Written by Gary
Opening Market Commentary For 05-12-2014
Premarkets were up +0.35% this morning on whatever news story that you want to believe was responsible for making the markets positive.
The DOW opened with a new historical high (16670 +0.54%) and the major averages followed suit, but I wonder for how long we are going to see this rise. Traders are happy with the volatility, but long investors might do well cashing in on gains.
By 10 am the bulls were still partying and pointing fingers at the bears. The DOW reached 16695, the SP500 falls 6 points short of its high and the small caps remain below the 100 DMA.
We are now in the boom or bust zone and I would advise caution and have a raincoat available in case of a waterfall. It wouldn't be a bad idea to have some heavy duty, industrial gloves nearby to help catch a falling knife. However, all indicators are relatively positive, including the $VIX falling to 11.90, so going higher is a real possibility, but . . .
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 and that is not enough for me to start shorting. The SP500 MACD has turned flat, but remains above zero at 6.12. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 56 % buy. (Remember this has been negative for weeks.) Investing.com members' sentiments are 71 % bearish.
In looking at the 50 DMA, the current SP500 opened above that line and the small caps remain below the 145 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 falling small caps are a real worry. The NASDAQ 50 DMA is close to cross over the 100 DMA and the small cap trend is downward. (The $RUT 100 DMA has crossed over the 145 DMA and the 50 DMA is pointing downhill.)
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 minor correction could turn nasty in a heart beat. One significant signal would be losses in any of the major averages that go over the 'magic' 2% and then you need to pay close attention to risk-off tactics.
The large caps having bounced back and forth between losses and gains for over 10 weeks are once again approaching all time highs. This sideways movement and falling volume may be foretelling signs of waning energy and the lack of ability to continue higher and investors need to be alert for a possible significant market selloff.
It is still possible that Mr. Market is not through playing with the averages 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. Also, the margin debt is very high and has been setting historic highs and as of Monday, 4-7-2014, it stands at $466 billion. (Read More at NYSE Statistics Archive)
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 additional notes of negativity where investors are worried about issues directly related to the Fed's tapering and Putin's annexing. They are considering these factors 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. I just can not buy the continual optimism of the bullish pundits when it comes to politicians and our economy. They lie and misrepresent the financial status just about every day, but of course, that is the definition of a politician, is it not? We may never know how 'dark' our shadow banking is, 'Dark Pool' activity and there are too many lurking 'Black Swans' on the horizon to be as confident as some bulls are. For now the 'law of gravity' does not apply to the stock market.
The Best Stock Market Indicator Update says the market is untradable. The OEXA200R is well above 65%, currently at 75%. However, all three secondary indicators are negative:
Of the three secondary indicators:
- RSI is NEGATIVE (below 50).
- MACD is NEGATIVE (black line below red).
- Slow STO is NEGATIVE (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.
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. (. . . agree with analysis, except NASDAQ reaching 5,000 - that isn't going to happen)
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The DOW at 10:00 is at 16686 up 105 or 0.62%.
The SP500 is at 1892 up 14 or 0.73%.
SPY is at 189.36 up 1.41 or 0.74%.
The $RUT is at 1126 up 19 or 1.72%.
NASDAQ is at 4123 up 51 or 1.26%.
NASDAQ 100 is at 3595 up 40 or 1.14%.
$VIX 'Fear Index' is at 12.57 down 0.35 or -2.71%. 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 sideways and the current bias is positive.
WTI oil is trading between 100.88 (resistance) and 99.98 (support) today. The session bias is positive and is currently trading up at 100.71.
Brent Crude is trading between 108.16 (resistance) and 107.40 (support) today. The session bias is negative and is currently trading up at 107.70.
Gold rose from 1278.38 earlier to 1304.00 and is currently trading down at 1299.30. The current intra-session trend is positive.
Dr. Copper is at 3.147 rising from 3.084 earlier.
The US dollar is trading between 79.97 and 79.84 and is currently trading up at 79.88, the bias is currently sideways and volatile.
Real Time Market Numbers
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Written by Gary