Market Commentary: Markets Opened Flat, Then Melt Up On Low Volume

May 22nd, 2014
in Gary's blogging, market open

Written by

Opening Market Commentary For 05-22-2014

Premarkets were up +0.10% on not very good Initial Jobs Claims and a much lower Chicago Fed National Activity Index.

Markets opened flat, fell into the red and then climber up to +0.20% into the green. The volatility is sea-sawing the averages while the 'Complacency' indicator, $VIX, is hovering around the high 11's. By 10 am the Existing Home sales came in as a disappointing 'not-so-good' missing expectations but the averages continued the sea-saw action and mostly sideways trading on low volume.


Follow up:

The financial reporting this morning may be the negative news that turns investors off, we will see.

Existing Home Sales Miss; Worst Start To Year Since 2007

After 6 months of missed expectations, last month's fragile beat of dismal expectations (even though it was the worst existing home sales SAAR in 21 months) provided just enough of a glimmer of hope to stoke more short squeezes in home-builder stocks and strengthen the pillar of the US economic recovery.

Now we are in April... the start of the key seasonal selling season... and existing home sales rose modestly MoM (but fell for the 6th month in a row YoY) and missed expectations.

There is - simply put - no post-weather bounce.. and still NAR is blaming slow April sales being delayed due to Winter weather! This is the worst start to a year since 2007.

US Manufacturing PMI Beats But Employment Slows To Worst In 2014

Having hit cycle highs over 57 in February (in peak cold-weather season), US Manufacturing PMI appears unable to regain the positive momentum of that peak despite weather no longer being an issue.

While the 56.2 print beat expectations of 55.5, with new orders improving, the all-too-crucial employment sub-index dropped to its slowest rate of expansion in 2014.

Until just a few months ago when this macro indicator started to rise, it was seen as a secondary data item but once it started reinforcing the status quo believers trend it became crucial.

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 up, but remains above zero at 5.11. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 24 % sell. (Looks right.) Investing.com members' sentiments are 65 % bearish.

In looking at the 50 DMA, the current SP500 opened above that line and the small caps remain above the 145 DMA and notching the 50 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. (See deviation of large and small caps here.)The NASDAQ 100 DMA has crossed over the 145 DMA and the small cap trend is sideways and the $RUT is below the 200 DMA.

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.

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 markets are still susceptible to climbing on 'Bernankellen' vapor, use caution!

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.

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)

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 10:30 is at 16541 up 8 or 0.05%.

The SP500 is at 1891 up 3 or 0.14%.

SPY is at 189.37 up 0.23 or 0.13%.

The $RUT is at 1109 up 5 or 0.48%.

NASDAQ is at 4141 up 10 or 0.24%.

NASDAQ 100 is at 3641 up 5 or 0.14%.

$VIX 'Fear Index' is at 11.90 down 0.01 or -0.08%. 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 and volatile.

How Oil Really Gets Priced

WTI oil is trading between 104.18 (resistance) and 103.78 (support) today. The session bias is sideways and is currently trading up at 104.09.

Brent Crude is trading between 111.01 (resistance) and 110.29 (support) today. The session bias is positive and is currently trading up at 110.84.

Gold rose from 1290.24 earlier to 1303.95 and is currently trading down at 1298.70. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.142 rising from 3.120 earlier.

The US dollar is trading between 80.10 and 80.31 and is currently trading up at 80.29, the bias is currently positive and volatile.

Real Time Market Numbers

 

 

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

gary@econintersect.com

 

Written by Gary

 









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