Written by Gary
Opening Market Commentary For 01-13-2014
Premarkets were down somewhat (-0.30%) as investors are still cautious regarding the dismal jobs report last Friday as it could be good or bad news, depending on how Janet Yellen decides to look at it.
Markets opened in the red, but higher (-0.10%) than the premarket. Green volume was moderate at the opening bell and the $VIX fell to the high 11's. By the 15 minute market the averages were trading sideways on low to anemic volume which might melt higher on the efforts of the HFT computers later in the session. By 10 am the Blue Chips were in the red while the small caps were doing better at being flat and lackluster.
Granted I have been warning for over a year that just about any 'Black Swan' could shake our stock market down to its foundation, that reality is now being expressed by others.
"We downgrade the US equity market to underweight relative to other equity markets over 3 months following strong performance.
Our broader asset allocation is unchanged and so are almost all our forecasts. Since our last GOAL report, we have rolled our oil forecast forward in time to lower levels along our longstanding profile of declining prices.
We have also lowered the near-term forecast for equities in Asia ex-Japan slightly. Near-term risks have declined as the US fiscal and monetary outlook has become clearer.
Over 3 months our conviction in equities is now much lower as the run-up in prices leaves less room for unexpected events.... Our US strategists have also noted the risk of a 10% drawdown in 2014 following a large and low volatility rally in 2013 that may create a more attractive entry point later this year."
We have consistently warned traders the need to be especially cautious how close you set your stops as there have been several corrections that unnecessarily wiped out a lot of investment profits lately. That warning remains in place and you must remain vigilant for swings. As for shorting, it is still a moment of chance as long as the Fed 'stimulates' the markets there should be a few overnight shorting opportunities if you are lucky.
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. Correctly 'guessing', of course, is the tricky part of the successful trading equation in this 'casino market' place.
The problem facing traders lately is that the trading range requires too much money to be put on the table just to get back meager gains although most swings have been good. Even the swings have been narrow confusing traders and investors alike with faux bull and bear moves.
Again, guessing where the market is going to be tomorrow or next week, at this time anyway, can be a foolish and costly endeavor. I would wait until we move out of this sideways trading zone.
The short term indicators are leaning towards the sell side at the opening, but I would advise caution in taking any position during this volatile transition period. There will be pressure to climb higher if only to test the previous Blue Chip highs, therefore I do not foresee the markets descending below the sideways channel they are currently in until AFTER those highs are tested.
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.
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 of profits over the next few months, so what should they do? Start reducing positions now, my choice, or let profits ride a bit longer? I would be afraid that if a serious 'Black Swan' popped up, the market decent would wipe out a lot of profits. This 'house of cards' the Fed has built is fragile and would not take a lot to tear it down.
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 dismal jobs report last Friday certainly puts Janet Yellen into a quandary. The report will force the Yellen Fed to at least consider the possibility the economy is still on shaky ground and perhaps slow the tapering process.
Also, watch for QE5 when Obamacare is expected to drag the economy down into trouble.
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 to signify a market top.
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The DOW at 10:00 is at 16430 down 7 or -0.05%.
The SP500 is at 1841 down 1 or -0.07%.
SPY is at 183.93 down 0.22 or -0.12%.
The $RUT is at 1162 down 2 or -0.20%.
NASDAQ is at 4172 down 2 or -0.05%.
NASDAQ 100 is at 3567 up 2 or 0.05%.
The longer trend is up, the past months trend is bullish, the past 5 sessions have been positive, but sideways and the current bias is sideways.
WTI oil is trading between 93.08 and 91.90 today. The session bias is negative and is currently trading up at 92.39.
Brent Crude is trading between 106.95 and 105.99 today. The session bias is negative and is currently trading down at 106.32.
Gold fell from 1254.00 earlier to 1243.29 and is currently trading up at 1248.30.
Dr. Copper is at 3.324 falling from 3.366 earlier.
The US dollar is trading between 80.56 and 80.85 and is currently trading up at 80.75, the bias is currently positive.
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Written by Gary