Friday, May 22, 2015

NASDAQ to consolidate a little ahead of a long holiday weekend

After its extended recent advance to within spitting distance of a new all-time closing high, NASDAQ remains a bit tired and over-extended and due for a bit of a breather. The upcoming long holiday weekend will be a great incentive for people to take their eye off the ball. And the general lethargy of Fridays in general will sap a lot of the energy and enthusiasm that may have been behind the advance. Three scenarios are equally likely on such a low-volume trading day, volatility with trend-less erratic movement that may end up, down, or flat, a slight drifting higher, or a slight drifting lower. Sure, it is possible to also see big rallies and big sell-offs on low volume, but those gains or losses would tend to quickly be erased on Tuesday or Wednesday when all the big dogs get back to their desks.

NASDAQ futures are up modestly, indicating a modest rally at the open, possibly even taking us above the 5100 level, 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.

We're less than two points from a new closing high and ten points from a first-time close above the 5100 level, but I would caution that neither is an absolute slam dunk, and even if we do see either or both, they could quickly be erased on Tuesday when the more serious players get back from the long holiday weekend. As the old saying goes, when the tigers are away, the monkeys rule the jungle.

Usually I say that the only certainty is volatility, but with the very low volume on a Friday ahead of a long holiday weekend, even volatility is not a certainty.

I'll be happy if we do set some new highs today, but I'll be even happier if we can finally establish some decent technical support here in the 5050 range before pushing above the 5100 level, so a modest pullback today, followed by a decent advance to new highs on Tuesday or Wednesday would give me a more positive feeling about the sustainability of this market. Please note that the stock market does not always give me what I want. I'm not even guaranteed that I will see any attractive buyable dips of quality stocks today, although that is usually an almost certainty.

It seemed like only yesterday we were moving past the middle of the month, and here we are now facing the end of the month with next Friday being the last trading day of the month and Monday a holiday. I won't suggest that we can make assumptions about how the market will trade next week, but the whole "sell in May and go away" calendar trading pattern thesis just doesn't seem to be holding up at all this year. I personally don't believe in calendar trading patterns, but since so many other people do, I have to be aware of the reality of people trying to front-run these patterns. This does not mean that we are free and clear for the month of June, especially with uncertain money flows, an uncertain economic outlook, and uncertainty almost everywhere we look. But, as they say, a bull market climbs a wall of worry.

Will Fed Chair Yellen say anything that moves the market in her speech this afternoon? Not likely since it's fairly clear that the economy is not quite strong enough to safely digest a rate hike in June or even September. Fed funds futures indicate only a 56% chance of liftoff of interest rates in December, only a 39% chance in October, and the fed funds target rate only 0.75% a year from now. In short, the Fed is effectively on the sidelines for the next few months as we wait for the economy to firm up.

-- Jack Krupansky

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