Wednesday, June 24, 2015

NASDAQ to test durability of the advance, again

Tuesday was another great example of the weak nature of NASDAQ this year - we get occasional strong days, but typically followed by mediocre if not outright weak days rather than strong follow-through. Futures were up moderately yesterday, which had so-so results, so now traders have reversed and futures on down moderately. Whether the result is people buying the dip and a renewed rally, or people selling into any rally and a modest to moderate to strong sell-off is a coin flip.

NASDAQ futures are down moderately at this moment, 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 of the market for the rest of the day. They have been aligned fairly well for the past two trading sessions, but even when that pattern does hold for a few consecutive days, the alignment inevitably evaporates just as soon as people begin to depend and bet on it.

Flip a coin whether we see a little more weakness and consolidation before we get the next strong rally, or whether the advance limps on for a bit longer before finally crumbling into more substantial consolidation and likely a reversion to range trading. Remember, the hedge funds have only five more trading sessions to make their quarter, so they will definitely be trying to pull rabbits out of their hats any way that they can think of.

Greece? Still waiting for that proverbial eleventh hour. We might go into overtime or even extra innings - pick your favorite sports metaphor - with various stopgap measures, but neither side seriously wants Greece to... align itself with Russia, China, Iran, and Venezuela. Its just that the political ugliness of the necessary compromises is seriously unpalatable for all involved, which is why it has to wait for the eleventh hour.

The Fed? Fed funds futures are wobbling around a bit but still pointing to December with an outside possibility of October for liftoff, a second hike in March, and a moderate chance of a third hike next June, assuring low interest rates for a full twelve months, which is very supportive of the stock market. Right now, the markets are predicting a weaker economy over the coming four to nine months than the Fed is. I'm in the middle - I still expect Fed liftoff in October and a second hike in January. The basic problem is that the economy, like the weather and geopolitical affairs, is very volatile, so you really do need to flip that coin again (and again) as to whether the economy will be stronger or more tepid over the next four months leading into that October decision by the Fed.

-- Jack Krupansky

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