Friday, June 12, 2015

NASDAQ continues to get buffeted by Fed anxiety

Although it was nice that NASDAQ managed to close in the green on Thursday after a big up day on Wednesday, it was not a very broad advance by any measure, with many momentum stocks declining, indicating that the hedge funds were not very enthusiastic about the prospect of continuing the rally. The market is in Fed watch mode through Wednesday, so none of this really matters much at all. In fact it will take a few days after the Fed announcement before the dust settles and the market resumes any underlying trend, which is probably trend-less range trading for the short to medium-term anyway. Sure, there remains a medium to longer-term uptrend in place, but at too slow a pace to really notice in daily market activity. The good news is that NASDAQ is sitting in the high 5050 range, within striking range of the 5100 level. The bad news is that NASDAQ is just sitting. Period. Or maybe fidgeting would be a more apt characterization.

It's a Friday again, so expect some fraction of short-term speculators to close positions ahead of the weekend when anything can happen. That means selling if they are net long, but buying if they are net short.

NASDAQ futures are moderately sharply lower at this moment, indicating a moderately sharp pullback at the open, but as always we must caution that futures and the opening move are frequently not reliable indicators of the market trajectory for the rest of the day. The only certainty is volatility.

If we don't see a big decline today, it would probably occur on Monday or Tuesday, since NASDAQ up within striking distance of the 5100 level and a new closing high just feels more than a little overpriced to too many people. NASDAQ will be prone to this kind of range trading for the foreseeable future - until the economy picks up enough steam so that companies once again start surprising on the upside with earnings, revenue, and the outlook. We're just not there yet - and the Fed knows it.

Greece? A deal will get done. Period. It's simply a matter of waiting until the last moment since none of the parties can be seen as prematurely caving in to an unpleasant compromise. European banks don't need the messiness of outright default on Greek debt that they hold and Europe doesn't need the prospect of pushing Greece into tighter economic integration with Russia and China, not with Ukraine nipping at them as well.

The Fed? Fed funds futures shift a little on a daily basis, but are still solidly pointing to the fall for liftoff. The FOMC announcement, economic outlook, and press conference Wednesday afternoon will most likely not include any major surprises, but merely a bit more color on the outlook for the next few months and possibly some hints as to how exactly liftoff will occur. Fed funds futures currently indicate a slightly better than coin-flip chance of liftoff in October, with liftoff in or by December a little more likely, a second hike in January, and a third hike to 1.00% in April. IOW, the most likely scenario is low rates that should not undermine most stocks for a full twelve months from now.

-- Jack Krupansky


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