Written by Gary
Opening Market Commentary For 12-22-2014
Premarkets were up +0.3% while the oils were taking a nose dive. Volume was low to moderate at the opening and the averages started to sea-saw trending down.
By 10 am the averages had dipped below the unchanged line twice while the DOW is running above Friday's session highs. The prevailing wisdom is that the markets are going to take breather and may trend further down.
Our medium term indicators are leaning towards sell portfolio of non-performers at the opening and the session market direction meter is very bearish. We remain mostly conservatively bullish, neutral in other words. Right now now I am getting very concerned any downtrend could get very aggressive in the short-term and any volatility may also promote sudden reversals. The SP500 MACD has turned up, but remains above zero at +4.42. 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 warnings 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 65 % Bearish.
StockChart.com Overbought / Oversold Index ($NYMO) is at +16.67. (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.
This $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) is at 51.51 %. (Chart Here) 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.
Many indicators are showing markets leveling off or rounding indicating market softness that could lead to lower values and investor's should watch carefully. The SP500 MACD, $BPNYA, $BPSPX, $TNX and the $NYA all show rounding off the tops which in the past has lead to a downturn.
Also, the SP500 10 DMA has crossed over the 20 DMA (12-11-14) always indicating a 'correction' underway. The 50,100, 145 and 200 DMA are all going flat which is never a good omen for a continuing bull run. Watch for the 50 DMA to cross over the 100,145 and 200 DMA to indicate how deep the correction will be.
These are not 'leading' indicators as such, but depicting 'trends' in the making showing data accumulated over the past several months, but needs to be watched.
StockChart.com 10 Year Treasury Note Yield Index ($TNX) is at 21.76. (Chart Here) Flattening Yield Curve Signaling Slowing Economic Growth?
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 10,981. (Chart Here) Markets move inverse to institutional selling. We are above the resistance (10,301) but is this a test of the next resistance (triple top) at ~11,109, watch to see if these numbers decline back down. Next stop down is 10600, 9750, then 9250, and 8500.
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".
[I] find it difficult to see good upside risk/reward from this point. When I saw lack of strength turn into outright weakness in mid-September, my bullish chips came off the table.
Now I find myself in a similar mode. Could ECB or the Fed come to the market's rescue and inject fresh catalytic strength into stocks? Absolutely. Could investors pour money into stocks and chase late December seasonal strength? Of course. I am confident those developments will show up quickly in my buying/selling strength measures and I will report them duly.
Right here, right now, however, I see global signs of disinflation and economic weakness; a Fed that has been talking about exiting QE; low equity put/call ratios; and persistent relative weakness in high yield bonds (HYG).
It will take a fresh catalyst--and fresh evidence of buying interest--to get my chips back on the bull's table.
There are some pundits that have recently claimed the markets have reached their bottom; I think not!
A storm is brewing over the high yield bonds in particular and capital markets in general.
The primary culprit has been the precipitous decline in oil prices.
Exactly how great is the direct exposure?
What are the specific companies that are worth monitoring?
What are the implications, if any, for the stock market?
For now, the problems facing the energy sector remain isolated. But this has the potential to quickly change. For if measurable default risk continues to rise and spread, it has the potential to spillover and place meaningful downward pressure on the broader high yield market.
And recent history has shown that a sustained breakdown in high yield corporate bonds is often either accompanied or soon followed by the U.S. stock market to the downside.
And unlike other past instances of capital market stress, the U.S. Federal Reserve may find itself much harder pressed to intervene with yet even more liquidity support, for it becomes politically more complex to rush to rescue an industry in oil whose recent decline is providing what so many analysts claim is a major income boost for American consumers in the form of lower gasoline prices at the pump.
As a result, the mounting weakness in the oil sector, particularly as it relates to credit markets, warrants close attention for negative spillover effects in the days and weeks ahead. And monitoring those credits and stocks that are on the front line of the fight is a good place to start.
The longer 6 month outlook is now 40-60 sell and will remain bearish until we can see what the effects are from the oil slide, ECB and the U.S. Fed possibly triggering a deflationary slide. Investors should employ the first thing one learns while in a foxhole; keep their head down.
The DOW at 10:30 is at 17907 up 102 or 0.58%. (Historical High 17,991.19)
The SP500 is at 2074 up 3 or 0.15%. (Historical High 2,079.47)
SPY is at 206.93 up 0.38 or 0.19%.
The $RUT is at 1199 up 3 or 0.24%.
NASDAQ is at 4777 up 12 or 0.25%. (Historical High 5132.52)
NASDAQ 100 is at 4290 up 8 or 0.18%.
$VIX 'Fear Index' is at 15.95 down 0.54 or -3.27%. 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, but sideways.
WTI oil is trading between 58.51 (resistance) and 55.77 (support) today. The session bias is negative and is currently trading down at 55.92. (Chart Here)
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 1203.41 earlier to 1194.18 and is currently trading down at 1195.60. The current intra-session trend is negative. (Chart Here)
Dr. Copper is at 2.882 falling from 2.904 earlier. (Chart Here)
The US dollar is trading between 89.79 (highest since 2009 and 89.85 is a very substantial resistance) and 89.57 and is currently trading down at 89.76, the bias is currently trending up. (Chart Here) Resistance made in Aug., 2013 (~85.00) has been broken and now is support. This support has gotten much stronger since August, 2014 and isn't likely to fall easily. The next resistance is at ~88.85 set in June, 2010.
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