I was actually relieved that the early rally turned into a minor rout yesterday since consolidation is really what is needed at these levels to assure the sustainability of further gains. More consolidation would be even better, but I should be careful what I wish for because a minor rout can quickly turn into a major sell-off.
The fact that NASDAQ closed back below the magical psychological 5000 level is a minor concern but no big surprise since NASDAQ still doesn't have any firmly established support at these levels, which is the whole point of the need for consolidation. Sometimes a close below a critical level is a really big deal, but sometimes a minor break below a critical level is also just noise and statistical error that can quickly be erased - but not always, and without any solid guarantee. We'll have to take a wait and see attitude. In any case, a modest and healthy amount of profit-taking is typical during any advance. In fact, the more profit-taking, the healthier and more sustainable to advance will be.
NASDAQ future are up modestly (again), indicating a modest rally at the open, but as always, futures and the opening move are not reliable indicators of how the market will trend for the rest of the day.
The market may waffle a bit today as people desperately try to decide whether the declines on Monday and Tuesday were nothing more than some modest consolidation or the early stages of a steeper sell-off.
As always, we are at the complete mercy of the hedge fund swing traders here. It is impossible to say whether their net risk bias will become more positive or more negative in the coming days. The only thing that we can be positive about is volatility.
Fed funds futures are still indicating a go-slow approach by the Fed, with only a 4% chance of liftoff in June, only 19% in July, and only 36% in September. Even for October, the current most likely time frame for liftoff, there is now only a modest 56% chance for the first hike. The odds remain in favor of ending the year at a rate of only 0.50%, with a second hike in January to 0.75%, and no hike next March. IOW, interest rates will remain quite low and stock-friendly for (at least) a full year.
I have a mountain of tax bills to pay on April 15th, as well as my 2014 SEP-IRA contribution, so I'm going to be doing a fair amount of spring cleaning on my portfolio over the next few weeks, primarily selling stale trading positions, typically at a loss. I hate taking losses, but spring cleaning is a good thing in all cases. I still haven't decided what I will invest in with my SEP-IRA contribution. I had invested the idle cash in a taxable account over the past year, giving me a combination of trading gains and (coming soon) losses as I liquidate those positions to make the contribution in two weeks or so. It amounts to more than 10% of my existing retirement portfolio - last year was my best year ever, which is why my tax bills (including estimated taxes) are so high. The anticipated losses will still be only a modest fraction of my net gains for the year to date.
All of those tax-related sales and payments will significantly reduce the overall size of my trading portfolio, which means either less trading or maybe just smaller trade size for the next couple of months. I may restrict myself to just one or two best trades each day. And I may restrict myself to mostly trading dips in the last half hour of the trading session.
-- Jack Krupansky