NASDAQ to test strength of the advance

Although it was great to see NASDAQ rally to new all-time intraday and closing highs, the rally yesterday was a bit too tepid for my taste, being a fair amount less than my one percent to one and a quarter percent threshold for a decent rally. The good news is that since it was so tepid, it might not have been a blow-off short-covering rally. In fact, the breadth of the advance was mixed, with quite a few major momentum stocks in the red for the day, and even a fair number of stronger stocks exhibiting only modest interest. But all of that mediocrity helps to bolster the case for the advance to have room to continue, at least maybe for anther day. That plus the fact that the hedge funds are still desperate for a few more good days before the end of the quarter when their performance will come under a microscope.

At these lofty, uncharted levels, it is tempting to finally close the books on the old trading range for NASDAQ between the 4850 and 5100 levels, but I'd hold off a little bit longer. I'd like to see NASDAQ above the 5150 level and even the 5200 level for a good solid two weeks before concluding that we are sustainably above the old trading range.

The main good news from Monday is that the rally makes the dip on Friday a bit of semi-decent technical support for a base here in the 5100 range. Granted, it is still rather weak support, especially since it occurred on a Friday, but it is a whole lot better than nothing. The major risk at this stage is that we need to see a whole lot more technical support established in the 5100 and 5150 ranges before a sustainable advance above 5200 is warranted.

NASDAQ futures are up moderately at this moment, indicating a moderate rally 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 - although yesterday all three were in close alignment.

The big question is whether enthusiasm builds and the opening rally grows into a strong rally, or whether people sell into the rally as the day wears on. We could also see the initial rally fizzle, but then build up again later in the day. There is also a decent chance that the rally could crumble and turn into an outright sell-off. That's why I say that today is a test of the strength of the advance.

Fed funds futures strengthened a bit yesterday, with December a bit more strongly the likely time frame for liftoff and October increasing as well, but the odds of a third hike to 1.00% next June are still iffy.

Greece? We may finally be to the stage of the eleventh hour where people finally accept that some sort of compromise deal will finally come together. IOW, traders are throwing in the towel about using Greece as a cover for pushing the market down.

The focus will be shifting to the case for a strengthening economy. The market seems amenable to accepting that case, or at least considering it as plausible, but it is all a question of whether the data starts to align with the case, including the outlooks from businesses as we head into the time for them to warn of any looming weakness and to show real results for Q2. I'm still hopeful for Q3, but we all will need to see evidence to justify that nascent enthusiasm.

-- Jack Krupansky