Written by Gary
Closing Market Commentary For 12-30-2013
Losers were 2% higher than gainers at the close with red low volume outpacing the BTFDers. Relative quiet day approaching a half day tomorrow. I suspect many investors have already hopped on the train to the burbs.
By 4 pm the trading had picked up from dismal to not so dismal and not much had changed chart wise. Everyone is talking about a retracement of some sort leaving some investors scratching their heads wondering whether to buy or sell.
Below is an interesting discussion (with charts) on how the indexes are pushing beyond their limits setting Mr. Market up for an ugly reversal.
Last week we showed a chart of the Russell 2000 and discussed how it had spiked through a 14 year resistance line. That hyper-extension is now running the risk of a Blow Out after it finishes its trajectory (see chart 1).
Today, we will add one more chart to last week's Russell chart (see chart 2). This chart show's the DJI going back to 1987 with a 15 year expanding wedge pattern. When you look at the chart, you will see that it also has gone above its resistance of an expanding wedge pattern.
So, both indexes are pushing beyond their limits on QE money expansion in our economy.
The ugly side of these two charts is what happens during the first to second year after the yearly tick has hit the upper resistance limit. If you look at the two charts, you will see that there is typically a very large pull back within these two year periods. During the course of time, the market exhibits normal cycles of expansion and contraction and that is healthy.
Really healthy would be for the market to make higher/highs and higher/lows during a cycle process. Fortunately, the Russell 2000 shows higher/highs and slightly higher/lows. However, the DJI which represents a lot of large international companies has made higher/highs and LOWER/lows which is an expanding wedge pattern.
The disturbing part of all this right now is that both indexes have spiked through their upper resistances and that will make it extremely difficult for the Federal Reserve to successfully unwind their QE activity without damaging results. The Fed has commented that they will start tapering in 2014, so that will make for a very interesting year. Why? Because the Fed will start tapering just as the market should be moving to a natural down cycle on its own ... which is very bad timing on their part.
The short term indicators are leaning towards the sell side at the closing, but I would advise caution in taking any position during this volatile transition period. Here is the quandary some investors have now. They have bet on the QE program to bolster their profits and knowing full well they may see some eroding over the next few months, so what should they do? Start reducing positions now, most probable, or let profits ride a bit longer?
I would also take chart and other technical indicators with a grain of salt for the time being and watch what the Fed does over the next 4 months. Removing 10 billion from the bond buying program each month isn't going to do much in reducing the QE program in the beginning, but halving it in 4 months certainly will - IF - the Fed's continues the taper program. My instincts tell me that the Keynesian's are going to be reluctant to stop their grand financial experiment and will want to taper the taper within the next several months - especially if the employment rate increases.
The longer 6 month outlook still remains 40-60 sell until we can see what the effects are in this almost nothing start of the Fed's 'Taper'. By March investors should know how the taper is going to work out in relationship to the stability of the US financial markets and their ability to not to slide downward.
For now, I am continuing to expect weak to negative markets for the foreseeable future. Especially today after the Santa Claus Rally pushed the markets up to reach new highs. A correction is expected, how much is the question - AND when?
Also, many pundits have stated that we may have seen the top - but I wouldn't count it as long as the Fed continues to hand out 'Market Viagra', even if it has been reduced somewhat! I would like to see a blowout candle (shooting star) to verify a top along with heavy volume.
The DOW at 4:00 is at 16504 up 26 or 0.16%.
The SP500 is at 1841 down 0.33 or -0.02%.
SPY is at 183.79 down 0.05 or -0.02%.
The $RUT is at 1161 down 0.50 or -0.04%.
NASDAQ is at 4154 down 2 or -0.06%.
NASDAQ 100 is at 3570 down 4 or -0.11%.
The longer trend is up, the past months trend is bullish, the past 5 sessions have been bullish and the current bias is positive.
WTI oil is trading between 100.43 and 99.14 today. The session bias is negative and is currently trading up at 99.25.
Brent Crude is trading between 112.63 and 110.91 today. The session bias is negative and is currently trading up at 111.05.
Gold fell from 1215.80 earlier to 1194.80 and is currently trading up at 1196.70.
Dr. Copper is at 3.381 falling from 3.392 earlier.
The US dollar is trading between 80.58 and 80.05 and is currently trading down at 80.15, the bias is currently negative.
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary