Friday, June 26, 2015

NASDAQ stumbles, seeks direction

Where is NASDAQ headed next? Uh... absolutely unclear, or as clear as mud to be more precise. The recent advance has faltered and so far NASDAQ has not been able to establish any decent  technical support in the 5100 range, breaking below last Friday's closing and intraday levels yesterday. That's all bad news, but doesn't necessarily tell us what's next, other than uncertainty and volatility. In any case, the trend is fully in the hands of the hedge funds, who have only three trading sessions remaining to hit their numbers for the quarter.

NASDAQ futures are down modestly at this moment, indicating a most pullback 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, yesterday being a perfect example where pre-market enthusiasm and a pop at the open quickly evaporated and turned into a moderate loss.

The immediate task for the market is to see whether there might be some lingering technical support in the 5100 range or whether we must revert to the 5050 range for support. In truth, it wouldn't hurt to drop into the 5050 range a little to establish deeper support at that level before advancing since that would provide better support for any future correction.

So, the question of the day is whether NASDAQ recovers from early weakness and bounces, or whether the modest weakness grows into an outright rout.

It's a Friday, so I wouldn't put too much faith in the significance of any move today since some fraction of market participants will close out positions, long or short, ahead of the weekend when anything can happen (Greece.)

Greece? Same old same old. Some sort of unpalatable deal or agreement to kick the can down the road will suddenly materialize in the coming days.

The Fed? Still on track for liftoff in December, with an outside chance for October. Futures buyers are a bit less optimistic for the strength of the U.S. economy in Q3 than the Fed seems to be, but Fed rates will remain quite low for the next twelve months, which is supportive of the stock market.

The bottom bottom line is that the overall stock market remains likely to see a flattish to modestly up trend over the next twelve months, but with plenty of volatile range trading along the way.

Correction? Sure, corrections can occur at any time, so it wouldn't surprise me to see one or two corrections over the next twelve months, but their timing and duration and depth are of course uncertain. A couple of mini corrections or little scares in the 5-7% range are quite likely over the next twelve months.

The latest weekly report on mutual fund money flows from the Investment Company Institute on Wednesday showed a continuation of the trend of strong outflows from domestic stock mutual funds. This is concerning, but the exact impact is unclear due to the rising popularity of ETFs, hedge funds, and modern retail investment tools, not to mention individuals seeking to manage their own assets out of disappointment with the performance of many mutual funds. So, this is a yellow flag, but not necessarily one that will become a red flag.

-- Jack Krupansky


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