Written by Gary
Opening Market Commentary For 09-26-2014
Premarkets were flat, but in the green and remained there until the opening. The U.S. economy grew at an annualized pace of 4.6 percent in the second quarter and was somewhat positive for the equities. At 9:55 am the US U of Michigan Confidence came in at 84.6 the same as before.
By 10 am the averages were climbing steadily after sea-sawing the first half hour. In light of yesterday's sell-off, I suspected we would see a somewhat positive session before falling again next week. The caution flags are out for those thinking of going long or BTFD today.
Next week should be a better time to consider BTFD and we should be able to judge if the market is going to 'dip' further.
The medium term indicators are leaning towards the hold side at the opening and the short-term market direction meter is fractionally bullish. We remain mostly, at best, neutral and conservatively holding. The important DMA's, volume and a host of other studies have not turned significantly and that is not enough for me to start shorting, but now I am getting very concerned. The SP500 MACD has turned down, but remains above zero at +0.90. 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 67 % Bearish and it seems to be a good sign for being bullish. The 'Sheeples' always seem to get it wrong.
StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 60.02. (Chart Here) Below support zone and apparently going further down. Next stop ~57 and then ~44, below that is where we see the markets crash.
StockChart.com 10 Year Treasury Note Yield Index ($TNX) is at 25.22. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009.
StockChart.com Overbought / Oversold Index ($NYMO) is at -77.86. (Chart Here) But anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold.
Chris Ciovacco says, "As long as the consumer discretionary ETF (NYSEARCA:XLY) holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy." This chart clearly shows that dropping below 65.50 should be of a great concern to bullish investors.
This chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.
Today it represents the lowest levels seen since the beginning of the October, 2011 rally. Eric Parnell says, ' If nothing else, given that relatively fewer stocks are trading above their 200-day moving average at a time when the market is just off of its all-time highs suggests that an increasingly narrowing group of stocks is driving the rally at this stage, which does not bode well for the future sustainability of the uptrend."
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.
The recent market decline is accelerating through midday trading Thursday. This is something I have been cautioning investors against throughout September.
There are myriad warning signs that are foreshadowing further declines that should be watch items for equity investors as I believe they will drive market direction over the coming months.
What I am watching in the market right now and how I am positioning my own portfolio during this recent uptick in volatility is detailed below.
I hate to say "I told you so" but it looks like my frequent calls for caution in September are turning out to be warranted. The 2,000 level on the S&P 500 has proven to be a significantly stubborn resistance level, something I also predicted.
I am not taking a victory lap as it is hard to make money in a falling market, I am just re-emphasizing investors should not be ignoring myriad warning signs in the market right now.
All in all, the fundamentals and sentiment of the market are currently negative. That is not to say that fund managers who are significantly behind their benchmarks will not come in and buy any dip in an effort to pull even by year end.
However, mainstream investors should keep some powder dry as it appears there is a high likelihood that lower entry points could be ahead.
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.
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.
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".
Watch the Fund manages to keep an eye on the volume at AmeriTrade as the best indicator to what Maw and Pop 'Sheeples' retail trading are. Some analysts believe the Federal Reserve may raise interest rates more quickly than they have currently indicated but nothing from Janet Yellen has indicated this.
These managers are are closely monitoring any signals that Ms. Yellen is going to backtrack on exiting QE and these guys will exit the markets long before the 'Sheeples' if she doesn't. Watch the the fund managers!
The longer 6 month outlook is now 35-65 sell (probably should be 40-60 sell) and will remain bearish until we can see what the effects are in the Fed's game plan, Russia's annexing game playing and of course the World's newest player Iraq, ISIS 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.
The DOW at 10:15 is at 17017 up 72 or 0.42%.
The SP500 is at 1972 up 6 or 0.30%.
SPY is at 196.91 up 0.55 or 0.28%.
The $RUT is at 1114 up 3 or 0.29%.
NASDAQ is at 4481 up 14 or 0.32%.
NASDAQ 100 is at 4021 up 14 or 0.34%.
$VIX 'Fear Index' is at 15.48 down 0.16 or -1.02%. Bearish to Neutral Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is even, the past 5 sessions have been negative and the current bias is positive.
WTI oil is trading between 93.29 (resistance) and 92.23 (support) today. The session bias is neutral, trending up and is currently trading up at 92.98. (Chart Here)
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The general consensus is that gold prices will actually fall in the next twelve months (Sept to Aug. 2015). Goldman Sachs estimates that gold will fall to $1,050 an ounce, a drop of nearly 19%.
Gold fell from 1231.66 earlier to 1212.98 and is currently trading down at 1213.90. The current intra-session trend is negative. (Chart Here)
Dr. Copper is at 3.034 falling from 3.052 earlier. (Chart Here)
The US dollar is trading between 85.70 and 85.23 and is currently trading down at 85.68, the bias is currently positive. (Chart Here) Resistance made in Aug., 2013 has been broken.
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