Greasy Red Volume Drowning Investors As Markets Slide

July 23rd, 2012
in Gary's blogging

Midday Market Commentary For 07-23-2012

The Dow, SP500 and the $RUT all fell sharply this morning and as expected then climbed back up the ladder a bit nearly to the opening numbers with declining volume.

The red volume mounted higher earlier in the morning session and then melted down to levels just above anemic. The market melted up at the volume declined and leveled off to where they are now. I know DaBoyz will certainly try to move the markets up more later today if the volume shuts down like it has in last weeks sessions.

The prospects of a rallying market this afternoon are now not as good as first believed this morning because of continuing 'moderate' volume, but that can change as investors lose interest. Tomorrow morning is almost a sure event of opening higher making a scalp possible. After that, Mr. Market will have his way with you IF you guess wrong in keeping your position longer than the first 30 minutes. If you have ever wondered what the texture of 'red' market volume is, well wonder no more as the Econintersect scientist's have concluded it is slippery – as in 'grease the skids'.

Follow up:

The longer term (remember the Sept 12th German High Court ruling date) is increasingly good for swing trading the shorts as the RRR** expands into a favorable zone. The near term has some latitude for possible scalps and other day trades possible for the nimble. I do expect volatile market conditions with very wide swings possible, but none exceeding 2%.I see more bearish movements than bullish one and caution is strongly advised.


Greek Issues Back in Picture as Rising Spanish Yields Send EURUSD Lower

The Spanish 10-year note yield shot up to over 7.50% today as it became clear many of the country’s struggling regions would seek federal assistance. Alongside disparaging developments out of Greece, the EURUSD has traded below 1.2100.

The joint concerns over Greece and Spain have destroyed market sentiment this morning, sending peripheral European yields through the proverbial roof. The Italian 2-year note yield has jumped to 4.586% (+41.5-bps) while the Spanish 2-year note yield has ballooned to 6.434% (+81.1-bps). Similarly, the Italian 10-year note yield has surged to 6.325% (+19.1-bps) while the Spanish 10-year note yield has risen to 7.398% (+21.4-bps), but not before touching 7.565% earlier; higher yields imply lower prices.


Taking a cue from Europe, the markets are tumbling deep into the red as anxiety over the eurozone debt crisis boils back to the surface. The Dow [was] down 210 points, or 1.7%, the S&P 500 [was] off 1.6% and the Nasdaq [was] 2.2% to the downside. Economically-sensitive sectors, including materials, energy, technology and consumer discretionary, are taking the steepest losses.”

The DOW at noon is at 12667 down 157.61 or -1.24%.

The 500 is at 1343 down 19.10 or -1.40%.

The $RUT is at 777.58 down 13.97 or -1.76%.

SPY is at 134.50 down 1.97 or -1.44%.

The trend is down and the current bias is neutral.


WTI oil is at 89.02 trading between 91.60 and 88.00 and the bias is neutral.

Brent crude is at 103.64 trading between 106 and 102 and the bias is neutral.

Gold is up from this morning at 1578 trading between 1582 and 1563 with a negative bias.

Dr. Copper is at 3.36 down from 3.44 earlier. Quite a drop.

Earlier the USD gaped from 83.61 to 83.72 then climbed to 84.13 and is at 83.89. Remember that gaps are usually closed on the FOREX sooner than later and look for a USD decline to 83.61 with the US market responding in a positive demeanor. So this mornings decline will soon have an up-tick, watch for it and trade accordingly.

European markets closed sharply lower today in the wake of negative news coming from the EU. The FTSE 100 in London closed down -2.09% while the German DAX is down -3.18%. The CAC 40 in France is down -2.89%. The Asian markets closed down with the Hang Seng at -2.99. The Shanghai Composite down -1.26%. The Nikkei down -1.86%.

Over the weekend I read some sobering articles that I will share with you. The first regarding an impending recession really is a discussion that the economy could go either way.

