Written by Gary
Opening Market Commentary For 07-10-2014
The premarket numbers were down over one percent this morning on fears of Portuguese banks being in trouble. Market opened lower with the SP500 gaping down to 1.1% on moderate to heavy volume. By 10 am the markets were recovering fractionally, but still at -0.75% as worried investors gradually dipped their toes back into the murky market waters.
The problems in Portugal have been know for months, if not years. Real Estate collapsing, extremely high unemployment and the banking industry in shambles has allowed some Wall Street Manipulators to exacerbate this situation to their advantage.
Now may not be the time to sell, but to consider buying. Today's news is no more serious than the Ukraine, Iraq or Libya 'explosions' and may present itself as great buying opportunity.
What should be learned from this morning experience is that it doesn't take much to spook investors when the Main Stream Media trumps up World problems.
Having said that, I am VERY concerned that ANY minor correction, like this morning, could turn nasty in a heart beat. One significant signal would be daily 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. There hasn't been a 10% correction in several years and some investors are becoming increasingly concerned an imminent correction is on the way.
LONDON (AP) - The failure of the main U.S. indexes to break through key thresholds and financial jitters in Europe weighed on markets Thursday as investors grew skeptical over the near-term outlook for stocks.
On Wednesday, stocks, particularly in the U.S., were buoyed by minutes to the last meeting of the Federal Reserve that suggested interest rates will likely stay near zero for a while, even after monetary stimulus has been removed.
"The inability for the Dow to hold above 17,000 on Wednesday or the S&P to break through 2,000 may be seen as a red flag among investors that we're not yet ready for that next leg higher and as a result, we're going to see profit taking near these levels for now," said Craig Erlam, market analyst at Alpari.
In Europe, sentiment took a hit after worries over the health of one of Portugal's largest financial groups slammed the country's stock market and pushed up its borrowing rates. The tensions are centered on the Espirito Santo group of companies, which includes Portugal's largest bank Banco Espirito Santo.
The medium 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 down, but remains above zero at 12.46. I would advise caution in taking any position during this volatile period.
Barchart.com shows a 88 % buy. (Been at 88% for 4 sessions, methinks the meter is broken) Investing.com members' sentiments are 57 % bearish and Investors Intelligence sets the breath at 69 % bullish with the status at Bear Correction. (Chart Here *)
* Closing Prices.
This morning the number of Americans filing for first-time unemployment benefits fell last week to 304,000 from 315,000. Wall Street Analysts expected claims to remain at 315,000. Some analysts are applauding this rise and are not concerned with the part-time workers that are contributing to this figure. US Continuing Claims rose from 2574K to 2584K this morning prolonging the weak economic recovery outlined below.
Plus, Wholesale Inventories and Wholesale Trade Sale were reported to be below analysts expected.
The Dow Jones has set a new record above 17,000.
The NFP came out with a stronger than expected number of 288,000 new jobs for June.
Wage growth remains low, well below the level the Fed would like to see.
The U.S. economic recovery is not on sure footing yet. There are foundation issues, especially in the housing market and with wages. The Fed should take into account these problems before raising rates. The Fed is in the middle of tapering its massive bond buying program, hoping to end it by end of October 2014. They have continued to keep short term rates near zero, amid speculation they will raise them soon. The Fed is correct in keeping them as is. It is still too early to raise rates. While 200K new jobs a month is a good thing, a print of 300K would point to a stronger economic recovery.
There are reasons to be concerned. While there is a feeling of euphoria over the Dow Jones hitting 17,000 and closing above it, do not expect it to stay at this level. There is no real economic growth supporting it.
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.
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, Russia's annexing game playing and of course the World's newest player Iraq. 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.
Charts and other technical tea reading exercises are, for the most part, not worth the effort to discern directions now that the Fed has refilled the sand box with gravel, rocks and old beer cans. That is just my view, but they have completely thrown a monkey wrench into the works and no one knows anything anymore with certainty.
Also, the margin debt has been very high and as of Monday, 2-7-2014, it stood at $466 billion. (Read More at Securities Market Credit) (It has since gone down slightly, but remains higher than in previous years. (See current chart here.)
It is the final 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.
Several additional notes of negativity where investors are worried about issues directly related to factors of the Argentine economy, South African Rand and Japan. And of course, China's defaulting businesses are dropping like flies. Now the Second Chinese Bond Company Defaults, First High Yield Bond Issuer and Another Chinese High Yield Bond Issuer Declares Bankruptcy. Iraq Anxiety Pushes Oil to Three-Month High is just another notch in the bears gun.
The markets are still susceptible to climbing on 'Bernankellen' vapor, use caution!
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The DOW at 10:15 is at 16869 down 117 or -0.39%.
The SP500 is at 1960 down 13 or -0.65%.
SPY is at 195.86 down 1.23 or -0.62%.
The $RUT is at 1158 down 16 or -1.37%.
NASDAQ is at 4378 down 41 or -0.93%.
NASDAQ 100 is at 3864 down 29 or -0.74%.
$VIX 'Fear Index' is at 12.55 up 0.91 or 7.81%. Bearish 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 net negative and the current bias is depressed, but trending higher.
WTI oil is trading between 102.28 (resistance) and 101.54 (support) today. The session bias is up, but trending down and is currently trading down at 102.03.
Brent Crude is trading between 108.36 (resistance) and 107.77 (support) today. The session bias is sideways and volatile and is currently trading up at 108.16.
Maybe I'm Wrong - Justifying $2,000+ Gold by Jeffrey Dow Jones
Gold rose from 1325.42 earlier to 1346.09 and is currently trading down at 1340.20. The current intra-session trend is elevated and trending sideways.
Dr. Copper is at 3.250 rising from 3.233 earlier.
The US dollar is trading between 80.24 and 80.01 and is currently trading up at 80.22, the bias is currently positive.
Real Time Market Numbers
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Written by Gary