whether a move today kicks off a mini advance that takes us to a new all-time high above 5100 in the coming days.

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

Th nominal rationale for enthusiasm this morning is purported to be a weak dollar, but short-term FX trading moves are rarely very durable. But they are good excuses when traders are hunting around for excuses to cover their underlying trading strategies that have little to do with the excuses themselves.

The great unknown today is what hedge funds will do with their risk bias on the opening rally - will they add more risk and pile on to supercharge the rally with some dramatic short covering, or will they take more risk off and sell into the rally as they did yesterday. There are no demanding fundamentals to push them one way or the other - it is more a matter of the path of least resistance that will maximize their short-term profit. This may be their last big chance to exploit anxiety over the "sell in may and go away" calendar trading pattern - tomorrow is the end of the first half of the month.

To be clear, if we have a big up day, like up more than 1% or even up 60 points, that will be a good sign, but if we close up with only mediocre gains, like only half a percent or 25 points, that will be a sign of weakness that the bearish hedge funds will pounce on shortly.

-- Jack Krupansky

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