Written by Gary
Closing Market Commentary For 02-20-2014
Don't get excited about today's rise as it is the work of the HFT computers and most savvy human investors are carefully monitoring the markets and not trading. By 1:30 the volume was so anemic one would think everyone was still out to lunch.
By 4 pm the averages had dropped off the afternoon highs, but only on moderate volume leaving me to believe we have not see the last of the bulls. The daily green volume was a bit higher than the past 8 sessions, however, there is a certain amount of danger taking ANY position at this time.
I have been saying for several years that the rubber-band the market place is made of is getting tighter and tighter and close to snapping. The problem with all the liquidity that the Fed has been putting into the system has been putting off the unsustainable market rise and the Feds are STILL buying bonds.
This house of cards that the Fed has built just gets shakier with each passing day and scaring the hell out of conservative investors like myself. I know it is coming and yes, we are going see a sharp decline - but when? I am listening, my finger is on the sell button but I do not want to unnecessarily miss profits.
Only the very greedy never hear the coming market crashes and are oblivious to obvious negative changes. But guessing when is the BIG question. I though it would have happened last year and would have except for the market Viagra the Fed keeps pushing into the system.
First of all the greatest asset allocation belongs to the BIG money funds and they have no reason to sell on a wholesale basis and besides where would they go? Seriously, would they go to gold or cash? No, that is not the way they work.
Secondly, the cash crowd, the 'sheeples' are not all in like they were in 2008 and 2009 and they are the ones that cause these panic crashes. So any decent of greater than 2% in any one day is unlikely. If there is a decent it will look more like a controlled secular bear market and not one like a waterfall and that is why no one will hear it coming.
Today the survey conducted by the Philadelphia Fed came in at minus 6.3 down from 9.4 last month. As in this case, a lower Philadelphia Fed Survey figures indicates a negative outlook from manufacturers, suggesting decreased production and a slower economic growth. So what has the averages done today - nothing, because they refuse to see the on-coming snowball that is growing and growing and it has nowhere to go but downhill.
Yes, crashes will keep coming: History lesson: The 1929 crash led to the Great Depression. On March 20, 2000 we warned: "Next crash? Sorry, you'll never hear it coming." Few listened.
The 1990's dot-com mania led to Wall Street losing $8 trillion in the 2000-2003 bear-market recession. Nothing changed. Another round of warnings roared from 2004 into 2008. Few listened. Another crash. Wall Street lost even more, $10 trillion.
Through much of 2013, pundits warned how bad the market really was. Then in December the Wall Street Journal revealed that after 13 years in negative territory, Wall Street's "Lost Decade" (which lasted from the 2000 crash to the end of 2013), finally broke even on an inflation-adjusted basis.
The short term indicators are leaning towards the hold side at the close. 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.
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.
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.
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. The candle for yesterday's SP500 could be interpreted as a shooting star or a Dark Cloud, but the volume wasn't very convincing and today's candle does not wholly confirm it.
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The DOW at 4:00 is at 16133 up 93 or 0.58%.
The SP500 is at 1840 up 11 or 0.60%.
SPY is at 184.07 up 1.08 or 0.59%.
The $RUT is at 1162 up 13 or 1.14%.
NASDAQ is at 4268 up 30 or 0.70%.
NASDAQ 100 is at 3672 up 19 or 0.52%.
$VIX 'Fear Index' is at 14.81 down 0.69 or -4.45%. Slightly bullish
The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is up but sideways.
WTI oil is trading between 102.29 and 102.97 today. The session bias is slightly positive and is currently trading down at 102.83.
Brent Crude is trading between 109.58 and 110.44 today. The session bias is positive and is currently trading up at 110.42.
Gold rose from 1307.72 earlier to 1325.12 and is currently trading down at 1323.10. The current intra-session trend is positive.
Dr. Copper is at 3.281 rising from 3.256 earlier.
The US dollar is trading between 80.07 and 80.45 and is currently trading up at 80.33, the bias is currently positive.
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary