Tuesday, June 09, 2015

NASDAQ poised for a possible bounce or a big sell-off

NASDAQ continues to bounce around in its wide trading range, with just a hint of a longer-term upwards trend that is too faint to feel given all of the volatility. After the almost-sharp decline on Monday, NASDAQ is now poised for either a possible bounce or a big sell-off. It's all up to the hedge funds and whether they feel that it is easier to reverse their trading bias for a quick bounce or whether they want to risk betting the farm and pushing hard to extend the sell-off. They could do either. My suspicion is that they will let the market slide a little further and then reverse for a sharp bounce. But don't bet your farm on it. The only safe bet is volatility.

The next 7 trading sessions are going to be brutal nail-biters as people impatiently await the Fed FOMC announcement next Wednesday. No Feed action is expected next week, but people are over-anxious to parse the specific Fed outlook for the coming months.

Fed funds futures are still indicating December as the likely time frame for liftoff of interest rates, but with slightly less than a coin-flip chance that liftoff might occur as early as October. September isn't in the cards at this stage. Futures indicate a second hike in March or maybe January, and a bit less than a coin-flip chance of a third hike next April. In any case, interest rates will remain quite low for a full twelve months from now. The wild card is the economy, but only a much stronger economy would accelerate the path forecast by futures.

NASDAQ futures are down moderately at this point, indicating 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 trajectory for the rest of the day.

My expectations are for one of three scenarios with almost equal probability, either a quick fall and then a sharp bounce, or some hesitant bouncing but then a renewed and steep sell-off, or some trend-less volatility leading to either a modest gain or loss of 20 points or less. I personally lean towards weakness at the open, maybe a tentative bounce, followed by renewed weakness, and then a bounce later in the day. Whether that mid-day weakness is mild or sharp remains to be seen.

NASDAQ is roughly in the middle portion of the wider trading range, so it could go either way without requiring people to act with any conviction about the true trend.

A key problem for the market is that there is essentially no solid technical support anywhere in the 5000 and 5050 ranges, and with no clear flow of fresh money into the market it is easy to bounce higher, but then the path of least resistance is for the market to slide back down towards the 4900 range, rinse and repeat. Whether NASDAQ stays above 5000 before finding a base in the 4900 range again remains to be seen. With the extended anxiety over the Fed and no other great catalysts, chaotic bouncing in the wide trading range of 4850 to 5100 is to be expected.

In short, we remain mired in the trading range with volatility the only certainty.

-- Jack Krupansky

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