Written by Gary
Opening Market Commentary For 03-03-2014
The SP500 futures fell 17 point last night over possible war in the Ukraine. This morning the were still off -0.83% (15 handles) pretty much guaranteeing a down session.
Markets opened down with the small caps reporting 1% losses and the large caps in the minus 0.80% range. Early indicators show a bullish presents that may push the averages back up into the green before the day is over.
By 10 am the averages had recovered some 10% to 15% of the opening losses and were trading mostly sideways on moderate volume. Further losses are expected.
Selling off today is good as it relieves some pressure on the oversold equities but at the same time it could be the trigger that accelerates wishful thinking of the bear population to see the markets decline further than they should.
Following a 150bps rate hike by the central bank - the largest since the 1998 default -desperate to halt capital outflows and a collapsing currency, Russian stocks have crashed led by some of the country's largest banks.
USDRUB rose to just shy of 37 - the weakest RUB rate on record - but rallied back a little on the rate hike but the MICEX stock index tumbled 11% to almost 2-year lows with Sberbank (Russia's largest bank) down 17% and VTB (2nd largest bank) down 20%.
Between the threat of economic sanctions from the West and simple risk-aversion-based capital flight, as one analyst noted, "uncertainty risks a further escalation in domestic capital outflow."
The short term indicators are leaning towards the hold side at the opening. 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 although Barchart.com shows a 88% sell.
Several notes of negativity are that the daily volume is very low matching the period of historical highs in the past which 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. Lastly, the markets are oversold and today's action might relieve some of that.
I still believe that Mr. Market is STILL not through playing with us and even newer historical highs are a distinct possibility beyond what we have seen mainly because the amount of bond buying the Fed still does on a monthly basis. Past bullish sessions is a very important reminder of what QE has done in the past and remains a continuing and very powerful stimulus to the financial markets.
It is its ending that worries me the most as the financial institution can not continue to push upwards without the Fed's 'Market Viagra'. Even if the Fed reduces its purchases by $10 billion every month for the rest of 2014, the Fed will have acquired $320 billion more for its portfolio. Note, that in 2013, the Fed added more than $1.0 trillion in securities to its portfolio. The debt stands at 4 trillion and will be at 5 trillion by the time the taper is completed and that is one hell of a debt that 'someone' has to pay.
There is continuing pressure to climb higher, but we may have to see some more 'consolidation', sideways trading or confusion before we can start counting our 'Bulls'. The latest question investors have lately is, will the SP500 go above the 'new' resistance at 1859 and close there?
The old historical closing high at 1848 (now 1859) is no longer and there are many serious doubts that the SP500 can go higher much higher, but of course, that is what they were saying last week. I am not saying it can't go higher but that it will be tough sledging in light of prevailing financial winds. Agreed the current level of bond buying by the Feds is keeping markets becalmed, but at some point the trend will reverse.
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 in fact quiet the opposite. The 50 DMA is climbing slightly, 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. Now we have issues in Kiev and that is the apparent reason for the depressed market today.
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'. 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. All she did in the February testimony to a Senate panel is flap her lips but the charts and other technical indicators completely failed us this time around.
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 April 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 Chinese Banking woes. All along we have assumed the Fed's will continue the taper program - so far, they are moving ahead and a lot of 'sheeples' are jumping on board what I think is a sinking ship of fools.
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. After hearing Ms. Yellen speak 2-27-2014, I am more sure of it happening. 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 Best Stock Market Indicator Update says the market is untradable. The OEXA200R ended the week at 82%, up from 79% last weekend. Two of the three secondary indicators are negative.
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The DOW at 10:15 is at 16161 down 160 or -0.98%.
The SP500 is at 1843 down 16 or -0.87%.
SPY is at 184.70 down 1.61 or -0.86%.
The $RUT is at 1170 down 13 or -1.09%.
NASDAQ is at 4260 down 48 or -1.11%.
NASDAQ 100 is at 3657 down 39 or -1.06%.
$VIX 'Fear Index' is at 16.12 up 2.12 or 15.14%. 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.
WTI oil is trading between 102.67 and 104.96 today. The session bias is positive and is currently trading down at 104.47.
Brent Crude is trading between 109.17 and 112.39 today. The session bias is positive and is currently trading down at 111.22.
Gold rose from 1323.45 earlier to 1351.05 and is currently trading up at 1350.30. The current intra-session trend is positive.
Dr. Copper is at 3.167 falling from 3.196 earlier.
The US dollar is trading between 79.76 and 80.00 and is currently trading down at 79.98, the bias is currently positive.
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Written by Gary