The Evidence Of A Coming Recession Is Overwhelming

The stock market is ignoring these fundamentals as it did in early 2000 and late 2007 in the belief that the Fed can pull another rabbit out its hat.  It couldn't do it in 2000 or 2007 when it had plenty of weapons at its disposal.  Now there is little that the Fed can do, although it will try since it will not get any help, as Senator Schumer so aptly pointed out at Bernanke's Senate testimony.  In sum, we believe that the stock market is in store for a huge disappointment.”

The following article (very long) points out several interesting scenarios that investors need to consider when the September 12th date rolls around. This is just one opinion of what the German High Court will say in its opinion. I am not so sure anyone really knows which way the court will go. If it approves Merkel's ability to sign off on agreements that will be VERY bullish and move the markets higher. But if the opposite is true, the markets will move lower. In the meantime several EU member countries are going to be hard pressed to meet their financial obligations. Defaults are going to be the name of the game in the ensuing weeks to come.

Equity markets are looking “dodgy” By Kiron Sarkar

"However, in Europe, its all on hold until the result of the German Constitutional Court’s decision (on 12th September) is known – the uncertainty created will be negative, even though I continue to believe that the Court will allow the German President to sign off on the agreements approved by the German Parliament (very bullish) and therefore enable the ESM and the fiscal compact to come into force.

The situation in Russia, so far (mistakenly) ignored by many, is deteriorating. Putin is increasingly relying on strong arm tactics, though they are unlikely to work – indeed they will encourage more protests. Vested interests in the country are using the sense of insecurity to “rape and pillage” even more. Capital flight, as is the case in China, is rising materially. Will Putin survive his full term. Unless the global economy picks up in the next year or so, its certainly going to be a question on every ones lips. . .

A review of Spanish banks, ahead of a receiving bail out funds is going to reveal yet more black holes. I think that the possibility of a Spanish sovereign default is getting close to 50% at present and rising inexorably. "
Read article here)

At they have written up a weekly summary that pretty well fits into my way of thinking particularly noting the declining volume. The thought of more upside is always present as the markets have generally ignored the declining World financial crisis.

July 20, 2012 Market Summary
Stocks rallied through the middle of the week, but pulled back towards the end.
The indexes have edged higher through June and July, but volume continues to be an element of concern. Since the indexes put in a bottom in early June, this rally has been met with significant declining volume.
The declining volume signifies little buying interest on this rise, and that it is more likely a bear market rally as opposed to the next wave higher in a longer term bull market.
Also, the indexes met with resistance this week, near the highs seen earlier in the month.
This indicates we may be in for at least another short-term decline over the next week or two.
The wrench in this outlook is that the June and July trend is higher,
a continued push above resistance next week opens the door to a bit more upside.
The mid-week rallies managed to push some of the ETFs to monthly highs,
yet the bullish moves were unconvincing.
The upward push had no follow through and gave way to morning selling on Friday (July 20).
Declining volume is also a concern, except for in the iShares Russell 2000, volume has been dropping from the May levels, creating a negative divergence with the price rally we have seen in June and July.
More upside could still arise, but the rally is likely to be stifled before we reach the 52-week high price levels.
A move back towards support should be watched closely; if broken, a further slide in prices is likely forthcoming.

(Read more here)

Lastly Mr. Carlucci says, "Based on this indicator system, the current market conditions are untradeable. The summer doldrums continue.".  I agree that trading is very difficult in low volume conditions making RRR** extremely challenging with unprofitable trades the norm.

Best Stock Market Indicator: Summer Doldrums by John F. Carlucci

"The S&P chart indicates that for the past five years we have not had a steady upwelling trend in the market comparable to 2003 – 2007. Absent that underlying support, the OEXA200R has undergone significant gyrations since 2007 and is ominously exhibiting a trend of lower highs. The MACD for OEXA200R has also been trending lower overall. Notice that S&P volume has experienced a steady decline since 2009, another classic Bear indicator."

"If the OEXA200R drops below the 50% line we regain clarity as to the market’s direction. That will be the unambiguous signal to exit any remaining long positions immediately in expectation of a serious, imminent market decline. Conversely, it will also be the clear signal to go short to take advantage of that sharp decline."

** RRR = Risk Reward Ratio

To contact me with suggestions or deserved praise:

Written by Gary

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