The moderate rally for NASDAQ on Thursday was quite welcome, especially given the relative weakness of the preceding two days, but there is concern that the recent advance is seriously losing steam, especially since the Dow and S&P indexes have been quite weak even as NASDAQ has motored to new 1-year highs this week. The hedge funds are still in the driver's seat, and whether they continue to maintain a bullish risk-on stance or revert back to a bearish risk-off stance could change at any moment.
NASDAQ futures are down modestly, but have been flip-flopping, indicating a relatively weak open, maybe down a little or maybe up a little, but relatively flat no matter what. As usual, we need to heed the caution that futures and the opening move are not reliable indicators of how the market will trend for the rest of the day. As yesterday, I see that NASDAQ could be flat, up modestly, down modestly, up moderately, or down moderately at the end of the day, and that the only certainty is volatility.
It is a Friday again, so a good fraction of short-term speculators will tend to close out positions ahead of the weekend when anything could happen, especially when Greece, Ukraine, and oil are all in play. If hedge funds are net long, they may sell a little, or if they are net short, they may buy a little.
I am indeed a little concerned that the Dow and S&P are so weak, but in truth, this may simply be a modest bout of consolidation, with hedge funds merely playing a lot of the hot momentum stocks in NASDAQ even as the less-hot stocks continue to consolidate. And that may indeed be the best thing for a healthy market in order to be sustainable and not turn into the unsustainable flash in the pan that we saw in February and March of 2000.
Fed funds futures still indicate liftoff for interest rates in September and a second hike to 0.75% in December, but only a 45% chance of a third hike to 1.00% in January. IOW, rates will remain low for the entire rest of the year. And the overall U.S. economy continues to improve, albeit at a sluggish and inconsistent rate that confuses a lot of people on (and off) Wall Street. This is actually an ideal combination for stocks, so the odds are that the market will continue to advance, at least in the coming months - and with a few mini corrections or dips along the way.
The fix really is in for Greece, but the political theater will continue for quite some time. Everybody knows what needs to be done, but domestic politics, particularly in Germany need to be dealt with, and that's a rather unpredictable process, even as the end result is known by the players. In short, investors in U.S. stocks can safely ignore the situation in Greece.
Ukraine will continue to limp along. It is unfortunate that the U.S. and EU have chosen to meddle in Russia's backyard, but that's politics for you. It is politically advantageous for the U.S. and EU to talk up the situation in Ukraine, even as that is not advantageous to the citizens of Ukraine, but they will only push things as far as is politically advantageous and are not seeking to broaden the conflict. Sure, the latest ceasefire is sort of a joke, but it is actually quite useful since it is a clear recognition that the parties don't seek a broader conflict. In any case, the point is simply that investors in U.S. stocks can safely ignore all the chatter about Ukraine.
-- Jack Krupansky