Market Commentary: Large Caps Set New Highs And Then Fall Deep Into The Red

June 5th, 2014
in Gary's blogging, market open

Written by

Opening Market Commentary For 06-05-2014

Premarkets were up +0.30% until the 8:30 am US Weekly Jobless Claims reported rising to 312K and Continuing Claims came in at 2603K. Then the volatility stepped in looking like a 'normal' trading session and very rare in premarket action.

Markets opened in the green with the large caps up +0.15% and the small caps up +0.20% pushing the SP500 to1930 and the DOW to16773 setting new historic highs and extreme volatility as the morning trend turns into a decent.

Follow up:

By the 15 minute mark the averages dropped down to or below yesterday's closing numbers and then began to rise to flat status on moderate volume. The overall trend off the morning highs is down and the Sp500 had unusual trading gaps. These gaps were finally covered, but unusual as a frenzy of trading activity marks the morning session.

By 10 am the averages had dipped down becoming mixed, flat and very volatile. Then the large cap were the first to signal a session correction may be in order as the SP500 slid solidly into the red before recovering.

The NASDAQ started to test a major resistance (4253) this morning which remains to be seen if that was enough to move even higher. As the volume starts to tapper off that challenge will probably not happen today.

Short sellers are also at a very high mark of participation and could eventually cause the markets to rally further when they have to cover.

The short term indicators are leaning towards the hold side at the opening, but the session trend appears to be down. 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 14.58. I would advise caution in taking any position during this volatile transition period although shows a 32% buy. members' sentiments are 67 % 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.)

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 12 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".

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 16725 down 16 or -0.09%.

The SP500 is at 1924 down 4 or -0.22%.

SPY is at 192.81 down 0.39 or -0.20%.

The $RUT is at 1129 down 3 or -0.22%.

NASDAQ is at 4243 down 9 or -0.21%.

NASDAQ 100 is at 3735 down 8 or -0.22%.

$VIX 'Fear Index' is at 12.33 up 0.25 or 2.15%. Neutral Movement

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

The longer trend is up, the past months trend is positive, the past 5 sessions have been positive and the current bias is Trending down and volatile.

How Oil Really Gets Priced

WTI oil is trading between 102.80 (resistance) and 101.60 (support) today. The session bias is negative and volatile and is currently trading down at 101.68.

Brent Crude is trading between 108.66 (resistance) and 107.78 (support) today. The session bias is negative and is currently trading down at 107.88.

Maybe I'm Wrong - Justifying $2,000+ Gold by Jeffrey Dow Jones

Gold rose from 1241.31 earlier to 1257.73 and is currently trading down at 1253.20. The current intra-session trend is negative and volatile.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.079 falling from 3.107 earlier.

The US dollar is trading between 81.05 and 80.47 and is currently trading up at 80.68, the bias is currently negative and extremely volatile.

Real Time Market Numbers



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Written by Gary


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