Market Commentary: Markets Open Mixed With Heavy Volatility, Then Melt Downward

May 28th, 2014
in Gary's blogging, market open

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Opening Market Commentary For 05-28-2014

Premarkets were up +0.15% and dropped to flat status before the market opening. Markets opened flat and quickly dropped to -0.05%. The SP500 meanwhile opened higher, set a new historical high, then dropped to -0.05%, then rose again to set another new historical high (1913.62).

By 10 am the markets were down -0.25%, the SP500 off -0.13% and the BTFDers were snapping everything in sight that looked like a bargain. Traders are euphoric as volatility is back today. Hold on to your seats, today could be an exciting session.

Follow up:

Frustrating is only part of the equation as discouraging is an equal partner.

Bull Market: What Do The Models Say?

It is safe to say that the current stock market is frustrating. But unlike 2013, when the environment favored the bulls for the vast majority of the year and it was the bears that wound up pounding their heads up against the wall, this year, both teams appear to be experiencing some frustration.

The bottom line is simple: From a big-picture standpoint, stocks won't go up and yet, the S&P 500 can't seem to go down either. While the S&P 500 finished Friday at a fresh all-time high, it did so by the slimmest of margins. Take a look at the chart below. Is that a breakout? Or simply a set-up for another in a long string of "fake outs"?


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 8.97. I would advise caution in taking any position during this volatile transition period although shows a 96 % buy. (GASP!) members' sentiments are 69 % bearish.

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 small caps have reached a resistance on the close yesterday and so far today they have reversed course and are headed down. The $RUT is about to cross over the 100 DMA apparently wanting to close a gap left on the opening yesterday.

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.

After a False Breakout, the Topping Pattern in the S&P 500 Continues

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 11 weeks have once again made all time highs. The last six months of trading in the SP500 has been within a narrow 4.8% range. 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. Historically, accordingly to Eric Parnell, "major bull markets have almost never reached their final peak in a sideways grinding pattern. Instead, they have almost always peaked with flourish including one final crescendo toward a new all-time high before finally rolling over and succumbing to the forces of the new bear market".

For those who are hell-bent bears, this article, 5 Reasons Your Simple Bear Market Plans Could Backfire, and Stocks Need To Breakout Before They Breakdown 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.

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 16628 down 47 or -0.28%.

The SP500 is at 1909 down 3 or -0.16%.

SPY is at 191.23 down 0.31 or -0.16%.

The $RUT is at 1134 down 8 or -0.73%.

NASDAQ is at 4222 down 15 or -0.35%.

NASDAQ 100 is at 3714 down 9 or -0.26%.

$VIX 'Fear Index' is at 11.79 up 0.28 or 2.43%. Neutral Movement

(Follow Real Time Market Averages at end of this article)

The longer trend is up, the past months trend is trending up, the past 5 sessions have been positive and the current bias is negative.

How Oil Really Gets Priced

WTI oil is trading between 104.39 (resistance) and 103.45 (support) today. The session bias is negative and is currently trading down at 103.49.

Brent Crude is trading between 110.39 (resistance) and 109.43 (support) today. The session bias is negative and is currently trading down at 109.50.

Gold fell from 1267.42 earlier to 1260.75 and is currently trading down at 1261.70. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.177 rising from 3.162 earlier.

The US dollar is trading between 80.61 and 80.37 and is currently trading down at 80.60, the bias is currently positive and volatile.

Real Time Market Numbers



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Written by Gary


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