Friday, June 19, 2015

NASDAQ needs to consolidate a little

Wow, it's great that NASDAQ zoomed up to new all-time intraday and closing highs above the March 10, 2000 dot-com intraday peak, but now its time to see how much of the gains will stick. At least a little bit of consolidation would seem appropriate at this stage. The bad news is that we have no discernible technical support at these lofty levels, so as soon as buying momentum peters out, we could go tumbling back down to where we came from, or worse. There is also the concern that a hefty chunk of the gains yesterday may simply have been due to the forced buying of short covering, so angry shorts will re-open their short positions as soon as upwards momentum slows. It's also a Friday again, so some fraction of short-term players will tend to close out positions ahead of the weekend, when anything could happen (like Greece and Russia.)

Ultimately, it is all up to the hedge funds, whether they decide to go all-in and ride the rally to higher highs like the 5250 level, or exactly when they decide that enough is enough and flip the switch to reverse and go back to more of a risk-off trading bias and goose their returns by trading back down in the wide trading range. In short, we don't yet have a clear and sustainable breakout from the 4850 to 5100 trading range. One day and 33 points does not establish a trend.

The latest weekly money flow report from the Investment Company Institute on Wednesday showed continued outflows from domestic stock mutual funds, which is not good news at all, but it isn't clear to me how significant mutual funds are these days in a world ruled by ETFs, advanced investment tools for retail investors, and hedge funds. Still, these outflows are a concern, or at least somewhat of a drag on the market in any case.

NASDAQ futures are up modestly at the moment, indicating a modest rally 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. A modest to moderate rally or pullback in the 10 to 30-point range are the more likely scenarios for today.

Greece? Same old same old. An eleventh-hour deal or at least stop-gap measure was always the likely scenario. Sometimes the markets are smart enough to ignore the political theater, but sometimes traders use that negativity as a cover for underlying trades they are trying to promote.

It usually takes a few days for the dust to settle and the market gets back to its underlying trend after any Fed announcement, so we could see more erratic volatility until the middle of next week.

Another big concern is that way too many companies have been coming up short or below expectations on revenue and earnings, and even worse are reducing their outlooks for the coming quarter. Q2 was supposed to be a snap back from Q1 weakness, so this is rather disconcerting. As a result the market will now be hyper-vigilant for warnings or positive surprises for Q3, as well as obsessing over each and every economic report to get a sense as to whether Q3 will be the quarter that Q2 was supposed to be. Actually, Q2 is not over yet, so we face the prospect of warnings and surprises from companies over the next two weeks as they get a handle for how business is shaping up for the close of the quarter.

Meanwhile, volatility is the only certainty, even as the underlying long-term trend for the market remains upwards but at too slow a pace for people to readily discern on a daily or even weekly and sometimes monthly basis.

-- Jack Krupansky

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