Monday, June 01, 2015

NASDAQ seeks to surprise people some more

Think you have the short-term trend for NASDAQ figured out? Guess again! We saw some weakness on Thursday and Friday, but this morning futures are indicating an open that erases most if not all of those losses. Did any fundamentals change in the past three days? Not really. Maybe traders feel that the losses on Thursday and Friday were modest enough to indicate that there was no real downwards momentum to build on, so they feel they should take the path of least resistance, which would be to reverse and backtrack on those losses, possibly kicking off a decent short-covering rally after too many people bet that the market would crumble in the face of weak economic data.

If we do see a nice rally today, there will be a significant risk that it too will peter out and reverse within a couple of days. NASDAQ does have a slight upwards trend on a longer-term basis, but it is combined with so much volatility that you can't really see or feel the trend on a short-term basis.

It wouldn't surprise me to see us notch a couple of closes above 2100 this week, but at the same time it wouldn't surprise me to see NASDAQ testing support in the lower portion of the 5000 range as well. I see the biggest problem as the lack of decent technical support in the 5000 and 5050 ranges. If NASDAQ does manage to rally by at least 25 points today, the close at 5070 and intra-day low at 5059 on Friday could finally give us a good start at developing decent technical support in the 5050 range. Until such support is developed and then tested on another day, NASDAQ won't be able to mount a sustainable advance above the 5100 level.

NASDAQ futures are up moderately sharply, indicating a moderately sharp pop 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 will be interesting to see whether people pile on and turn the modest rally into a strong rally (largely based on short covering), or sell into the rally, or maybe let the rally run for a little and then sell it off later in the day. All are equal probability outcomes.

I personally don't trust market moves on Fridays and Mondays, with too much of a weekend effect as short-term speculators close positions on Fridays and then reopen them on Mondays. And then half of them may change their minds on the weekend, further increasing the Friday to Monday volatility. It is probably more useful to look at Thursdays and Tuesdays to discern the true trend.

The month of May is now behind us, as is the weakness of Q1 and most of the lingering effects of that weakness. It may still take a lot of companies a little while longer to fully recover from the effects and reverberations of the west coast port shutdown, but the trend will be up from here. It will be a few more weeks before we get preliminary indications of how strong (or weak) Q2 will be, which is ample opportunity for the hedge funds and other short-term speculators to push the market higher based solely on hopes for a better Q2.

I suspect that June will be relatively flat to modestly higher. It will partially depend on emerging speculation as to how Q3 will shape up. We could also see a decent advance based on relief that the Fed is not going to raise interest rates this month. The Fed inaction really is a slam dunk, but there is still enough latent anxiety that technically they could if they wanted to, but as the month of June wears on even that anxiety will incrementally dissipate.

The Fed is probably on hold until at least October or December. They are going to want to see more than one or two months of really solid economic performance before raising interest rates, and we just aren't there yet. People will fret about September, but fed funds futures are indicating that it is a slam dunk that liftoff will not occur in September. Of course that could change, but we would have to see some real strength develop in the economic data, that currently just isn't there.

NASDAQ is still trapped in a wide trading range, but it does appear to be narrowing, like 5030 to 5120, and is now starting to shift up a little, although on most days and weeks it will feel purely like range trading with very little feeling of an upwards trend.

The only real certainty here is volatility.

-- Jack Krupansky

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