Written by Gary
Opening Market Commentary For 04-17-2014
Premarkets were off fractionally this morning after a relatively heavy dumping after the markets closed last night. Reporting financial news was OK and in the green, but Goldman Sachs (GS), Chipotle Mexican Grill (CMG, Honeywell International (HON), General Electric (GE) and E. I. du Pont de Nemours (DuPont) (DD) reported disappointing quarterly reports.
Markets opened flat and in the red with the BTFDers buying like crazy pushing the green volume into high gear. Within 2 minutes the bears took charge and the averages were off -0.15% and melting. By the 15 minute mark the small caps slightly in the green, the $VIX dropping to 13.71 and the volatility was a traders paradise.
By 10 am the averages were in the red, volatility high and trending down. I would not place any bets one way or the other right now.
As the bull pushes the averages higher and higher, as it has done in the past several sessions, one begins to wonder just how far can this craziness can go. Cam Hui has some good suggestions, some insights to credit spreads relative to corporate leverage and a possible 15% correction in the future.
Stock markets have been selling off for a couple of weeks, but there has been no apparent fundamental underpinnings to the decline. While I can point to technical reasons, satisfactory fundamental explanations have been lacking.
. . . bull markets don't usually end with such high cash and low leverage, and also rarely end with tobacco being the only subsector at an all-time high. Bears looking for that big 10%-15% correction should wait until September.
For now, the US macro fundamental outlook looks fine. In fact, we are seeing some evidence of a weather related growth snap-back from the cold winter. As well, Europe is recovering nicely. So there is no need to panic over falling stock prices.
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 important DMA's, volume and a host of other studies on the large caps have not turned, only a past 6% correction (and recovery) and that is not enough for me to start shorting. The MACD (NASDAQ) has turned down slightly and is at -53.08. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 24 % buy. (Remember this has been negative for weeks.)
In looking at the 50 DMA, the current SP500 opened above that line, but way above the 200 DMA and the small caps remain just above the 145 DMA. I can not see, as of right now where those MA's are rolling over to indicate any permanent bear run but the failing small caps are a real worry where the 100 DMA has turned down.
We have seen similar action at the beginning of Feb, 2014 when the SP500 went below the 100 DMA and actually touched the 145 DMA and then rebounded to set new historic highs in the beginning of this month.
Bottom line here is that I have not seen any serious bears jumping out of the woods just yet, although I am VERY concerned that this correction could turn nasty in a heart beat.
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.
The longer 6 month outlook is now 35-65 sell and will remain bearish until we can see what the effects are in the Fed's 'Tapering' game plan and Russia's annexing game playing. 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. The margin debt is very high and has been setting historic highs and as of Monday, 4-7-2014, it stands at $466 billion.
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.
Several notes of negativity is that the margin debt for stock purchases is at an all time high and investors are worried about issues directly related to the Fed's tapering. They are considering this factor along with the Argentine Peso, South African Rand and Japan. And of course, China's defaulting businesses are dropping like flies. And now the Second Chinese Bond Company Defaults, First High Yield Bond Issuer. And now Another Chinese High Yield Bond Issuer Declares Bankruptcy.
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.
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 Un-tradable. The OEXA200R ended the week at 72%, down from 90% last weekend.
Of the three secondary indicators:
- RSI is POSITIVE (below 50).
- MACD is POSITIVE (black line below red).
- Slow STO is POSITIVE (black line below red).
Is the Bull finally over? That's what a lot of traders are beginning to ask themselves right now. Two Bull / Bear indicators that I keep an eye on are the bank index (represented by $BKX) and NYSE Margin Debt, both shown below.
When people start missing payments on car loans and mortgages it indicates a serious underlying problem with the economy. Twice in the recent past, Feb. 5, 2007 and Jan. 31, 2011, a drop by the banks preceded a significant drop in the S&P by several months. The same occurred with Margin Debt in March 2000 and July 2007 (the caveat here is that Margin Debt data is always a month old).
My feeling is that we're entering the final euphoria phase of the five-year stock market bull, and I'll be watching warily for major resistance points in the coming months. One in particular will be when the Nasdaq reaches 5000, the same top as in year 2000, maybe by this June or July. I'm very surprised at how large this bubble has grown, fueled by the Fed's single-minded determination to support Wall Street. (. . . and I agree )
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The DOW at 10:15 is at 16410 down 14 or -0.09%.
The SP500 is at 1861 down 1 or -0.07%.
SPY is at 186.06 down 0.05 or -0.03%.
The $RUT is at 1132 down 0.16 or -0.01%.
NASDAQ is at 4087 down 0.52 or -0.01%.
NASDAQ 100 is at 3531 down 2 or -0.07%.
$VIX 'Fear Index' is at 13.79 down 0.39 or -2.75%. Bullish Bearish Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is sideways and volatile.
WTI oil is trading between 104.35 (resistance) and 103.56 (support) today. The session bias is trending sideways with a positive slant and is currently trading up at 104.28.
Brent Crude is trading between 109.85 (resistance) and 108.07 (support) today. The session bias is sideways and is currently trading up at 109.64.
Gold fell from 1304.34 earlier to 1299.00 and is currently trading down at 1299.60. The current intra-session trend is negative.
Dr. Copper is at 3.034 falling from 3.041 earlier.
The US dollar is trading between 79.92 and 79.65 and is currently trading down at 79.78, the bias is currently neutral and sideways.
Real Time Market Numbers
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Written by Gary