Written by Gary
Opening Market Commentary For 08-13-2014
Premarkets were up +0.50% and fell to +0.35% when the U.S. Retail Sales printed out at 8:30 am to the be weakest in six months. The SP500 jumped up to +0.30% at the opening, the small caps opened at + 0.45% and the $VIX dove to 13.53 from 14.15.
By 10 am the averages were still in the green, but trending down as investors remain in a 'lurch' wondering where this casino market will end up.
The US Retail Sales miss for third time in a row, worst in six months; not an encouraging sign, yet the market opens up.
WASHINGTON (AP) - U.S. retail sales were essentially flat in July, providing evidence that consumers have yet to shed their doubts about the economy despite recent job gains.
The Commerce Department said Wednesday that seasonally adjusted retail sales were unchanged in July compared with the prior month. Total sales rose a statistically insignificant $161 million from $439.6 billion in June. Spending dipped at auto dealers and department stores last month.
The losses were offset by gains at grocery stores, gasoline stations, restaurants, clothiers and building material stores. The figures suggest that Americans are hesitant to spend, which could limit growth for the economy. Retail sales are closely watched because consumer spending accounts for 70 percent of economic activity.
Retail sales have flat-lined even though employers have added more than 200,000 jobs a month for the past six months. Payrolls increased by 209,000 in July and 298,000 in June.
The medium term indicators are leaning towards the hold side at the opening. The all important signs of reversal, up or down, have not been observed so we are mostly, at best, neutral and conservatively holding. The important DMA's, volume and a host of other studies have not turned and that is not enough for me to start shorting. The SP500 MACD has turned flat, but remains below zero at -8.45. I would advise caution in taking any position during this uncertain period although some technical indicators are starting to turn bearish.
Investing.com members' sentiments are 44 % bearish and when it switches over to bullish, as it did on Tuesday 8-5, watch for the market bottom to fall out some are saying as the markets usually go against 'Sheeple' buying high and selling low.
StockChart.com Overbought / Oversold Index ($NYMO) is at -3.63. (Chart Here) (Need to type in $NYMO) Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50. Being close to the zero mark is good but not out of the woods just yet.
Chris Ciovacco says, "As long as the consumer discretionary ETF (NYSEARCA:XLY) holds above 67.06, all things being equal, it is a good sign for stocks and the U.S. economy." (Actually the support looks to be in the 66.88 range) We have entered an area that concerns me should the XLY drops any further. This chart clearly shows that dropping below 65.50 should be of a great concern to bullish investors.
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 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.
Sometime in the future, there will be another three percent drop, only it will go to four, recover somewhat and the BTFDers will cry halleluiah and buy again. Only this time it doesn't recover fully like in the past and drops again, increasing the net drop to seven percent and so on.
Investors are currently unhappy, unenthusiastic, skittish and ready to jump ship every time it nudges against a small financial iceberg. They remain long for now unable to afford to sell and live off cash savings that have negative real rates thanks to the Feds. They feel in their guts, correctly, that a real 'correction' is coming and can't do anything about it until it is too late. Greed rules the day and investors should be very cautious.
One thing to keep in mind is that stocks may not be setting up for a fearsome bear market. History shows that there are two types of corrections -- sharp, brutal downturns that clear the air fairly quickly and prolonged periods of backing-and-filling that gradually remedy built-up imbalances. Time will tell which one lies ahead.
Eric Parnell, in his timely article below points out the obvious and we may very well see the starting of it right now.
A primary worry among many stock investors today is that the long running bull market may soon come to an end.
At the heart of their concern is the worry that the subsequent decline into the next bear market could quickly become swift and severe.
History has shown that the transition from a bull market to a bear market is a process filled with rallies and correction that plays out over an extended period of time.
Bull markets die long slow deaths, and it is this prolonged dying process that causes so many investors to find themselves unwittingly trapped in the next bear market.
A primary worry among many stock investors today is that the long running bull market may soon come to an end. At the heart of their concern is exactly what lies beyond the bull market peak, as many worry that the subsequent decline into the next bear market could quickly become swift and severe.
But history has shown that the transition from a bull market to a bear market is often a gradual and drawn out process filled with rallies and correction that plays out over an extended period of time. In short, bull markets die long slow deaths, and it is this prolonged dying process that causes so many investors to find themselves unwittingly trapped in the next bear market long before they even realize it.
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 and Israel. 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.
As long-time readers know, says David Moenning, "I believe it is VITAL to have systems and/or models to guide one in their investing journey. As the late Marty Zweig used to say, 'Those who rely on a crystal ball will wind up with an awful lot of crushed glass in their portfolio'." This basically states our views on the market too, although it is best to be ready for the unexpected if you are bullish.
And I saw this quote from James O'Shaughnessy's book, "What Works on Wall Street" (hat tip to my colleague Jeff Pietsch for bringing this to my attention):
"Models beat the human forecasters because they reliably and consistently apply the same criteria time after time. In almost every instance, it is the total reliability of application of the model that accounts for its superior performance. Models never vary.
They are always consistent. They are never moody, never fight with their spouse, are never hung over from a night on the town, and never get bored. They don't favor vivid, interesting stories over reams of statistical data. They never take anything personally.
They don't have egos. They're not out to prove anything. If they were people, they'd be the death of any party."
We utilize a model-of-models system combined with a "weight of the evidence" approach in trying to determine the "mode" of the market.
Currently, our models are saying that the current environment is neutral. And in short, this tell us to take less risk at this time.
There is Plenty To Worry About
To be sure, there is no shortage of things to worry about in this market. Front and center are the geopolitical "issues" occurring in Ukraine/Russia and Gaza. Last week's action made it very clear that traders have their algos trained on the news flow out of Russia and Ukraine as Friday's big bounce was attributed to word that the Russians were backing troops away from the Ukraine border.
The DOW at 10:00 is at 16594 up 37 or 0.22%.
The SP500 is at 1940 up 6 or 0.32%.
SPY is at 194.19 up 0.65 or 0.33%.
The $RUT is at 1137 up 4 or 0.33%.
NASDAQ is at 4410 up 21 or 0.48%.
NASDAQ 100 is at 3928 up 22 or 0.57%.
$VIX 'Fear Index' is at 13.73 down 0.39 or -2.76%. Bullish Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is net gain, the past 5 sessions have been positive and the current bias is elevated, but melting downwards.
WTI oil is trading between 97.63 (resistance) and 97.05 (support) today. The session bias is neutral and is currently trading up at 97.35. (Chart Here)
Brent Crude is trading between 104.37 (resistance) and 103.26 (support) today. The session bias is positive and is currently trading up at 104.19. (Chart Here)
Gold rose from 1306.09 earlier to 1315.51 and is currently trading down at 1313.80. The current intra-session trend is elevated and sideways. (Chart Here)
Dr. Copper is at 3.123 falling from 3.139 earlier. (Chart Here)
The US dollar is trading between 81.71 and 81.40 and is currently trading down at 81.52, the bias is currently negative and volatile. (Chart Here)
The markets are still susceptible to climbing on 'Bernankellen' vapor, use caution!
"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation inequities, they should try to be fearful when others are greedy and greedy only when others are fearful." - Warren Buffett
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Written by Gary