Written by Gary
Opening Market Commentary For 02-10-2014
Premarkets were flat and down slightly from Friday's close (-0.06%) and remained that until the opening. There is no US financial reporting this morning to sway the charts one way or the other and little persuasive news out of the emerging markets over the weekend.
Markets opened flat and mixed and immediately began volatility swings that traders look for, but withing a very narrow range as the markets appear to be in a sideways mode. By 10 the averages were mostly in the green, flat and trading sideways on falling volume.
This article just about sums up the market situation and is required reading.
To truly answer that question, we have to first answer the question of why stock prices went down in the first place.
The simplest explanation of the recent pullback is because of excessively bullish sentiment and an overbought condition in the market. The fast money got into a crowded long position and, when there were no buyers left and the momentum started to roll over, the crowd seized on the excuse of the day to sell.
An examination of longer term indicators suggest that a durable bottom may not be at hand yet.
An analysis of short and longer term market breadth indicators tell a more nuanced story than the more simple oversold bounce narrative. While short-term indicators suggest that a bounce is at hand, longer term indicators are not necessarily showing the signs of full capitulation and more volatility is ahead.
My conclusion is that too much technical damage has been sustained by the market for equities to simply rebound and rally to new highs immediately.
Putting it all together, my best guess of market direction is a short-term rally followed by several weeks of volatility, with the SPX bounded by the 200 DMA below and the 50 DMA above.
The short term indicators are leaning towards the hold side at the opening, 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 10:30 is at 15774 down 21 or -0.13%.
The SP500 is at 1796 down 0.61 or -0.03%.
SPY is at 179.69 up 0.01 or 0.00%.
The $RUT is at 1112 down 5 or -0.42%.
NASDAQ is at 4134 up 8 or 0.21%.
NASDAQ 100 is at 3572 up 10 or 0.29%.
$VIX 'Fear Index' is at 15.52 up 0.23 or 1.50%. 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.
WTI oil is trading between 99.12 and 100.06 today. The session bias is positive and is currently trading up at 99.96.
Brent Crude is trading between 108.15 and 108.81 today. The session bias is sideways and is currently trading up at 108.45.
Gold rose from 1265.03 earlier to 1277.07 and is currently trading down at 1274.30.
Dr. Copper is at 3.227 falling from 3.352 earlier.
The US dollar is trading between 80.81 and 80.66 and is currently trading down at 80.76, the bias is currently sideways.
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Written by Gary