Written by Gary
Opening Market Commentary For 05-16-2014
Premarkets were down -0.25% prior to the US financial reporting this morning. After the good reports of increased Building Permits and Housing Starts came in the futures melted up to +0.15% and remained that way until the opening.
The markets opened mixed and remained in flat status on low volume while investors are trying to decide what to do next. By the 15 minute mark the averages were decidedly showing weakness and falling but the BTFDers were stopping a waterfall. By 10 am the averages were still mixed when the US University of Michigan Confidence came in at 81.8 versus 84.5 expected and 84.1 prior. Questions remain: Is bad news good news?
I have said for the last 4 years the recovery from the US 'recession' in 2009 will NEVER be completed until Joe Sixpack can afford to buy a home. The increase of renters is testament to the underlying problem of a degenerating middle-class. Without a functioning middle-class population having sufficient discretionary funds, the fiscal survivability of the nation is not possible. What is possible is the rise of a socialistic state of government that degrades the citizens to a menial state of existence.
The serial extrapolators will be pleased... and the talking heads will now proclaim this as clear evidence that the cold-weather dysphoria has abated and its blue skies for real estate from here...
Housing Permits back over 1 million homes SAAR (and biggest jump in a year) to new 6 year highs and Housing Starts back above 1 million SAAR near last year's highs.
However, there is one major caveat - almost the entire surge was led by an almost 40% spike in multi-family units as the 'rental nation' grows ever stronger.
Multi-family accounted for almost 30% of all starts - the highest in over 4 years as single-family starts rose a dismal 0.8%. Not exactly the "but housing inventories are so low and they must builder more homes" kind of growth that the headlines will crow about...
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 4.90. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 48 % buy. (Not sure I completely buy into this.) Investing.com members' sentiments are 63 % 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 small cap trend is decending and the $RUT is hovering just above 1090 major support.
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' 3 % and then you need to pay close attention to risk-off tactics. Any market correction over 6% would be an additional signal and I can't see having one without the other.
Plus: Despite heading lower, the Nasdaq Composite still hasn't entered a technical correction. [READ NOW]
In Lance Roberts article he asks, Is The Market Consolidating Or Topping?
There are two ways to look at stagnation in the markets. It is either a consolidation process that works off an overbought condition which leads to further advances, OR it is a topping process that leads to a market decline. Discerning which process is currently "in play" is critical for investor decision making.
Let me be clear. I am not stating that the current consolidation process will absolutely collapse into a sharp correction in the months ahead. However, I am stating that the current environment is more similar to past markets which did correct, than not.
While it is certainly possible that the markets could ratchet higher from here due to the "psychological momentum" that currently exists, the likelihood of a runaway bull market from here is remote.
The large caps having bounced back and forth between losses and gains for over 10 weeks have once again approached all time highs or have reached them. 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.
At some point during the taper process, this market will crack after one too many tapers. That, among the many other negative issues will most likely come without warning and the major average's losses will be over 3 percent during a single session.
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%.
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 16447 up 1 or 0.01%.
The SP500 is at 1870 down 1 or -0.05%.
SPY is at 187.12 down 0.28 or -0.11%.
The $RUT is at 1093 down 3 or -0.27%.
NASDAQ is at 4056 down 14 or -0.34%.
NASDAQ 100 is at 3554 down 11 or -0.31%.
$VIX 'Fear Index' is at 13.47 up 0.30 or 2.28%. Neutral 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 mixed and the current bias is flat and trending sideways.
WTI oil is trading between 102.03 (resistance) and 101.40 (support) today. The session bias is sideways and volatile and is currently trading up at 101.77.
Brent Crude is trading between 109.61 (resistance) and 108.90 (support) today. The session bias is positive and is currently trading up at 109.55.
Gold fell from 1298.45 earlier to 1287.87 and is currently trading down at 1292.10. The current intra-session trend is negative.
Dr. Copper is at 3.144 falling from 3.158 earlier.
The US dollar is trading between 80.18 and 80.03 and is currently trading down at 80.05, the bias is currently sideways.
Real Time Market Numbers
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Written by Gary