Written by Gary
Opening Market Commentary For 01-24-2014
Premarkets were down some -0.40% on continuing fears of emerging markets. The markets have finally dropped down below the sideways channel they have been in over 20 sessions but stopped at the technical support.
The markets opened down with the DOW falling 100 points, the SP500 dropping10 and the NASDAQ gaping down 25 points in the first few minutes. This looks like the correction many have talked about and could present itself with some excellent buying opportunities in the days ahead - maybe.
The 'emerging markets', particularly India and China, have been in the news lately with disturbing stories of graft, inept politics, corruption and human rights abuse. No I am not talking about the United States, but sometimes I wonder where the US is going too.
China's woes have taken on a more sinister role in a financial 'Black Swan' that could sink investors portfolios and many have jumped ship this morning.
The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world's engine of growth, and this rapid economic growth is chipping away at structural political and social problems.
Nice, especially from a distance. But on the ground, China and India (not Chindia--there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations.
The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.
This is simply wrong on multiple levels...
The short term indicators are leaning towards the hold 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 gaps left by descending averages over the past several sessions is a bullish indicator, plus the fact we have not tested the previous highs. From a purely technical stand point the actual support of the markets was touched on this morning AND bounced off. This could mark the bottom of the correction and Monday will verify this. I feel strongly that we will see these markets recover shortly and climb back up.
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? What I am afraid of is that if a serious 'Black Swan' pops 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. Also, watch for QE5 when Obamacare starts drags the economy down into trouble in 2015.
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 16112 down 84 or -0.52%.
The SP500 is at 1816 down 12 or -0.66%.
SPY is at 181.52 down 1 or -0.69%.
The $RUT is at 1158 down 14 or -1.20%.
NASDAQ is at 4185 down 34 or -0.80%.
NASDAQ 100 is at 3591 down 22 or -0.61%.
$VIX 'Fear Index' is at 14.95 up 1.17 or 8.50%. Bearish
The longer trend is up, the past months trend is sideways, the past 5 sessions have been negative and the current bias is negative.
WTI oil is trading between 97.80 and 96.61 today. The session bias is positive and is currently trading up at 97.29.
Brent Crude is trading between 106.24 and 107.80 today. The session bias is positive and is currently trading up at 107.33.
Gold rose from 1256.90 earlier to 1272.50 and is currently trading down at 1266.80.
Dr. Copper is at 3.279 falling from 3.300 earlier.
The US dollar is trading between 80.64 and 80.23 and is currently trading up at 80.55, the bias is currently positive.
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Written by Gary