Market Commentary: Markets Open Higher, Sea-Sawing Expected On Low Volume

August 15th, 2014
in Gary's blogging, market open

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Opening Market Commentary For 08-15-2014

Premarkets were up a hefty +0.35% this morning indicating the markets will open in the positive zone. The SP500 gaped up at the opening +0.35% and the DOW cautiously opened up +0.05% and then moving up to +0.25% in the first 10 minutes.

By 10 am the averages were set to put in another positive performance but mimicking the familiar sea-sawing and low volume we have seen in resent sessions. I do not see any reason to throw away the party hats just yet, but would err to the side of caution.


Follow up:

I have been saying the markets will most likely climb back up near or surpass the old highs. The levels on the SP500 to watch for are gaps the SP500 made when it started to fall. The first one in which we will most likely see closed soon is at 1970 and the last one is at 1988 just below the historical high. It is at that point I become extremely cautious and concerned about further advances.

Several indicators show that the SP500 level of 1970 is as high as it is going to go (16882 on the DOW and 197 on SPY), but that comes from charts that the Fed has screwed up by tossing in beer cans and soiled baby diapers into the mix.

The Nasdaq is very close to making a double top and that has me worried with all this talk of bear markets. The $RUT is still down 66 points from its high and is looking like it will be pushing up daisies soon.

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 up, but remains below zero at -4.24. 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 50 % bearish.

Investors Intelligence sets the breath at 58.3 % bullish with the status at Bear Confirmed. (Chart Here )

StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 62.45. (Chart Here) Very close to support.

StockChart.com S&P 500 Bullish Percent Index ($BPSPX) is at 71.20. (Chart Here) Remains below support, now resistance.

The Market Is Overpriced But The Correction Will Likely Be Shallow (and it was)

StockChart.com Overbought / Oversold Index ($NYMO) is at +35.77. (Chart Here) (Need to type in $NYMO) It is now around the area where it turns and start to descend, but any thing below 30 / 40 is a concern. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and the reverse is true at +40.

StockChart.com Consumer Discretionary ETF (XLY) is at 67.25. (Chart Here)

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.

Do You Trust The Fed?

By Bret Jensen

My own opinion is that the Federal Reserve should have taken off the "training wheels" some time ago. The economy would have taken a short-term hit, but I think we would be much further along in our recovery by taking our lumps earlier in the cycle before the Federal Reserve expanded their balance sheet to such a massive level.

So, going forward; Do you trust the Fed? There are myriad reasons I do not and I believe rough times are ahead in the market.

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. 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.

The Slow And Perilous Death Of Bull Markets

Summary

  • 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.

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.

The "Environment" is Neutral

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 10:15 is at 16762 up 48 or 0.29%.

The SP500 is at 1963 up 8 or 0.39%.

SPY is at 196.49 up 0.71 or 0.36%.

The $RUT is at 1151 up 7 or 0.62%.

NASDAQ is at 4478 up 25 or 0.55%.

NASDAQ 100 is at 3991 up 22 or 0.55%.

$VIX 'Fear Index' is at 12.16 down 0.26 or -2.25%. Bullish Movement

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

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

How Oil Really Gets Priced

WTI oil is trading between 95.22 (resistance) and 95.32 (support) today. The session bias is positive and is currently trading down at 96.07. (Chart Here)

Brent Crude is trading between 102.76 (resistance) and 102.06 (support) today. The session bias is sideways and is currently trading down at 102.36. (Chart Here)

Why Gold Will Rise When The Dollar Falls

Gold fell from 1316.45 earlier to 1293.91 and is currently trading down at 1295.80. The current intra-session trend is negative. (Chart Here)

Dr. Copper is at 3.094 falling from 3.104 earlier. (Chart Here)

The US dollar is trading between 81.67 and 81.47 and is currently trading down at 81.50, 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

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.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

Written by Gary

 









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