Written by Gary
Midday Market Commentary For 02-27-2014
Fed Chair Janet Yellen didn't provide much light on direction, bur investors are taking a cautious approach in trading. Here comments were prepared and somewhat lame - Dr. Ben in a dress.
By noon the averages had crossed above the 'Holy Grail' resistance line and has sea-sawed back and forth that line on anemic volume. Again I suggest a cautions approach.
The short term indicators are leaning towards the hold side at the midday. The all important signs of reversal, up or down, have not been observed so we are mostly at best neutral and conservatively at hold. The 50DMA, MACD, volume and a host of other studies have not turned, only a 6% correction (and recovery) 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 and quit playing with us.
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 uphill, but not convincingly signaling a continued up trend as it is very weak.
There is a 3 day Symmetrical triangle forming with the apex ending by Friday (02-28-2014). It appears to have happened on Wednesday (02-26-2014) yesterday. But, if you are looking for an entry point following a symmetrical triangle, (says one analyst) jump into the fray at the breakout point. However, investors have experienced early breakouts only to give investors a "head fake and that may be what we saw today." Hold off for a day or two after the breakout and determine whether or not the breakout is for real.
There is continuing pressure to climb higher if only to test the previous SP500 highs (7 tests so far), 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 1848/50 and close there? This is the historical closing high and there are many doubts that the SP500 can go higher for a 7th try and remain above 1850, which it didn't.
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 flattened out, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.
Now more than ever, I am really afraid of a 'Black Swan' popping up and watching the resultant market start falling like an over inflated tire with a nail in it and undoubtedly the beginning of a bear market. This 'house of cards' the Fed has built with QE is fragile and would not take a lot to tear it down.
The longer 6 month outlook is now 35-65 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.
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 and China's banking issues.
My inner instincts tell me there is also 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. 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 02-21-2014 action does not wholly confirm it. It happened again on Monday (02-24-2014) and Tuesday (02-25-2104) ended in a red spinning top that usually means a direction change. Wednesday (02-26-2014) had another spinning top suggesting we could see change of direction once again, but is it going to be down or up? We will not know until the close of the day - if then.
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The DOW at 12:30 is at 16233 up 35 or 0.22%.
The SP500 is at 1849 up 4 or 0.23%.
SPY is at 185.25 up 0.40 or 0.20%.
The $RUT is at 1184 up 2 or 0.20%.
NASDAQ is at 4307 up 15 or 0.35%.
NASDAQ 100 is at 3690 up 14 or 0.37%.
$VIX 'Fear Index' is at 14.17 down 0.17 or -1.18%. Neutral Movement
The longer trend is up, the past months trend is sideways, the past 5 sessions have been sideways and the current bias is sideways and volatile.
WTI oil is trading between 103.03 and 101.79 today. The session bias is negative and is currently trading up at 102.15.
Brent Crude is trading between 109.45 and 108.65 today. The session bias is negative and is currently trading down at 108.78.
Gold rose from 1324.18 earlier to 1336.09 and is currently trading down at 1333.50. The current intra-session trend is positive.
Dr. Copper is at 3.199 falling from 3.213 earlier.
The US dollar is trading between 80.60 and 80.26 and is currently trading down at 80.28, the bias is currently negative.
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Written by Gary