Indices Coasting Along At Yesterday's Levels On Low Volume

March 6th, 2013
in Gary's blogging

Midday Market Commentary For 03-06-2013

The averages started trending down from their morning highs and yesterday's highs around 10:30 am and traded sideways like yesterday late afternoon session. Volume is averaging out to look like yesterday but still considered low. Today's new highs were done on even lower volume than yesterday's.

Volume is close to anemic, trading is in a tight range and the direction is unknown.

Follow up:

Cam Hui is saying exactly what I eluded to in yesterday's closing post in that I am not all that excited that new historical highs were made.

An Unconvincing Breakout

Breakout or fakeout? The Dow hit an all-time high yesterday [3-5-2013], but I found the breakout technically unconvincing as it was unaccompanied by negative divergences. First of all, the upside breakout was achieved on low volume and volume had generally been declining since this advance began on February 26.

All in all, an unconvincing breakout. With AAII sentiment at two year highs . . . indicating that sentiment at bullish extremes, these readings brings up the question of how much longevity the current advance is likely to have.


This Time Is Different 2013 Edition

A small note on the frankly hilarious news that the Dow Jones Industrial Average smashed through to all-time-highs.

First of all, while stock prices are soaring household income and household confidence are slumping to all-time lows. Employment remains depressed, energy remains expensive, housing remains depressed, wages and salaries as a percentage of GDP keep falling, and the economy remains in a deleveraging cycle.

Essentially, these are not the conditions for strong organic business growth, for a sustainable boom. We’re going through a structural economic adjustment, and suffering the consequences of a huge 40-year debt-fuelled boom.

While the fundamentals remain weak, it can only be expected that equity markets should remain weak. But that is patently not what has happened.

With every day that the DJIA climbs to new all-time highs, more suckers will be drawn into the market. But it won’t last. Insiders have already gone aggressively bearish. This time isn’t different.

The RRR** has been narrow at the opening bell for the past several months, over a year actually, and has continued the trend into the midday session. This continuing trend makes predictions of session movements nearly impossible making trading futile and unprofitable. As of right now, it is too late to jump in to catch the highs and still may be too early to start shorting.

As long as market volume remains light or the trading range is narrow, one can expect successful, or at least profitable, trading to remain elusive. The RRR** has been wider on some volatile sessions lately and is expected to become more so as 2013 enters the first quarter, but unfortunately a lot of guessing 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 the past several years.

I also have continuing issues with some pundits, writing almost every day, that there are setups for day trading. Best Stock Market Indicator Ever: Rises to 86% and Secondaries Confirm "Tradable" This might be true (for last week anyway), but difficult to deal with. 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. I keep hoping for increasing volumes to signal improved trading.

Swing trading is also at your own risk for all the reasons mentioned above although guessing overnight trades would have been most profitable over the past year. Again, 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 1:30 is at 14288 up 35 or 0.25%.

The SP500 is at 1540 up 0.70 or 0.04%.

SPY is at 154.41 up 0.12 or 0.08%.

The $RUT is at 928.22 up 0.82 or 0.09%.

NASDAQ is at 3220 up 4 or 0.13%.

The longer trend is up, the past months trend is bullish, the past 5 sessions have been bearish and the current bias is down.

How Oil Really Gets Priced

WTI oil is trading between 90.85 and 89.58 this afternoon. The session bias is negative and is currently trading down at 89.86.

More Widening For The Brent/WTI Spread Ahead?

Brent crude is trading between 109.84 and 108.75 today. The session bias is negative and is currently trading up at 109.03.

Gold rose from 1572.51 earlier to 1567.02 and is currently trading down at 1575.53.

Dr. Copper is at 3.49 down from 3.54 earlier.

The US dollar is trading between 81.97 and 82.55 and is currently trading up at 82.53, the bias is currently positive.

Interesting article regarding the VIX.


Letting the VIX tell us when to get out

How could investors have been so wrong in their interpretation of the VIX? My hunch is that their mistake is thinking that it is a fear gauge, with low levels indicating excessive complacency and high levels an excess of fear. But fear is not really what the VIX measures.

It instead is a measure of expected volatility, as reflected in option premiums. In the complex algorithm used to calculate the VIX, both big upside and big downside moves contribute more or less equally. Since these large up and down moves often largely cancel each other out, average market returns following high VIX levels are not higher than they are following low VIX levels.

** RRR = Risk Reward Ratio

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

Written by Gary

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