Monday, June 22, 2015

NASDAQ seeks to establish technical support in the 5100 range

Sure, it's great that NASDAQ will be gapping higher this morning on overly-buoyant enthusiasm based on a whiff of a hint of the possibility of a prospect for a deal or at least another stop-gap measure to pretend to deal with the fiscal mess in Greece, or so they say or at least seem to imply. Granted, I've always argued that an eleventh-hour deal is a slam dunk, and it will be, but... then what? Greece was always simply a side-show for the market anyways.

The real action is of course the state of the U.S. economy. The combination of bad weather, the west coast port strike, and anxiety over the timing and pace of Fed rate hikes threw the U.S. economy into a mini tailspin, short of a recession, but dispiriting for the market nonetheless. The theory was that once we had written off Q1, Q2 would be much better. Well, Q2 has been somewhat better, but that isn't saying much compared to a lousy Q1. Q2 is still playing out and we won't have a clear view of how good it will have been for a few weeks or maybe not until the GDP report for Q2 later in July and as companies start issuing quarterly reports for Q2 as well as warnings and surprises in advance of those reports. Meanwhile, the stock market, infamously acting as a barometer, will be trying to prejudge how Q3 will be playing out. Yes, Q3 should indeed be much better, but the market will be needing to see some evidence of that begin to accumulate, and fast.

Meanwhile, the immediate name of the game, besides a one-day spurt based on flimsy news from Greece, will be for NASDAQ to try to establish at least some preliminary technical support here in the 5100 range so that we have a solid foundation for a sustainable advance to 5200, 5250, and beyond. Although Friday was a down day, it provides the starting point for technical support here in the 5100 range, if NASDAQ can bounce above Friday's closing level and not fall back below it later today or in the next few days. These little valleys on the charts can work wonders to help guide traders when desperately searching for technical support.

The bad news is that any big opening rally leaves what is known as a gap, and the theory is that all gaps must be filled before the market can advance. That will put downwards pressure on the market later today and in the next few days as well. The problem is that if NASDAQ does fill that gap it also runs the risk of overrunning the gap and erasing the technical support that we were hoping to establish. The best outcome would be for NASDAQ to exactly retrace the gap and establish what is known as a double bottom, which would be viewed as very solid technical support and give the market a brighter prospect for a sustainable advance above the 5100 level.

NASDAQ futures are up moderately sharply at the moment, indicating a moderately sharp 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.

It's getting near the end of the quarter, so hedge funds have only seven trading sessions left to give themselves a track record that will persuade their investors to not pull money out next quarter. A nice little NASDAQ rally might do the trick for some of them. What happens after that could be something short of a pretty sight.

In any case, it is up to the hedge funds to decide where the market will go next. Whether the end of the quarter will incentivize them to push for a sprint up to the 5200 or even 5250 level for NASDAQ, or whether they revert to the old tried and true range trading and the comfort of the 4950 level remains to be seen.

-- Jack Krupansky

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