November 9th, 2012
in Gary's blogging
Closing Market Commentary For 11-09-2012
When the SP500 futures reached 1388.00 this afternoon the 500 made an abrupt reversal just like magic. I mentioned in the midday report to be careful of Mr. Market (HFT computers) jerking the numbers around.
What appeared to have actually happened is the major averages melted above the upper resistance (from yesterday) and couldn't hold it and promptly fell below that line in the sand. (See graphs below.) President Obama said in a news announcement about the same time that he going to tax the wealthy, nah, that couldn't be the reason. Just watch everyone start to sell so they do not have worry about a new increased capital gains tax in the next year.
Markets closed in the green, flat and Lackluster.
I have read where several pundits are claiming a market bounce is just around the corner because the markets are oversold and AAPL leading the way. As one reader wrote, “Oversold? There is no such a thing as oversold in [this] highly manipulated market”.
I agree because the SP 500 can drop 800 to a 1,000 points in matter of minutes, I have seen it happen, although it usually takes a few days. The entire SP 500 is currently based on AAPL and a handful of over hyped stocks like Groupon and Zynga that no one should own anyway. “All of this is being held up by stimulus”, writes another.
The following article gives more depth to the situation.
We’ve covered QE quite a bit over the years. I’ve repeatedly referred to it as the most over-hyped policy, perhaps ever. After all, it’s just an asset swap of reserves for bonds that doesn’t change the private sector’s net financial assets, perhaps changes interest rates marginally and primarily works via the questionable “wealth effect” it has by getting high frequency traders all excited.
So it was interesting in recent months after QE3 was initiated when some economists started cheering the positive impacts the Fed was having on the economy because the stock market started to rally. The problem is, the stock market is not really a leading indicator of anything. The stock market is the summation of the guesses from a bunch of highly irrational participants using highly inadequate information to place these guesses. Further, the entire premise of a “wealth effect” from the stock market is flawed because the stock market is actually nominal wealth.
To make your spending decisions on the current values of the price of Apple (AAPL) or the S&P 500 is a highly unreliable way to earn an income. If the policy in QE doesn’t actually translate into a real change to the underlying assets the S&P 500 represents then any nominal wealth changes (as a result of inefficient guesses) will not likely last (thereby creating only a temporary wealth effect).
Faith in monetary policy is something that will never die. That faith might not be misplaced outside of a balance sheet recession, but in the current environment we’re still betting on a naked emperor.
The RRR** was almost tradeable at the opening bell, but not as wide as it was the past 2 sessions. Still with the ever present worry that a reversal could come at any time is worrisome. Any trades today will probably end up on the unprofitable side as long as this market remains flat or continues to have low volume.
Currently, it is the low volume that makes trades problematic as the HFT computers can reverse the market trend into something else which may not be to your liking. There have been some really good trade set ups the past several days the only catch you have to be very good at guessing.
I also have issues with some traders in that they are saying there are setups for day trading. This is true enough, but the trading range is so narrow that way too money has to be put on the table just to get back meager gains.
Swing trading is also at your own risk and being the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly as the markets are currently untradable. Guessing where the market is going to be tomorrow or next week, at this time anyway, is a foolish endeavor. Be patient as the time to jump in may be around the corner.
The DOW at 4:00 is at 12815 up 4 or 0.03%.
The 500 is at 1379 up 2.34 or 0.17%.
The $RUT is at 795.02 up 1.37 or 0.17%.
SPY is at 138.25 up 0.22 or 0.16%.
The longer trend is up, the past week's trend is bearish and the current bias is down.
How Oil Really Gets Priced (Very interesting article if you have the time.)
WTI oil was down today and is now trading at 86.11 trading between 84.10 and 86.40 and the bias is neutral.
Brent crude was down today and is now trading at 109.52 trading between 109.70 and 106.25 and the bias is neutral.
Gold was down this morning, now up. Currently trading down at 1731.31, trading range is between 1726.00 and 1738.80 with a neutral bias.
Dr. Copper is at 3.44 down from 3.49 earlier.
EUROPEAN SESSION UPDATE: EU official reports that a decision on the next round of bailout for Greece is not expected to be made in the upcoming meeting of finance ministers; EURUSD down to 1.2690…
The EUR/USD pair fell from 1.2788 earlier to 1.2690 and is currently trading down at 1.2711.
The US dollar rose from 80.69 earlier to 81.17 and is currently trading up at 81.12.
The 500 at the close. Closing below the trend line for the second day in a row is very bearish.
The DOW at the close. The DOW closed below the 200 day MA, like the others, for the second day is another bearish signal.
The Russell 2000 at the close. Notice where the descending bottom channel was breached upward and then fell back down below it. Closing below this resistance may be a death kneel for the markets. Caveat: This has happened several times before and the markets have recovered and gone on to new highs. Once on 09-11-2002 and ~12-01-08, so don't be too quick and jump ship just yet.
(Click on chart for a larger view.)
** RRR = Risk Reward Ratio
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Written by Gary