Written by Gary
Opening Market Commentary For 10-27-2014
Premarkets started out being down -0.15% and fell to -0.40% prior to the opening, suggesting a consolidation session from the oversold conditions.
The large cap averages opened down -0.4% while the small caps fared better at -0.02%. Volume was moderate as 10 am rolled around and the markets were trending down, but ultimate session direction has not been confirmed.
We are expecting a pullback of sorts this week that would potentially signal the 'bottom' confirming last Wednesday's 8+% fall and allow the BTFDers to really rally the markets. We also believe that a robust Santa Claus rally will be the highlight of 2014 and time to start looking at shorts.
Going into 2015 is going to be a different story as current weakness has shown. The German Ifo Institute's business-climate index has dropped for the sixth month in a row, slipping to a two-year low of 103.2 in October from 104.7 in September and missing consensus of 104.3. This leading indicator basically shows where the EU is headed and the Bricks are in no better shape. We can expect this 'bad news' to eventually affect the US.
Our medium term indicators are leaning towards sell portfolio of non-performers at the opening and the short-term market direction meter is VERY bearish. We remain mostly, at best, negative and conservatively bullish, neutral in other words. The important DMA's, volume and a host of other studies have now turned and may be enough for some to start shorting. Right now now I am getting very concerned any downtrend could get more aggressive in the short-term and volatility may also promote sudden reversals. The SP500 MACD has turned up, but remains below zero at -7.89. I would advise caution in taking any position during this uncertain period and I hope you have returned your 'dogs' to the pound.
Having some cash on hand now is not a bad strategy as market changes are happening everyday. As of now, I do not see any leading indicators that are warning of a 'long-term' reversal in the near-term. There may be one later in 2015, but any market fluctuations we see now are more of a internal market rectification than a bear market.
Investing.com members' sentiments are 44 % Bearish (falling from 70% and now rising from 33%) and it seems to be a good sign for being bearish. The 'Sheeples' always seem to get it wrong.
StockChart.com Overbought / Oversold Index ($NYMO) is at 67.96. (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. (Now were are high enough to descend again - watch out!)
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.
Looking ahead, it will be important to watch for telltale signs of when the current bull market is losing momentum and ready to enter another bear market. One way to do this is by watching how high the percentage of stocks above their 200-day moving average rises before the next sell off. . . we can see that dips near 30% in bull markets quickly reverse and rise well above the 50% mark while in bear markets the 50% level is rarely breached. The last time we dipped below 30% was in 2011 and by early 2012 the number had jumped north of 20% as the bull market carried on.
In the last bear market the percentage above their 200-day moving average fell below 30% for the first time in January of 2008. The markets experienced an oversold spring rally before peaking in May with the percent above their 200-day moving average only making a feeble bounce to 41%. Throughout the 2007-2009 bear market, stocks never saw the percentage of NYSE members above their 200-day moving breach the 50% mark until the March 2009 bear market bottom was in. An important watch-point going forward to gauge whether we just experienced a bull market correction or the kick off to a bear market will be to see if the percent of NYSE members trading above their 200-day moving can breach the 50% threshold.
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) is at 48.02 %. (Chart Here) The downside decent has reversed, but will it continue to rise above 50%? The next support is ~37.00, ~25.00 and ~15.00 below that. December, 2011 was the last time we saw numbers in the 20's.
StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 44.12. (Chart Here) Below support zone but rising. Next stop was ~57, then ~44, below that is where we will most likely see the markets crash. We are seriously below 44 and need a reversal pronto as it looks like there is nothing to stop the fall until 25 and taking the markets with it.
StockChart.com 10 Year Treasury Note Yield Index ($TNX) is at 22.62. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009.
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 65.00 / 62.75 (and staying there) should be of a great concern to bullish investors.
StockChart.com NYSE Composite (Liquidity) Index ($NYA) is at 10,519. (Chart Here) We are above the resistance (10,301) but is this a test of the next resistance at ~10600, stay tuned. Next stop down is 9750, then 9250, and 8500.
