Written by Gary
Opening Market Commentary For 01-31-2014
Yesterday's party became a hangover as pre markets took a dive early this morning watching futures slide as investors bailed out sinking portfolios. Oh, what a difference 24 hours makes.
Markets opened down and quickly reported minus 1 percent numbers with the DOW leading at -1.33% in the first few minutes. The SP500 was testing the support at 1773 by the 10 minute mark as investors held their breath. The $VIX shot up to the high 18's, the DOW was at 15625 and the NASDAQ hovered at the 4080 level.
By 10 am investors sighed relief as the SP500 support held, averages were melting up and most out of the minus 1 percent zone.
The old Wall Street saying predicts the rest of the year will follow January's lead which has been dismal to say the least. Growing emerging market worries, emerging market's currency collapse and continuing unemployment throughout the EU are just some of the other issues putting pressure on the US market place.
Depending on which side of the market fence you are on market crashes are generally not desired by the bulls. But we have been saying for the past several years it appears we are headed in that direction. The 'House of Cards' the Fed has built is just one factor of this markets demise and it becomes inherently less stable with each passing month glued together with the Feds 'funny money'.
There is one major problem when the entire market is a rigged casino (by both the Fed and HFTs), favoring degenerate gamblers over traditional investors: at the first whiff of trouble everyone bails.
Or as BofA politely puts it, "Typically flows follow returns and this week was no exception." In the past week, trouble whiffed, and the degenerate gamblers, loaded up to the gills with record margin debt hightailed it out of the casino, leading to the largest weekly equity fund outflow in over two years!
Add some record leverage to the equity withdrawal, continued EM turbulence, ongoing Japanese deflation exports, oh and of course the ongoing Fed taper which has been solely responsible for all S&P gains since 666, and suddenly you have all the ingredients for a broad market crash.
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. As it stands right now I do not have a clue what Mr. Market has up his sleeve as the bulls and the bears both have convincing arguments why the markets should go 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. (However, I said the same thing about the support at 1809 - and that is long gone.) The latest question investors have is, will it go below the next support at (SP500) 1773 and most importantly, 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.
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 by March 2014 certainly will - IF - the Fed's continues the taper program - so far, they are moving ahead in spite of the emerging market worries.
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 15656 down 188 or -1.20%.
The SP500 is at 1777 down 17 or -0.91%.
SPY is at 177.74 down 1.47 or -0.84%.
The $RUT is at 1130 down 10 or -0.85%.
NASDAQ is at 4091 down 32 or -0.79%.
NASDAQ 100 is at 3507 down 26 or -0.72%.
$VIX 'Fear Index' is at 18.36 up 1.07 or 6.19%. Bearish
The longer trend is up, the past months trend is sideways, the past 5 sessions have been negative and the current bias is sideways with a positive slant.
WTI oil is trading between 98.21 and 97.13 today. The session bias is negative and is currently trading down at 97.52.
Brent Crude is trading between 108.02 and 106.56 today. The session bias is negative and is currently trading up at 107.06.
Gold rose from 1238.38 earlier to 1254.63 and is currently trading down at 1250.70.
Dr. Copper is at 3.208 falling from 3.230 earlier.
The US dollar is trading between 81.08 and 81.42 and is currently trading up at 81.42, the bias is currently positive.
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Written by Gary