Just How Risky Is This Market?

March 26th, 2012
in Gary's blogging, midday post

Midday report. Today the 26th, Monday and the last week of the month of March. We started the day with a grand gap up for the cash crowd but few jumped in. The markets, the 500 in particular, moved right up to its previous highs of 3-19 on low volume and hovered around 1411 for much of the morning and early afternoon. The DOW has lagged behind in choosing NOT to push higher to its high on 3-16 preventing the “rally” to climb any higher.

Yet the Russell 2000, that dragged its feet the last 2 weeks, has finally jumped ahead of the pack forging new highs this morning moving up to 845. Just exactly what this means is an uncertainty as does the 5 point gap it left on the chart. Typically, $RUT fills these gaps sooner rather than later and now puts more precariousness in the already weak market. I would expect to see the Russell 2000 to pull back and cover this 5 point gap soon. It is currently at 843 melting slowly up and down as the afternoon draws on.

The housing news this morning was not good, yet the markets pushed higher on the news tightening the tensional market rubber band even more closing in on its snapping point.

@zerohedge: “Pending Home Sales missed expectations by the largest amount since September of last year and printed negative (-0.5%) versus hope of +1.0%. It seems our self-fulfilling housing recovery is not so self-fulfilling or recovering...this makes 13 of the last 15 macro data prints in the US a miss. “

Dr. Ben in his Fed address this morning hinted at a QE that could occur at anytime should the markets take a dip. The “risk runners” seemed to like the news and moved the markets up slightly. The problem with this move is that the volume has fallen to levels seen 2 weeks ago leaving only the HFT and DaBoyz to work the market. This lack of validation does not exactly excite traders or money managers looking for a reason to take long positions.

@marketwatch: “U.S. stocks rise sharply in early trading Monday, rebounding from last week’s losses, after a speech from Federal Reserve Chairman Ben Bernanke signaled the central bank is committed to a monetary policy that’s helped buoy stocks for three years.” Full Story

Leavitt points out this morning that the money managers have missed the rally and that is true for a lot of us. He thinks they are at risk of loosing their jobs, but I would like to point out how risky this market really is. It is best to lose out on a false rally than loose your shirt if you guess wrong. False because of low volume validation, weak financial data and obvious manipulations of DaBoyz. Not something I want to trade in. In fact I wouldn't be surprised to see the market fall off today so DaBoyz can run it it up tomorrow.

@leavitt: “Many money managers have missed the rally. They’ve been desperately waiting for a chance to get long but haven’t gotten the opportunity. Such is the nature of a strong rally – they won’t let you in. These managers are at risk of losing their jobs if they don’t catch up some, so with this week being the end of the month and quarter, window dressing may be a little stronger than typical. A money manager cannot be on the sidelines when the market is up 30% in 6 months.“


On the minds of many today are the previous weeks of disappointing news from Greece, Europe and the US. The positives mentioned in the article below have already been partially negated with the poor housing data today. The fall in jobs claims is simply not enough to get excited about when considering the “big picture”.

Succinct Summation of Week’s Events (3/23/12)

Succinct summation of week’s events:


1) Initial Jobless Claims fall to 348k, the lowest since Mar ’08
2) Multi family housing starts jump again in Feb and permits rise to the most since Oct ’08
3) Greek CDS payments clear smoothly
4) Portuguese 10 yr bond yield falls 108 bps in spite of concerns with it post Greece, 5)French business confidence rises 3 pts to a 4 month high


1) China slowdown concerns grow. HSBC preliminary mfr’g falls to 48.1 from 49.6, 5th month below 50. More cities report home price decreases and fewer report home price increases. BHP and Rio express reservations over pace of Chinese growth. Official at China Assoc of Auto Mfr’s says auto sales likely to miss their estimates in 2012. China raises gasoline and diesel prices
2) Spanish and Italian 10 yr yields rise almost 20 bps on the week
3) German and French mfr’g PMI fall back below 50 and Euro zone mfr’g and services composite index unexpectedly falls to 48.7 from 49.3
4) UK retail sales below estimates and consumer confidence falls
5) Feb US New Home Sales unexpectedly drop to 313k, a still anemic level and months supply up a touch to 5.8 from 5.7
6) Existing Home Sales months supply rises to 6.4 from 6.0. Feb sales light but Jan revised up
7) NAHB home builder survey unchanged at 28 vs estimate of 30
8) Single family housing starts flat, seeing no weather induced improvement
9) Due to uptick in mortgage rates, refi apps fall 9.3% to a 10 week low
10) AAA said average gasoline prices rose another .05 on the week and is up .15 for the month.

The markets didn't seem to even care today when the Dallas Fed Manufacturing Activity index fell to 10.8 from 17.8 previous. Expected was 17.0. The danger signs of an impending correction are abound and no wonder the market managers are unwilling to step up to the plate. The market's rubber band gets tighter and tighter. 

And 14 of 16 On Dallas Fed Miss

“The Dallas Fed Manufacturing Outlook just came with its largest miss of expectations in 9 months - and biggest drop in 7 months..”


Eric Parnell wrote an interesting piece this weekend backing my own concerns and providing more ammunition that this rally is based on false hopes as the Bulls are still singing praises of better things to come. Well, maybe for the next week and then it is sell in May. The real issue here is that we have reached highs that now look like double tops, low volume and that May is traditionally a month for declining markets. Many investors are seeing this as a potential point for a start of a correction that hasn't come yet and should have.

Market Tremors Signal That Something Wicked This Way Comes by Eric Parnell
“As many cite the rising stock market as reason for optimism about the outlook, unfortunately this is a story we have already seen play out before during the ongoing financial crisis. In both 2010 and 2011. . . . . these gains were accompanied by fresh optimism that a true economic recovery was underway and that the crisis was finally behind us. . . .. . the comfort of spring was replaced by market turmoil over renewed concerns of crisis in the subsequent months.

When the price of the VIX rises, it indicates increased investor fear. Conversely, when it declines, it suggests greater investor complacency. Over the past several days, the VIX has fallen to lows last seen only twice before in the aftermath of the financial crisis.

Agriculture Prices Are Not Confirming The Rally

Utilities Preferreds Signaling Potential Liquidation Trouble

The Crisis In Europe Continues To Deteriorate

The above are just a few of the many ingredients in the witches' brew that could suddenly bring a wicked outcome to investment markets at any moment and time. Growing signs of an economic slowdown in Asia and the potential for military action by Israel against Iran are among the other important issues that also merit watching in the days and weeks ahead.

In addition, AAII bulls are near highs, M2 growth is decelerating.”


Just more technical information that points in the direction the Bears are hoping we don't go, but the articles aggregation of data is compelling never the less. His feeling regarding charts are a bit misplaced I feel as charts are uselessly adapted with data based on low volume that can't be validated and therefore can't be trusted except for a historical map.

Stock Market Secular Bear Remains In Control by Erik McCurdy

“Another violent retracement similar in character to the 2010 and 2011 declines is coming; it is simply a question of when. The bigger question is whether the forthcoming high will mark the end of the cyclical bull market from 2009. “

My feelings are that we have another week to go before the 'Summer Blues' take over. The near-term outlook for the week is a sea-saw market neither going higher or lower, but slowly softening as last weeks bullish enthusiasm wears off.

However, I truly expect by September we will have seen the worse and good times ahead.
Written by Gary

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