Market Commentary: Markets Sea-saw On Low Volume Testing Resistance Remains Elusive

February 21st, 2014
in Gary's blogging, midday post

Written by

Midday Market Commentary For 02-21-2014

The 10:30 financial news that Pre-Existing Home Sales plunged 14% sent the averages down in a hurry but remained above the morning session lows.

By noon the bad news is good news for the markets either that or investors are not listening to the sounds of a crumbling market. The averages melted back higher as volume continues to decline and can be contributed to the HFT computers. The resistance above is considerable and the SP500 can't get close enough to test, at least today. The warning signs are out there with a big question mark, trade accordingly.

Follow up:

The averages reacted immediately by falling steeply off the morning highs. The SP500 fell 3 points immediately as should have triggered a buy signal for traders. Lately bad news depresses the numbers then bounces back as it did this morning although the trading range was narrow and difficult to squeeze out a profitable trade.

Non-Existing Home Sales Miss Expectations, Plunge 14% From Highs, Drop To 18 Month Low

Existing home sales plunged 5.1% (considerably worse than the 4.1% drop expected) to its lowest level in 18 months.

This extends the string of missed expectations to 5 months as even the ever-credible NAR chief economist said it was not the weather but "we can't ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates."

First-time homebuyers plunged to a mere 26% of the total - the lowest share on record as all-cash (and spec) investors rose to a record 53% share of sales.

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.

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 02-19-2014 SP500 could be interpreted as a shooting star or a Dark Cloud, but the volume wasn't very convincing and yesterday's action does not wholly confirm it.

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 12:15 is at 16173 up 40 or 0.25%.

The SP500 is at 1845 up 5 or 0.28%.

SPY is at 184.73 up 0.63 or 0.34%.

The $RUT is at 1168 up 6 or 0.51%.

NASDAQ is at 4281 up 13 or 0.32%.

NASDAQ 100 is at 3680 up 8 or 0.22%.

$VIX 'Fear Index' is at 14.23 down 0.56 or -3.79%. Bullish movement

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.

How Oil Really Gets Priced

WTI oil is trading between 102.80 and 101.71 today. The session bias is negative and is currently trading up at 101.81.

Brent Crude is trading between 110.37 and 109.37 today. The session bias is negative and is currently trading down at 109.41.

Gold rose from 1316.30 earlier to 1325.19 and is currently trading up at 1320.60. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.285 rising from 3.270 earlier.

The US dollar is trading between 80.44 and 80.20 and is currently trading up at 80.39, 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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