Written by Gary
Midday Market Commentary For 02-04-2014
By noon the averages had posted green for the midday and should continue to sea-saw upwards into the closing hour. Volume is not high or green enough to foster that warm giddy feeling that the averages are all through with the 'correction' and throw all caution to the wind as a rising triangle is forming.
The warning flags od weakness are there and this might be a good time to sit back and observe.
The markets passed back up through the weak resistance (SP500 @ 1747) this morning and have stayed there posting nice gains for the day. This is not surprising having determined that the 1747 is actually a weak support/resistance and passing back and forth through it doesn't mean much. The bad news is that the markets could very easily slide back down to a more substantial support at 1727 before any hope of climbing back up.
Eric Parnell writes, "risks remain high for stocks to move further to the downside in the days, weeks and months ahead. Stocks have risen by nearly +50% over the last two years on virtually no revenue or earnings growth and almost exclusively on the adrenaline of extraordinarily aggressive monetary stimulus from the U.S. Federal Reserve.
In short, stocks are grossly overinflated at this point and are trading well above their fair value. And with the Fed's support slowly going away, it may become increasingly challenging for stocks to maintain their lofty perch. . .
The more likely situation at present is that the stock market has begun a long overdue topping phase that may continue over the next several months. When bull markets end, they almost never stop on a dime and turn sharply lower. Instead, they typically thrash back and forth over the course of several months with sharp declines followed by equally swift rallies as stocks struggle in vain to break out to new highs.
Eventually the bull relents and a new bear market begins in earnest. . ."
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 of Mr. Market trying to figure out which way he wants to go. 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 is pressure to climb higher if only to test the previous Blue Chip highs, therefore I do not foresee the markets descending below the new (and weak) support of 1743 for the SP500 and ending the 'correction'. The latest question investors have is, will it go to the next support at (SP500) 1727 and close there? Below that and we could be in a really serious correction mode and all bets are off on how deep it can go.
Also, have to watch out for these overnight negative emerging market news announcements which many are pundits unsubstantiated guesses and yet can make markets move dramatically. 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 and emerging markets are 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.
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 couple of 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 should the employment rate suddenly start to increase. 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 15470 up 98 or 0.65%.
The SP500 is at 1757 up 15 or 0.88%.
SPY is at 175.63 up 1.42 or 0.79%.
The $RUT is at 1107 up 12 or 1.44%.
NASDAQ is at 4040 up 43 or 1.07%.
NASDAQ 100 is at 3476 up 36 or 1.03%.
$VIX 'Fear Index' is at 18.45 down 2.99 or -13.95%. Bullish
The longer trend is up, the past months trend is sideways, the past 5 sessions have been negative and the current bias is positive.
WTI oil is trading between 96.37 and 97.67 today. The session bias is positive and is currently trading up at 97.45.
Brent Crude is trading between 105.48 and 106.09 today. The session bias is sideways and is currently trading up at 105.92.
Gold fell from 1260.79 earlier to 1247.56 and is currently trading up at 1251.10.
Dr. Copper is at 3.193 rising from 3.180 earlier.
The US dollar is trading between 81.07 and 81.32 and is currently trading down at 81.25, the bias is currently positive. (mimicking the SP500 chart)
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Written by Gary