NASDAQ waits for the other shoe to drop

The first trading day after a long weekend is always problematic - it tells us nothing about the true near-term market trend. Whether it is a sharp rally or a sharp decline, it can frequently simply be traders reacting to each other rather than focusing on the same external catalysts. We need to wait a couple of days while the near-term trend gets reestablished.

The sharp decline of NASDAQ on Tuesday (felt more like a Monday to me!) was a disappointment, but some consolidation in the 5000 range was needed anyway, so this fits the bill. No big complaint on that front.

The big question is whether the decline was mere consolidation or whether enough of the hedge funds have decided to switch their trading bias to more of a net risk-off bias rather than a net risk-on bias. The decline on Tuesday could well have simply been due to volatility - a couple of days will sort that out.

There doesn't appear to be any dramatic shift in economic or business fundamentals to suggest that the market should go down dramatically.

NASDAQ futures are up modestly, suggesting a modest recovery bounce 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. If we do see a bounce at the open, the big question is whether the hedge funds pile on to kick off a decent rally, or whether they sell into any rally and turn this into an outright rout. The proverbial other shoe.

Fed fund futures did shift a little bit, with futures indicating somewhat less than a coin flip chance of liftoff in October (44%), but still indicating December as the most likely time frame for liftoff of interest rates. Personally, I still lean towards October, but a lot of this hinges on exactly how the data unfolds over the coming months.

NASDAQ could consolidate some more, or bounce, or maybe indeed the hedge funds are intent on trading the market back down in the wide trading range again. All are equal probability. The only certainty is volatility.

The only thing that concerns me is that we still haven't established solid technical support in the 5000 range - we spike up but then come tumbling back down. So lets see if the umpteenth time is the charm and maybe we get a solid bounce here that clearly establishes 5015 to 1530 as decent technical support that can serve as a solid foundation for a sustainable advance in the 5050 and 5100 range.

-- Jack Krupansky