Written by Gary
Midday Market Commentary For 02-10-2014
By noon the morning lows have been recovered by the HFT computers and their black art cauldron stirring witches leaving investors confused overbought conditions, emerging markets and general financial issues. As with any manipulation, the truth will come out and it probably won't be pretty.
The mornings recovery brought the averages back up to the opening highs but volatility is masking the true direction of the markets. I know I do not trust this so called recovery of this past 'correction', but do see more sideways trading.
In Cam's article, Is the Correction over I brought to your attention this morning, said that his conclusion is that too much technical damage has been sustained by the market for equities to simply rebound and rally to new highs immediately. He believes that the market direction is a short-term rally followed by several weeks of volatility
In Eric Parnell's article below feels that stocks were overdue for a bounce after a somewhat significant decline but the show isn't over just yet. I subscribe that this is a great macro view of the economic winds that plague investors now.
The stock market continues to behave in an orderly way. Following the recent -6% peak to trough correction on the S&P 500 Index (SPY), it appears the worst of the pullback may be behind us for now following a sharp upside reversal late last week that has characterized so many bounces in the post crisis period.
So clearly all must be well then, right? Stock investors can simply go back to their 2013 ways of staying long and making sure their buy orders are in before 10:30AM to catch the daily Fed stimulus train higher for the rest of the trading day, right?
The answer? No. While we are likely to see the market rally at least for the next few weeks into the March/April time frame and we may even set a new all-time high in the process, the market is likely on borrowed time at this point.
. . . it appears that we are either on the brink or in the very early stages of a new bear market phase in the coming months.
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 much in what Mr. Market has up his sleeve as the bulls and the bears both have convincing arguments why the markets should go up or that the markets should go down.
There is pressure to climb higher if only to test the previous Blue Chip highs, but we may have to see some more 'correction' before we can start counting our 'Bulls'. The latest question investors have is, will it go below the next support at (SP500) 1743 and close there? Granted that the 1743 support is a weak one and swinging back and forth across that demarcation may not mean a whole lot. But below 1727 would be an indication that we could be in a really serious correction mode and all bets are off on how deep it can go.
In looking at the 50 DMA the SP500 is below that line, but above the 200 DMA and on 02-06-14 crossed above the 100. I can not see where the MA's are rolling over to indicate any permanent bear run.
Also, have to watch out for these overnight negative emerging market news announcements which many are pundits unsubstantiated guesses and rumors which 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 is now 30-70 sell and will remain bearish until we can see what the effects are in the game of the Fed's 'Tapering'. 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 further downward. The middle of March should, may, perhaps be the end of any correction.
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 really afraid of is that if a serious 'Black Swan' pops up, the resultant market decent would wipe out a lot of profits and undoubtedly be the start of a bear market. 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 to 20 billion from the bond buying program each month isn't going to do much in reducing the QE program at first, but if it can be cut in half by the end of March 2014 certainly will. What is currently causing problems for the Emerging Markets is directly related to the tapering and investors should consider this factor too.
We are assuming the Fed's will continue the taper program - so far, they are moving ahead in spite of the emerging market worries.
My inner instincts tell me there is a possibility that the Keynesian's are going to be reluctant to stop their grand financial experiment and will want to taper the taper or expand the program later in the year - 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 is being 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 15773 down 22 or -0.14%.
The SP500 is at 1796 down 0.99 or -0.05%.
SPY is at 179.65 down 0.02 or -0.01%.
The $RUT is at 1113 down 3 or -0.29%.
NASDAQ is at 4139 up 13 or 0.32%.
NASDAQ 100 is at 3577 up 15 or 0.42%.
$VIX 'Fear Index' is at 15.36 up 0.07 or 0.46%. Neutral
The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is sideways with a lot of volatility.
WTI oil is trading between 99.12 and 100.39 today. The session bias is positive and is currently trading down at 100.24.
Brent Crude is trading between 108.15 and 108.81 today. The session bias is negative and is currently trading up at 108.36.
Gold rose from 1265.03 earlier to 1277.07 and is currently trading down at 1275.50.
Dr. Copper is at 3.218 falling from 3.352 earlier.
The US dollar is trading between 80.81 and 80.65 and is currently trading down at 80.69, the bias is currently sideways.
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Written by Gary