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NASDAQ Getting Near End Of Consolidation Phase

Today could well be the day that finally closes the door on the consolidation phase for the recent advance. Speculators and traders made several runs at breaking support for NASDAQ at 4600, but failed, and were less successful with each attempt. That strongly suggests that some deep-pocket hedge funds were using those dips as buying opportunities. Today could be the final test, with NASDAQ futures down moderately for no great reason, but that is probably more of a test rather than an outright bet on a steep decline for the day.

NASDAQ futures are down moderately, and remained steady even after the weak GDP report, indicating a moderate dip at the open. But, as always, the action at the open is not a strong indicator of how the rest of the day will play out. People may indeed pile on for a steep sell-off, or they may buy the dip with enthusiasm. Or, we could see weakness or at least lackluster enthusiasm for much of the day, with the final trend only becoming apparent late in the day.

The advance late in the day yesterday was quite welcome, but also smacked of being a bit of the kind of forced buying you tend to see in a short-squeeze short-covering rally, which means that we booked the gain for the day, but those angry shorts will be back soon enough and with a vengeance. They alone could be the cause of futures being down so much this morning.

My main thought is that the negativity of NASDAQ futures this morning is primarily a test of whether there really is any significant enthusiasm for buying dips in this range. If not, a continued sell-off is warranted. But barring that, it's just a test to pass for the recent advance to resume, which is my primary expectation.

Today is a Friday, so a fair fraction of short-term speculators will tend to close out positions ahead of the weekend, when anything can happen. They will sell if they really are net long, or they will buy if they are net short. We don't have a Greek election this weekend, but we do have the aftershocks of the anti-austerity crowd winning last Sunday's Greek election. I personally think the new guys in charge in Greece are a lot more pragmatic and willing to compromise than people give them credit for.

I'll pick up some shares of Shake Shack (NYSE:SHAK) at the open after the IPO begins trading. I'll also sell half on a 10% gain.

I'll be a buyer of Lending Club (NYSE:LC) on all big dips, and may do short-term trades on smaller swings as well.

-- Jack Krupansky

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.