Market Commentary: Markets Open Fractionally Higher, SP500 Remains Below 50 DMA

October 6th, 2014
in Gary's blogging, market open

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Opening Market Commentary For 10-06-2014

Premarkets started out this morning at +0.2% and moved up to +0.4% by the opening on the lack of US financial news this morning. The SP500 opened in the green just below its 50 DMA and the DOW opened similarly and remaining below its downward trend line.

By 10 am the markets were remaining about where they opened, but directionless. Investors are sobering up and may not like what they see.

Follow up:

The general opinion among analysts is that the markets are going to move higher, at least in the near term, but skittish investors are watching closely what Mr. Market does today. Trend-lines, DMA's and other negative aberrations have the investor community very nervous about that log awaited 10% decline that just doesn't seem to happen.

Wall Street's beer goggles are clearing up. Now what?

For the past five years, investors have gotten drunk off the Federal Reserve's easy-money punch bowl. The Fed's stimulus program, known as quantitative easing or "QE," left investors with beer goggles on.

Now that Janet Yellen is getting ready to remove the punch bowl, investors are being forced to take a more critical look at their portfolios.

"Everything looks good under the drug of QE, but once QE goes away those goggles start to clear up. Those warts and blemishes start to matter. Risk appetites change," explains Peter Boockvar, the Lindsey Group market analyst who came up with the beer goggles analogy back in January.

The medium term indicators are leaning towards the hold side at the opening and the short-term market direction meter is 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 flat, but remains below zero at -5.57. I would advise caution in taking any position during this uncertain period although some technical indicators have starting to turn bearish. members' sentiments are 59 % Bearish and it seems to be a good sign for being bullish. The 'Sheeples' always seem to get it wrong.

Investors Intelligence sets the breath at 49.5 % bullish with the status at Bear Confirmed. (Chart Here ) NYSE Bullish Percent Index ($BPNYA) is at 53.17. (Chart Here) Below support zone and apparently going further down. Next stop was ~57 and now it is ~44, below that is where we will most likely see the markets crash. S&P 500 Bullish Percent Index ($BPSPX) is at 65.00. (Chart Here) In support zone and falling - doesn't look good. ~62, ~57, ~45 at which the markets are in a full-blown correction. 10 Year Treasury Note Yield Index ($TNX) is at 24.47. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009. Overbought / Oversold Index ($NYMO) is at -27.12. (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. Consumer Discretionary ETF (XLY) is at 67.10. (Chart Here)

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 $NYA200R 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." It also strongly suggests there has been a 'stealth bear market' underway in recent months. NYSE % of stocks above 200 DMA Index ($NYA200R) is at 45.31 %. (Chart Here) Unless this downward trend reverses itself soon, we are going to see further downside.

Yes Virginia, The Market Can Go Down Part II

  • As I predicted when it happened, the 2,000 level on the S&P 500 has proven to be a very stubborn resistance level for the market to breach decisively.

  • The recent downturn in the market has accelerated recently due to some of the concerns I highlighted for investors in another column.

  • These worries could remain for a while and the market started the fourth quarter with a thud. What I see ahead and how I am playing the market given these concerns.

My opinion continues to be no reason to go out on the risk scale until the environment improves.

The economy continues to slowly muddle along here. Despite massive largesse from the Federal Reserve that has quintupled its balance sheet since the crisis, some $7 trillion in deficit spending and a failed $800 billion stimulus package in 2009; the economy continues to post just 2% GDP annual growth. This is a level that is less than half the average rate of growth of the nine post war recoveries that preceded it. Inflation adjusted median income still remains 7% below the peak in 2007 and is actually down 4% since the recession officially ended in June 2009.

. . . I am starting to get a bit more positive on retail despite a still challenged consumer. Holiday spending growth is predicted to be up this year compared with 2013 and a strong dollar.

Sooner or later brighter skies will return over the market. Until then, investors should employ the first thing one learns in a foxhole and keep their head down.

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.

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 DOW at 10:00 is at 17086 up 74 or 0.43%.

The SP500 is at 1976 up 9 or 0.43%.

SPY is at 197.42 up 0.85 or 0.43%.

The $RUT is at 1106 up 1 or 0.11%.

NASDAQ is at 4490 up 14 or 0.29%.

NASDAQ 100 is at 4042 up 15 or 0.36%.

How the Popular 'VIX' Gauge Works

$VIX 'Fear Index' is at 14.36 down 0.19 or -0.96%. Neutral Movement

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

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

How Oil Really Gets Priced

WTI oil is trading between 90.40 (resistance) and 89.53 (support) today. The session bias is negative and is currently trading down at 89.57. (Chart Here)

Brent Crude is trading between 93.11 (resistance) and 92.82 (support) today. The session bias is negative and is currently trading down at 92.16. (Chart Here)

Why Gold Will Rise When The Dollar Falls

- and -

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 rose from 1187.75 earlier to 1199.13 and is currently trading up at 1197.00. The current intra-session trend is positive. (Chart Here)

Currency Corruption Weighs on Copper

Dr. Copper is at 3.029 rising from 2.991 earlier. (Chart Here)

The US dollar is trading between 86.77 and 86.40 and is currently trading down at 86.46, the bias is currently negative. (Chart Here) Resistance made in Aug., 2013 ($85.00) 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

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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Written by Gary


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