In this article it would be prudent to be aware that, in the words of the late JP Morgan, he predicted, when asked for a stock market forecast, that "share prices would fluctuate". But are they going to fluctuate downward with more 'gusto' than usual?
Importantly, the deterioration in the internal dynamics of the market also suggest that the current rebound is not the resumption of the current bull market cycle, but rather a bounce that will likely be used to liquidate holdings. This will likely lead to a retest of lows, or even perhaps the setting of a new low, before a bullish trend can be re-established.
While I am not stating that the 'polar icecaps' are melting and that we are about to experience 'tidal destruction'; I am suggesting that the potential for further declines in the market are a significant possibility. Therefore, reducing portfolio risk in the short-term will provide capital to reinvest at a more favorable point in the future. If the market surges back to new highs, and re-establishes the previous "bull trend," then the capital raised can be reinvested with greater confidence of a continued advance.
There is little risk in practicing some form of portfolio 'risk management.' The real risk is doing nothing and then spending the next advance in the market making up previous losses. That has been a successful investment strategy 'nowhere, never.'
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 longer 6 month outlook is now 30-70 sell (probably should be 20-80 sell) and will remain bearish until we can see what the effects are in the Fed's game plan. Sooner or later brighter skies will return over the market. Until then, investors should employ the first thing one learns while in a foxhole; keep their head down.
The DOW at 10:00 is at 16740 down 65 or -0.39%.
The SP500 is at 1953 down 12 or -0.60%.
SPY is at 195.21 down 1 or -0.62%.
The $RUT is at 1105 down 14 or -1.24%.
NASDAQ is at 4453 down 31 or -0.70%.
NASDAQ 100 is at 4021 down 21 or -0.52%.
$VIX 'Fear Index' is at 17.72 up 1.61 or 9.99%. Bearish Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is net negative, the past 5 sessions have been positive and the current bias is trending down.
Saudi Arabia has reportedly been telling oil-market investors and analysts that it is ready to accept oil prices below $90 per barrel, and even as low as $80, for up to a year or two. If true, it would represent a major change in policy for Riyadh, which may be looking to slow the expansion of rivals such as the U.S.
"We believe that OPEC will no longer act as the first-mover swing producer and that U.S. shale oil output will be called upon to fill this role," says Goldman, cutting its 2015 Q1 oil price forecasts by $15 per barrel - WTI to $75, Brent to $85. "Our forecast also reflects the realization of a loss of pricing power by core-OPEC."
The Goldman team believes OPEC's largest members - rather than responding to price declines by cutting production - are attempting to defend market share by reducing prices.
WTI oil is trading between 81.26 (resistance) and 79.46 (support) today. The session bias is negative and is currently trading down at 79.51. (Chart Here)
According to Rob Kurzatkowski, Senior Commodity Analyst at OptionsExpress.com, ". . . we see the December Crude Oil contract holding above the $80 level. To this point, the contract has held up at this technical support level. More stout support can be found around the $75 mark, should Oil fail to hold $80. The result of recent price weakness has been oversold technical levels. The 14-day RSI is in the mid-teens, which could be supportive of prices in the near term. In order to gain some traction, Crude Oil prices may need to post several closes north of the $85 mark."
Monday, October 20, 2014 For those traders who really take a long view of market trends, looking at the monthly continuation chart for Gold futures, we notice that the bull market that began back in 2001 when Gold prices were... Read More...
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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 1231.72 earlier to 1228.07 and is currently trading up at 1229.00. The current intra-session trend is neutral and very volatile. (Chart Here)
Dr. Copper is at 3.057 rising from 3.026 earlier. (Chart Here)
The US dollar is trading between 85.78 and 85.53 and is currently trading up at 85.72, the bias is currently positive. (Chart Here) Resistance made in Aug., 2013 (~85.00) has been broken and now is support.
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