Market Commentary: Markets Open Down Fractionally, Ms Yellen's Remarks Create Volatility

August 22nd, 2014
in Gary's blogging, market open

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Opening Market Commentary For 08-22-2014

Premarkets were down -0.08% which is not surprising after yesterday's session of setting a new high water mark on such low volume. Markets opened down -0.08% and continued to melt further south to -0.20% on low volume by the 15 minute mark.

By 10 am the averages were up briefly, flat and sea-sawing in a very volatile sea of market wash as Ms. Janet Yellen speaks at Jackson Hole. I suspect the markets will continue the march upwards next week - 'party on' say the bulls.


Follow up:

In her remarks this morning, Ms. Yellen emphasizes caution as Fed considers raising rates. "We are getting closer to Fed objectives", she says.

Yellen sticks to game plan at Jackson Hole

  • Debate at the Fed is "naturally shifting" to when the central bank should begin to hike interest rates, says Janet Yellen in her speech at Jackson Hole, as the economy is getting closer to full employment and stable inflation.

  • Nineteen labor market indicators tracked by the Fed suggest the decline in the headline unemployment rate overstates improvement in the labor market, she says. On the other hand, rate hikes could come sooner than expected should progress in employment pick up and/or inflation moves up at a speedier pace.

  • "The Committee will be closely monitoring incoming information on the labor market and inflation in determining the appropriate stance of monetary policy."

Yellen says shifts in job market since Great Recession make Fed rate decisions more difficult

WASHINGTON (AP) - Federal Reserve Chair Janet Yellen says the Great Recession complicated the Fed's ability to assess the U.S. job market and made it harder to determine when to adjust interest rates.

Yellen's remarks to an annual Fed conference in Jackson Hole, Wyoming, offer no signal that she's altered her view that the economy still needs Fed support from ultra-low interest rates.

The timing of a Fed rate increase remains unclear. She notes that while the unemployment rate has steadily declined, other gauges of the job market are harder to assess and may reflect continued weakness.

These include high levels of people who have been unemployed for more than six months, many people working part time who would like full-time jobs and weak pay growth.

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 above zero at +7.22. I would advise caution in taking any position during this uncertain period although some technical indicators have starting to turn bearish.

Investing.com members' sentiments are 46 % 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.

Investors Intelligence sets the breath at 59.5 % bullish with the status at Bear Confirmed. (Chart Here )

StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 63.90. (Chart Here) Very close to support, but rising.

StockChart.com S&P 500 Bullish Percent Index ($BPSPX) is at 74.00. (Chart Here) Remains below support, now resistance.

StockChart.com Overbought / Oversold Index ($NYMO) is at 51.28. (Chart Here) (Need to type in $NYMO) It is now around the area where it turns and starts 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 reverse after reaching +40 oversold. Wednesday, 8-20-2014, $NYMO climbed to 58.24 is signaling a market reversal in our near future.

StockChart.com Consumer Discretionary ETF (XLY) is at 68.45. (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. Wednesday 8-20-2014, XLY edged up to 68.68 and that is another notch in the gun signaling that we might have another reversal very soon - at least to cover the gap below. Protect thyself!

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.

Why You Should Not Be Comfortable With The Level Of The Stock Markets

Summary

  • 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.

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.

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".

Also, the Margin Debt Peaks May Indicate End Of Cyclical Bull Market. (See monthly margin debt at Securities Market Credit) (It has since gone down slightly from March, 2014 at 466 billion, but remains higher than previous years. (See current chart here.)

NYSE Margin Debt Explodes To Near-Record High In June: Risk Rank At No. 1

Summary

  • New York Stock Exchange margin debt rocketed to about $464.31 billion in June from about $438.55 billion in May, the exchange reported Monday.

  • NYSE margin debt at its latest level thus is just -$1.41 billion, or -0.30 percent, lower than its all-time high of around $465.72 billion in February.

  • The European Central Bank's move to tax reserves held by financial institutions at the ECB may have contributed to the explosion in market debt.

The DOW at 10:15 is at 17042 up 3 or 0.02%.

The SP500 is at 1991 down 1 or -0.05%.

SPY is at 199.45 down 0.09 or -0.05%.

The $RUT is at 1159 down 1 or -0.12%.

NASDAQ is at 4536 up 4 or 0.08%.

NASDAQ 100 is at 4052 up 5 or 0.11%.

$VIX 'Fear Index' is at 11.84 up 0.08 or 0.68%. Neutral 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 flat, but VERY volatile.

How Oil Really Gets Priced

WTI oil is trading between 94.04 (resistance) and 93.15 (support) today. The session bias is negative and is currently trading down at 93.31. (Chart Here) There is a very large gap at 97.06 and these types of gaps are usually filled sooner rather than later. It would not surprise me to see the oils move back up in the very near future. (Chart Here) (Look at the 60 minute time scale.)

Brent Crude is trading between 102.71 (resistance) and 102.22 (support) today. The session bias is neutral, volatile, trending down and is currently trading down at 102.22. (Chart Here)

Why Gold Will Rise When The Dollar Falls

Gold fell from 1283.70 earlier to 1276.10 and is currently trading down at 1277.20. The current intra-session trend is negative and volatile. (Chart Here)

Chinese Manufacturing Data to Set Tone for Copper Prices

Dr. Copper is at 3.205 rising from 3.170 earlier. (Chart Here)

The US dollar is trading between 82.37 and 82.12 and is currently trading up at 82.37, the bias is currently positive 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.

Real Time Market Numbers

Leading Stock Quotes powered by Investing.com

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

gary@econintersect.com

Written by Gary

 









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