Friday, June 05, 2015

NASDAQ feels so much more comfortable in a trading range

Seriously, when NASDAQ is on the verge of new highs it feels like such an imposter due to uncertain money flows to support that posture, but back down in the middle of the trading range it feels a lot more comfortable - a moderate move in either direction is easier and a bit more sustainable, if you call volatility sustainable.

The very decent jobs report did spook the market a bit, but the delta over expectations is too small - and statistically noise - to make a dent in overall expectations that the economy remains only so-so and will likely continue that way for months to come until the underlying economic fundamentals firm up a fair amount more. We are still in recovery mode and not really that close to being anything near a normal economy.

NASDAQ futures are down moderately, indicated a moderate pullback 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.

It's a Friday again, so some fraction of speculators will tend to reverse their trading bias to take cash off the table ahead of the weekend when anything can happen (Greece?), and then they will tend to reverse that reversal on Monday to re-open positions they closed on Friday. So, a decline today could set up for a rally on Monday, and vice versa.

Fed funds futures firmed up a bit after the jobs report, from 44% to a 53% chance of liftoff in October. Previously futures had indicated December as liftoff, although personally I have been forecasting October for some time now. I think the Fed will spend the entire summer simply pondering the economic data and its firmness, and then spend September finalizing plans for the mechanics of liftoff, and then only in October will they make the first tentative move.

Futures are now also indicating a second hike, to 0.75% in January, and a third hike to 1.00% in April. These are still historically low rates that shouldn't clobber the stock market. In fact, I suggest that improvement in the economy over the next nine months will be a bigger positive than the negative of such modestly higher interest rates in terms of the benefit for stocks.

I'm still expecting June to end relatively close to flat, up or down 2%, but with plenty of volatility.

BTW, I personally define volatility as the frequency of short-term trend changes, not the magnitude of the change over some longer interval of time.

-- Jack Krupansky


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