Written by Gary
Closing Market Commentary For 01-29-2014
The SP500 broke through the 1773 support just after the FMOC minutes were released and dove to 1770.45. Just about as quick, the averages recovered and climbed back to where they were BEFORE the FMOC announcement.
By 3 pm the averages were melting downward again, but at slower rate. After testing the support 3 more times before climbing higher. By 4 pm all of the major averages were down 1 point or more, but closing above the SP500 1773 mark which is a bullish sign. However, I suggest you proceed with caution.
Today's FMOC minutes excerpt. It appears the Feds are ignoring the Emerging Market crisis.
"The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent."
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.
Obviously, market turmoil is over just yet.
The FOMC statement is "completely anodyne" from the U.S. point of view, says Citi's Steven Englander, but as far as emerging markets go it's "hasta la vista, baby."
He notes the economic assessment was a hawkish surprise, with economic growth described as having "picked up" rather than "expanding at a moderate pace ... Look to the yen, Swiss franc, and euro to do well, [and] commodity currencies and emerging markets to do poorly."
After 3 attempts to bust through and stay below we now know the support at 1773 carries some weight and so the new sideways channel begins as envisioned in the chart below. But watch out for any fall-out from the emerging markets as they remain a serious and volatile factor.
The short term indicators are leaning towards the hold (buy if you are brave) side at the close, but I would advise caution in taking any position during this volatile transition period. As it stands right now I do not have a clue what Mr. Market has up his sleeve. The bulls and the bears both have convincing arguments why the markets should this way or that way.
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 new sideways channel between 1809 and 1773 for the SP500. The latest question investors have is, will it go below the next support at (SP500) 1773 and close there? Below that and we could be in a serious correction mode and all bets are off on how deep it can go. More likely this is the start another sideways channel that may drag on for a month baring any Black Swans.
Also, have to watch out for these overnight negative World news announcements which many are rumors and make sure you have stops in place if you are not in a position to monitor the markets.
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.
The Best Stock Market Indicator Update says the market is untradable.
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.
Again, 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. (Note: It will be interesting if the Feds take out another 10b on top of the proposed 10b for this FMOC meeting.)
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.
If you would like to get advanced buy/sell tweets, sign-up in the column to the right of this post by clicking on the 'Follow' button.
The DOW at 4:00 is at 15739 down 190 or -1.19%.
The SP500 is at 1774 down 18 or -1.02%.
SPY is at 177.71 down 2 or -0.96%.
The $RUT is at 1122 down 16 or -1.39%.
NASDAQ is at 4051 down 47 or -1.14%.
NASDAQ 100 is at 3468 down 38 or -1.08%.
$VIX 'Fear Index' is at 17.35 up 1.55 or 9.81%. Bearish
The longer trend is up, the past months trend is sideways, the past 5 sessions have been negative and the current bias is down but positive.
WTI oil is trading between 97.62 and 96.44 today. The session bias is positive and is currently trading up at 97.34.
Brent Crude is trading between 108.03 and 106.94 today. The session bias is sideways and is currently trading down at 107.72.
Gold rose from 1250.68 earlier to 1270.02 and is currently trading down at 1267.70.
Dr. Copper is at 3.248 falling from 3.268 earlier.
The US dollar is trading between 80.90 and 80.52 and is currently trading up at 80.66, the bias is currently sideways.
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary