Market Commentary: Large Caps Unable To Climb Higher As Small Caps Continue Melting Upwards

March 18th, 2014
in Gary's blogging, midday post

Written by

Opening Market Commentary For 03-18-2014

Morning session has been positive with higher than normal volume. The DOW pushed up to 65% along with the SP500 before melting off the morning high and then tested again. It is nowhere near the closing resistance of 3-4-14, yet the averages are acting like they encountered a strong resistance.

By noon the $VIX had dropped to 14.19, large caps remained near their session highs and the small caps were still melting higher with the Russell over 1% and climbing.

Follow up:

Volume continues to fall off as market weakness is appearing in some sectors and I would be most cautious at this point of unwarranted exuberance.

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 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 shows a 0 % hold.

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 to turn downhill, but not convincingly signaling a down trend as it is very weak. Lastly, the markets are oversold and the margin debt for stock purchases are at an all time high.

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 flatting slightly, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.

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. For those who are hell-bent bears, this article, 5 Reasons Your Simple Bear Market Plans Could Backfire, should be required reading.

It is its ending of QE that worries me the most as many financial institution and emerging markets can not continue to push forward or 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.

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?"

The Ukraine/Crimea situation is a symptom, not a cause of the current market weakness, it is China that is more of an issue with some resent defaults raising an eyebrow or two. Some are expecting a brief 'relief' rally after Ukraine/Crimea tensions have been reduced, however the problems the markets face will not end there.

If the Russian President Putin stops at annexing Crimea, the markets may alleviate current weakness and the bull run will continue as some bullish pundits seem to indicate. It is also possible that this is simply a pause where Putin will take the slack time to consider his next global conquest. It makes sense, in my opinion for Putin to stop at Crimea and all the bulls then can breath a sigh of relief. Having said all of that, again in my opinion, the markets are long overdue for a substantial correction, say 40%.

One needs to understand that the Ukraine/Crimea issue is just another bad flu and not the car wreck that many are trying to make it out to be. The real story behind the current weakness is the US weak housing, layoffs and poor employment data, inventory reductions and soft economic outlook including a mediocre sales outlook.

Investors are also worried about issues directly related to the Fed's tapering and are considering this factor along with the Argentine Peso, South African Rand, the Yen and now the US Freezes Diplomatic Relations With Syria, Orders Non-US Personnel To Leave Country.

But at the same time, 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 80%, down from 82% last weekend.

Of the three secondary indicators:

  • RSI is NEGATIVE (below 50).
  • MACD is NEGATIVE (black line below red).
  • Slow STO is POSITIVE (black line above red).
  • Read More . . .

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 12:00 is at 16342 up 95 or 0.59%.

The SP500 is at 1871 up 12 or 0.64%.

SPY is at 187.58 up 1 or 0.68%.

The $RUT is at 1201 up 12 or 1.04%.

NASDAQ is at 4324 up 44 or 1.02%.

NASDAQ 100 is at 3699 up 37 or 1.00%.

$VIX 'Fear Index' is at 14.33 down 1.30 or -8.31%. Bullish Movement

The longer trend is up, the past months trend is positive, the past 5 sessions have been mixed and the current bias is elevated.

How Oil Really Gets Priced

WTI oil is trading between 97.28 and 98.66 today. The session bias is positive and is currently trading down at 98.47.

Brent Crude is trading between 106.89 and 106.73 today. The session bias is mixed and is currently trading down at 106.53.

Gold fell from 1367.89 earlier to 1351.44 and is currently trading down at 1357.00. The current intra-session trend is positive.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 2.955 falling from 2.992 earlier.

The US dollar is trading between 79.43 and 79.66 and is currently trading down at 79.56, the bias is currently mixed.

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:


Written by Gary


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