Written by Gary
Opening Market Commentary For 05-29-2014
Big miss on the US GDP this morning coming in at -1.0%, down from +0.1%. The premarkets (+0.15%) evidently blamed it on the weather as there was no immediate reaction as they settled in at +0.18%.
Markets opened up +0.30% and the SP500 setting another historic high at 1915 (whoopee, 1 point higher every day) while the DOW couldn't top yesterday's high mark before turning down. By 10 am the averages started to fall off, along with the volume, as US Pending Home Sales came in at -9.4% (Y/Y), lower than the -7.5% prior. Caution is in order again - watch for falling rocks, er, markets!
This morning the US Continuing Claims came in at 27,000 fewer folks asking for Government money than the last report. To put that in perspective, that amounts to an average of 540 people per state not continuing to pursue looking for work or have run out of benefits. Yet, the Obama Administration and the Main Stream Media sing the song of a strong recovery in progress, when in fact people have given up and are just not looking any more - some recovery!
And then the US stock futures didn't change this morning when it was reported the US GDP suffered a really big miss as data showed the economy contracted for the first time in three years from January through March, but it probably snowed then too. Without Obamacare the Q1 GDP would have been -2.0% as healthcare surged to $40 billion in Q1.
The essence of the U.S. economy is make it look good: never mind quality or long-term consequences, just make it look good today, this week, this month, this quarter.
Make the pink slime look like meat, make the company look profitable, make the low-quality product look good enough to close the sale, make the unemployment rate low enough to justify re-electing the toadies currently in power.
Make the body count of bad guys look good, and on and on--just makes the numbers look good now, the future will take care of itself.
When rigged numbers are the basis of our success, we have failed.
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 12.26. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 100 % buy. (very optimistic I think) Investing.com members' sentiments are 68 % bearish.
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 $RUT is even with the 50 DMA once again after bouncing off the resistance at 1143.
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. 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".
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. Plus, Another Chinese High Yield Bond Issuer Declares Bankruptcy. It isn't over with Japan's April retail sales numbers coming out, and the results show a drop just a little worse than economists' already low expectations.
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.
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The DOW at 10:00 is at 16639 up 5 or 0.03%.
The SP500 is at 1912 up 2 or 0.11%.
SPY is at 191.56 up 0.18 or 0.10%.
The $RUT is at 1138 up 1 or 0.10%.
NASDAQ is at 4234 up 9 or 0.22%.
NASDAQ 100 is at 3722 up 10 or 0.28%.
$VIX 'Fear Index' is at 11.57 down 0.11 or -0.94%. Neutral Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is a positive trend, the past 5 sessions have been positive and the current bias is negative.
WTI oil is trading between 103.45 (resistance) and 102.62 (support) today. The session bias is sideways and is currently trading down at 103.04.
Brent Crude is trading between 110.44 (resistance) and 109.73 (support) today. The session bias is positive and volatile and is currently trading down at 110.22.
Gold fell from 1260.12 earlier to 1251.53 and is currently trading down at 1255.40. The current intra-session trend is sideways and volatile.
Dr. Copper is at 3.144 falling from 3.176 earlier.
The US dollar is trading between 80.60 and 80.44 and is currently trading up at 8.57, the bias is currently positive and volatile.
Real Time Market Numbers
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Written by Gary