Written by Gary
Opening Market Commentary For 03-14-2014
Premarkets were down -0.15% after Core Inflation drops to 1.1% down from 1.3%, the most in 9 months.
Markets opened flat and sea-sawed in and out of the negative side of things while the small caps have remained mostly in the red. By 10 am the trend looked somewhat positive and volume remained low but that could change in a heartbeat. The bears are keeping the bulls at bay.
It is still too early to say if the dark clouds on the horizon is just a spring rain or something much larger like a hurricane. Whatever they represent, I would use an abundance of caution in the coming weeks as the Clouds Gather For The Economy - If You're Willing To See.
Producer Prices in the US (less the all important food and energy - which no one uses) fell 0.2% month-over-month - the biggest drop since July 2013 - and missing expectations of a 0.1% rise.
This is only the third month of 'disinflation in the last 18 months. Perhaps even more relevant is the dramatic slowdown in prices for final demand services which dropped 0.3% (the biggest drop since May 2013) and equal slowest rise year-over-year since the 'recovery' began.
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 holding. 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 100% 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 margin debt for stock purchases are at an all time high.
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' or sideways trading before we can start counting our 'Bulls'. The latest question investors have lately is, will the SP500 go above the 'new' closing resistance at 1878 and close there?
In looking at the 50 DMA the current SP500 is 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 the Ukraine plus those in the emerging 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 Fed's 'Tapering' game plan. 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. Read at DailyFX, "wouldn't it be easier if the Fed would just announce the proper level for the S&P and spare us all the policy announcements and market gyrations?"
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.
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 Argentine Peso, Chinese Banking woes and the Ukraine issues. 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%, unchanged from last weekend.
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. Write me with suggestions and I promise not to bite.
The DOW at 10:15 is at 16151 up 42 or 0.26%.
The SP500 is at 1851 up 5 or 0.27%.
SPY is at 185.63 up 0.43 or 0.23%.
The $RUT is at 1183 up 7 or 0.56%.
NASDAQ is at 4266 up 6 or 0.14%.
NASDAQ 100 is at 3652 up 0.14 or 0.00%.
$VIX 'Fear Index' is at 16.15 down 0.07 or -0.43%. Neutral Movement
The longer trend is up, the past months trend is positive, the past 5 sessions have been negative and the current bias is flat with a positive slant.
WTI oil is trading between 98.06 and 99.06 today. The session bias is neutral and is currently trading up at 98.66.
Brent Crude is trading between 107.76 and 107.38 today. The session bias is positive and is currently trading up at 107.36.
Gold rose from 1368.33 earlier to 1388.44 and is currently trading down at 1384.20. The current intra-session trend is positive.
Dr. Copper is at 2.958 rising from 2.912 earlier.
The US dollar is trading between 79.82 and 79.46 and is currently trading down at 79.51, the bias is currently negative.
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary