Market Commentary: Averages Tumble After Failing Test Of Historic Highs Resistance

February 19th, 2014
in Gary's blogging, market close

Written by

Closing Market Commentary For 02-19-2014

In a classic battle between the bull and bears it appears the bears have won for the day and the bulls will have to wait for another day to test the highs. (that could very well be tomorrow as I do not trust Mr. Market)

By 4 pm the averages had failed the 'big test' of the historic highs and had melted down into the red following IMF and Feds comments. Gold and copper that also plunged while the US dollar rose nicely to a resistance seen earlier this month.

Follow up:

Investors are indeed confused as the Fed hint of tapering the taper - see, I told you so!

FOMC Minutes Spark Un-Taper Unwind

Stocks are confused.

The FOMC Minutes, which clarified that a) taper is on (no matter what almost), and b) forward guidance has been replaced by some fluffy words; have sent the USD higher, bond yields higher, and precious metals lower in 'classic' un-taper unwind mode.

Stocks are holding (for now) as the USD strength (and implicit JPY weakness) is supporting US equities via the idiocy of the carry trade.

VIX remains well bid and credit markets are blowing wider.

The short term indicators are leaning towards the hold side at the midday. Why 'hold', because the all important signs of reversal, up or down, have not been observed. The 50DMA, MACD, volume and a host of other studies have not turned, only a 6% correction and that is not enough for me to start shorting. 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 any idea 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 why they should go down. Several notes of negativity are that the daily volume is very low matching the period of historical highs a few weeks ago and that could set the stage for addition weakness and market decline. The longer MACD view is starting downhill, but not convincingly signaling a continued down trend.

On the other hand, there is pressure to climb higher if only to test the previous Blue Chip highs, but we may have to see some more 'consolidation' or sideways trading before we can start counting our 'Bulls'. The latest question investors have lately is, will the SP500 go above the resistance at 1850 and close there? This is the historical high and there are many doubts that the SP500 can go higher.

In looking at the 50 DMA the current SP500 is somewhat above that line, but way above the 200 DMA and on 02-06-14 crossed above the 100. I can not see, as of right now where the MA's are rolling over to indicate any permanent bear run. The 50 DMA has flattening out, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.

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.

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.

The longer 6 month outlook is now 40-60 sell and will remain slightly bearish until we can see what the effects are in the game of the Fed's 'Tapering'. By the end of 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.

For now, I am continuing to expect weak to sideways markets for the foreseeable future.

The Best Stock Market Indicator Update says the market is untradable. The OEXA200R is well above 65%, currently at 75%. However, all three secondary indicators are negative.

Again, I would also take chart and other technical indicators with a lessor degree of reliability for the time being and watch what the Janet Yellen's 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 most investors are considering this factor along with the emerging market woes.

We are assuming the Fed's will continue the taper program - so far, they are moving ahead in spite of the emerging market issues, but maybe not for long.

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 (maybe sooner) - 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.

Today's SP500 candlestick looks like a gravestone (reversal ahead) and maybe could be construed to be a shooting star, only a few days will we be able to confirm this.

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 16041 down 90 or -0.56%.

The SP500 is at 1829 down 12 or -0.65%.

SPY is at 183.12 down 1.22 or -0.66%.

The $RUT is at 1149 down 12 or -1.07%.

NASDAQ is at 4238 down 35 or -0.82%.

NASDAQ 100 is at 3653 down 27 or -0.72%.

$VIX 'Fear Index' is at 15.50 up 1.63 or 11.75%. Bearish Movement

The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is negative.

How Oil Really Gets Priced

WTI oil is trading between 101.96 and 103.27 today. The session bias is positive and is currently trading up at 102.98.

Brent Crude is trading between 110.01 and 110.81 today. The session bias is sideways and is currently trading up at 110.58.

Gold rose from 1314.53 earlier to 1322.41 and then fell to 1309.05 and is currently trading down at 1310.90. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.277 down from 3.301 earlier.

The US dollar is trading between 79.96 and 80.26 and is currently trading up at 80.25, the bias is currently positive.

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:


Written by Gary


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