NASDAQ fluttering in the wind, waiting for catalysts

NASDAQ currently has no discernible short-term trend - it is merely fluttering in the wind, waiting for the hedge funds to make their next move. We're not pushing at a new high, nor are we pushing to break support. We could do either, but last week showed no conviction for either. This is called range trading, as the market alternates between moving up and then retracing that move, rinse and repeat.

The good news from Friday is that NASDAQ tested the 5030 level and was able to bounce back nicely after hitting an intra-day low of 5025, helping to establish further technical support in the 5000 range. Unfortunately, trading action on a Friday or Monday are not particularly indicative of the overall health of the market. Today may end up being the flip side of Friday, as traders re-open positions that they closed on Friday to be flat over the weekend.

The Fed FOMC will be meeting next week, with an announcement a week from this Wednesday. Although no rate action is expected, people are desperate to hear what the Fed has to say about where we are and might be in the near future. This further reinforces the impetus for the market to trade sideways over the next 8 trading sessions.

That said, the hedge funds are desperate to produce gains for the month and for the quarter end, so they will be prone to artificially inciting brief surges up and down in the market. It wouldn't surprise be to see a big rally today - or a big sell-off, and for either to occur multiple times between now and the FOMC announcement next week, and in the days after the announcement as well.

NASDAQ futures are down modestly right now, indicating a modestly weak 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 big question is not when the Fed will raise rates (futures indicate a coin-flip for October, with December the more likely case, and a coin-flip for a third hike to 1.00% next April), but how the U.S. economy will evolve over the coming months and how that will impact corporate revenue and earnings and the outlook for Q2 and Q3 and eventually Q4. The general consensus is that the economy continues to recover, but at a modest pace that is too slow for many Wall Street traders to get excited about. That also means that the Fed will not be in a rush to raise rates. Personally, I still see October as the likely time frame for liftoff, but that depends on the economy showing some significant firmness between now and then. We're not quite there yet.

Meanwhile volatility remains king.

-- Jack Krupansky