Written by Gary
Opening Market Commentary For 05-02-2014
The volatility in the premarket was eye opening with a full 0.50% swing BOTH ways on 'moderate' volume. Initially, the markets opened down -0.01% and then the SP500 climbed to +0.25% while the small caps lagged behind at +0.05% and remained flat for the first 15 minutes.
By 10 the large caps were up +0.15% and the NASDAQ was down -0.08%, but the fluctuations back and forth evened out to a volatile flat market. The US Factory Orders rose 1.1% in March along with adding 288K jobs in April and that was enough to push the averages solidly into the green.
The US employment report this morning was the catalyst for the premarket volatility. The recovery in the Euro Zone is not going well either, placing more doubt of a continued bull run in the US stock markets.
One Million People Dropped Out Of Labor Force In April: Participation Rate Plummets To Lowest Since 1978
And so the BLS is back to its old data fudging, because while the Establishment Survey job number was a whopper, and the biggest monthly addition since January 2012, the Household Survey showed an actual decline of 73K jobs.
What is much worse, is that the reason the unemployment rate tumbled is well-known: it was entirely due to the number of Americans dropping out of the labor force.
To wit, the labor force participation rate crashed from 63.2% to 62.8%, trying for lowest since January 1978!
And why did it crash so much - because the number of people not in the labor force soared to 92 million, the second highest monthly increase ever, or 988K, only 'better' than January 2012 which curiously was the one month when the establishment survey reported a 360K "increase" in jobs.
Plus, investors are very concerned with Europe's "Recovery" Leaves 25% Of Spanish, Greek Workforce Unemployed.
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 have not turned, only a past 6% correction (and recovery) and that is not enough for me to start shorting. The SP500 MACD has turned up, but remains above zero at 7.11. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 32 % sell. (Remember this has been negative for weeks.) Investing.com members' sentiments are 68% bearish.
In looking at the 50 DMA, the current SP500 opened way above that line and the small caps remain above the 145 DMA, but below the 100 DMA I can not see, as of right now where those large cap MA's are rolling over to indicate any permanent bear run but the failing small caps are a real worry.
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 ANY 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. Just can not buy the optimism of the bullish pundits when it comes to politicians and our economy. We may never know how 'dark' our shadow banking is and there are too many lurking 'Black Swans' on the horizon to be as confident as some are.
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 16608 up 49 or 0.29%.
The SP500 is at 1891 up 7 or 0.39%.
SPY is at 189.03 up 1 or 0.38%.
The $RUT is at 1135 up 9 or 0.82%.
NASDAQ is at 4142 up 14 or 0.35%.
NASDAQ 100 is at 3603 up 9 or 0.25%.
$VIX 'Fear Index' is at 12.86 down 0.39 or -2.94%. Bullish 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 positive.
WTI oil is trading between 100.07 (resistance) and 99.28 (support) today. The session bias is negative and is currently trading down at 99.39.
Brent Crude is trading between 108.70 (resistance) and 107.60 (support) today. The session bias is elevated and sideways and is currently trading up at 108.25.
Gold fell from 1288.25 earlier to 1275.18 and is currently trading down at 1280.60. The current intra-session trend is negative.
Dr. Copper is at 3.042 rising from 3.013 earlier.
The US dollar is trading between 79.55 and 79.91 and is currently trading up at 79.86, the bias is currently positive.
Real Time Market Numbers
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary