After the recent strong advance of NASDAQ to fresh all-time highs, it comes as no surprise that a little consolidation is needed. How much? Nobody knows that, but it is up to the hedge funds to decide how much of a mini-correction they will need before they are ready to switch back to a risk-on trading bias for the next leg of the advance. They may decide that they want to do some extended range-trading, especially since we are on the threshold of the traditional "sell in May and go away" calendar trading period. The only certainty is volatility.
NASDAQ futures are down relatively sharply, indicating a decent pullback at the open, but as always we must refrain from treating futures or the opening move as reliable indicators of the market trend for the rest of the day.
It is very possible that NASDAQ will bounce back sharply after the opening dip has run its course. It is also quite possible that hedge funds will pile on to the opening dip for an extended sell-off in the 50-100 point range. Or we could have more narrower range trading. It is difficult to predict how the hedge funds will react.
In any case, further consolidation is a quite healthy sign for the market. I would be a lot more concerned if NASDAQ had first zoomed up to 5200 before retesting the 5000 and even 4950 levels. All of this will help greatly to establish a solid base of support in the 5000 vicinity which will provide support for further advances over the 5100 level.
Meanwhile, earnings season progresses, but most of the heavy hitters have now left the stage, so moves based on earnings will be more limited, typically to the individual stocks.
The Federal Reserve is now out of the picture again for another six weeks. Fed funds futures continue to point to December as the most likely time frame for liftoff of interest rates, with a second hike next March. Sure, the Fed FOMC is now free to lift rates at any meeting, including June, but they have already indicated that they will be data-driven, so now it is up to market participants to guess the trajectory of economic data over the next twelve months.
A correction? Sure, that is always possible, but more likely we will see occasional mini-corrections or 3-5% dips due mostly to range trading. In any case, my strategy is to keep cash in reserve and buy on the dips for 3-7% gains.
-- Jack Krupansky