Market Commentary: Markets Open Higher As Volume Falls

May 23rd, 2014
in Gary's blogging, market open

Written by

Opening Market Commentary For 05-23-2014

Premarkets were trading between flat and +0.05% with no US financial reporting until 10 am.

Markets opened up +0.10% on moderate volume and by the 15 minute mark the large caps were sea-sawing sideways on falling volume and the NASDAQ was -010% in the red. By 10 am the New Home Sales (MoM) for April came in at 6.4% while expecting 10.7% and all of the averages surged higher.


Follow up:

The SP500 benchmark resistance of the historical closing high mark (1897) appears to be a solid line that is going to prove difficult to penetrate as it is being tested now.

New Home Sales Bounce; Remain Well Below Weather-Impacted Highs

Last month's dramatic miss of expectations for a modest post-weather pop in new home sales (having dropped 14.5% month-over-month) so it was inevitable that there would be a bounce.

Modestly beating expectations, 433k annualized new home sales in April was only a 6.4% gain MoM thanks to the upward revision of the big miss in March.

This 'recovery' remains well below the peak see in January - right in the middle of the worst weather impacted time in US history if one is to believe what the media is spewing.

Before the 'housing recovery is back on track' meme gets going though, there is the fact that homes sold in the Northeast fell to the lowest since June 2012... as the average home price fell to $320,100 - the lowest since August 2013.

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, and remains above zero at 5.89. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 64 % buy. (Was 24% sell at the opening. Talk about short term indicators!) Investing.com members' sentiments are 68 % bearish.

In looking at the 50 DMA, the current SP500 opened opened that line and the small caps remain above 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 50 DMA is about to cross 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!

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 16588 up 44 or 0.27%.

The SP500 is at 1897 up 4 or 0.23%.

SPY is at 190.00 up 0.38 or 0.20%.

The $RUT is at 1119 up 5 or 0.43%.

NASDAQ is at 4164 up 10 or 0.24%.

NASDAQ 100 is at 3659 up 8 or 0.23%.

$VIX 'Fear Index' is at 11.61 down 0.43 or -3.57%. 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.

How Oil Really Gets Priced

WTI oil is trading between 104.22 (resistance) and 103.65 (support) today. The session bias is positive and is currently trading up at 104.04.

Brent Crude is trading between 110.65 (resistance) and 110.25 (support) today. The session bias is sideways and volatile and is currently trading up at 110.41.

Gold fell from 1295.67 earlier to 1287.01 and is currently trading down at 1292.90. The current intra-session trend is sideways and very volatile.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.163 rising from 3.135 earlier.

The US dollar is trading between 80.49 and 80.28 and is currently trading up at 80.42, the bias is currently elevated with a negative trend.

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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