Written by Gary
Midday Market Commentary For 01-24-2014
The bad news is that the averages are dipping into a major support and unless the BTFDers jump in, we are going to see a lot more red before this 'correction' is over.
By noon the averages were down over 1.25%, red volume was high and the $VIX. There is hope the markets will rise back to saver territory and the SP500 close above the 1806 mark. Some investors have their finger on the panic button.
The bull pundits are saying this 'dip' is just a correction, but others are not so sure. BOAML says, the SP500 going below 1806 spells trouble. I say if it stays there, then that is interesting, but not Armageddon.
S&P 500 futures just crossed below 1,800 - its lowest since the FOMC's taper announcement on December 18th.
The cash S&P 500 (and small cap S&P 600) have crossed below their crucial 50-day-moving average (with no sign of dip-buyers yet).
This is the biggest drop through that historically critical technical support level since early October. Perhaps more notably, most of the go-go sectors that were heralded by all the talking head momo queens on mainstream media as leading the next leg of stock gains have seen their post-Taper gains gone.
From Builders to Banks and Industrial's, taper-gains are now a dim and distant memory.
The short term indicators are leaning towards the hold side at the midday, 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 to at least the previous highs.
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 12:00 is at 16024 down 173 or -1.10%.
The SP500 is at 1807 down 22 or -1.19%.
SPY is at 180.51 down 2 or -1.25%.
The $RUT is at 1148 down 24 or -2.08%.
NASDAQ is at 4161 down 58 or -1.38%.
NASDAQ 100 is at 3575 down 39 or -1.08%.
$VIX 'Fear Index' is at 15.85 up 2.08 or 15.11%. 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 96.58 today. The session bias is negative and is currently trading down at 96.72.
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 fell from 1272.50 earlier to 1261.00 and is currently trading up at 1262.90.
Dr. Copper is at 3.274 falling from 3.300 earlier.
The US dollar is trading between 80.64 and 80.23 and is currently trading up at 80.57, the bias is currently sideways.
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Written by Gary