December 18th, 2012
in Gary's blogging
Opening Market Commentary For 12-18-2012
Premarkets were up this morning with the SP500 futures gaining over 4 points early on. By 8:30 the averages had turned back down and leveling off where the markets closed yesterday.
The markets opened up and about even with yesterday's closing numbers on moderate low volume. The BTFD dippers were nowhere to be seen during the first 10 minutes as the averages signaled weakness. I am wondering if the HFT algo computers were not switched on this morning as the market was relatively quiet. By the 20 minute mark the 'dippers' started creeping in but the sellers still outweighed the buyers by a slim margin.
By 10:15 the morning action was over and the markets signaled that closing today at a higher high was possible. Plan accordingly as there are many mixed signals coming in.
The game for today is how far can the markets go up in relationship to their perspective resistance zones. Both the DOW and SP500 are AT the bottom of a relatively solid resistance which reaches to 13403 on the DOW and 1440 on the 500. Rising higher is possible of course, but my proprietary signaling indicates it will be VERY difficult to break out of the higher limits.
Interesting read this morning reflecting my views.
We challenge investment beliefs and the status quo by measuring risk. We are able to grow money if we reduce the downside caused by recessions. Currently we find the investment environment is very similar to 2000 and 2008. The upside does not outweigh the downside risk. In fact, the return over the last 3 years has been historically erased in a downturn.
There is a great deal of discussion about the Fiscal Cliff. While we are worried about the Fiscal Cliff, our concerns are broader. First, valuations for the Stock market are 30% to 40% above fair value. Second, the economy is decelerating and in Europe is declining. Historically, the combination of high valuations and a decelerating/declining economy causes a loss of 30% to 60% in the value of stocks that wipes out all of the gains in the stock market over the last three to five years.
Since our last writing, we have added 10% to short term government bonds. Note that we are purchasing short-term government bonds rather than long-term government bonds. We are doing this because of the risk we outlined above; long-term government bonds are currently overvalued. We are certainly not soothsayers, we are just judging whether risk exists or not, and if risk exists what loss could transpire. We believe the loss potential is great, as the last three bubbles resulted in prices giving back the previous five years of gains.
Additional ammunition to investors. Keep your dollars safe for the time being.
“. . . here is one chart, showing the correlation between total FedEx package shipments and Real GDP. . . . From Bloomberg: "The level of FedEx package shipments began to slump as early as the first quarter of 2012 and now appears to be signaling weaker economic conditions for 2013. In late March, FedEx made mention of cooling conditions . . . noting the economy was not as strong as the company hoped it would be a year earlier.
. . . “Fundamentally, what’s happening is that exports around the world have contracted and the policy choices in Europe and the United States and China are having an effect on global trade."
The RRR** was surprisingly narrower than usual at the opening bell this morning. However, the continuing narrow width trend that we have been seeing for the past several months makes predictions of session movements nearly impossible making trading futile and unprofitable.
As long as market volume remains light or the trading range is narrow, one can expect successful trading to remain elusive. The RRR** has been wider on volatile sessions lately and is expected to become more so as the year ends, but a lot of guessing still remains. Correctly 'guessing', of course, is the tricky part of the successful trading equation. Any trades today will probably end up on the meager side of profitability if you are lucky as most trades have been less than optimal during this past year.
I also have issues with some pundits writing almost every day that there are setups for day trading. This may be 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. Do not fall into the trap of money burning a hole in your pocket, sit tight better days are coming. Watch for increasing volume to signal improved trading.
Swing trading is also at your own risk for all the reasons mentioned above. Because the market is at a crossroads of sorts, I would prefer to sit on my hands as the markets are currently untradable. Guessing where the market is going to be tomorrow or next week, at this time anyway, can be a foolish and costly endeavor.
The DOW at 10:15 is at 13235 up 0.26 or 0.00%.
The SP500 is at 1431 up 0.97 or 0.07%.
SPY is at 143.88 up 0.09 or 0.06%.
The $RUT is at 838.72 up 3.73 or 0.45%.
NASDAQ is at 3019 up 8.50 or 0.28%.
The longer trend is up, the past months trend is bullish and the current bias is down.
WTI oil was up today and is currently trading down at 87.40 trading between 87.91 and 87.34 and the bias is negative.
Brent crude last report was 109.15.
Gold was down this morning. Currently trading down at 1691.99, trading range is between 1702.50 and 1691.41 with a negative bias.
Dr. Copper is at 3.66 down from 3.68 earlier.
The US dollar is currently trading down at 79.54.
The FTSE 100 opened strongly on Tuesday morning on the back of increasing optimism that US President Barack Obama and House Speaker John Boehner will be able to strike a deal by the end of the year to avert the 'fiscal cliff'.
Without a deal by the January 1st deadline, the $600bn in automatic spending cuts and tax increases which come into effect are expected to pull the US economy back into recession.
Markus Huber, the head of German HNW trading at ETX Capital said this morning that with the end of the year approaching fast and an empty economic data schedule, focus will mostly be on US budget negotiations and "the smallest hint of progress or setback can have a substantial impact on the markets.
"Overall for now, any indication at all that there is some movement as the budget negotiations are concerned and that the two parties are making an effort to find a solution is enough to keep markets moving higher.
Obama has reportedly proposed raising taxes for those that earn over $400,000, a higher threshold than the $250,000 annual salary he had previously targeted. While Boehner's proposal at the weekend offered to raise taxes on those earnings over $1m in exchange for cuts to entitlement spending, it appears that the real negotiations have officially begun.
** RRR = Risk Reward Ratio
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Written by Gary