Markets Continue To Melt Up, But For How Long

Midday Market Commentary For 09-06-2012

Markets continued to climb during the morning session where the SP500 reached 1430. Surly only to fall from this high perch made of cards. I have little faith in this market to sustain its lofty goals and the bulls that support it. Volume is low telling me that this rise is unsustainable. It is a fact that the US economy is maybe slightly better shape than it was in 2008, but that is highly arguable on both sides of the bulls and bears debating teams.

This high in the SP500 marks a triple or double top of sorts depending on how you interpret the tea leaves. The first high made in March 2000 was at 1553 and ended badly shortly after, descending to 872 in November 2002. The volume then was only twice as high than today and that isn’t saying much except that investors were absent then as they are today but in greater numbers.

The next high for the SP500 occurred on October 1, 2007 reaching 1576, but closing at 1549. The SP500 fell, by May 2008, to 666 under heavy volume marking the exit of the majority of the cash crowd.

The next was in April this year the SP500 moved to 1422 and a small decent occurred shortly thereafter moving down to 1266. The April volume was more than twice the 2008 volume which leads me to believe a solid top is forming. The SP500 can in reality, only melt up to 1440/1450 before reaching a resistance that will be just about impossible to penetrate in light of today’s deteriorating financial climate. In my opinion that resistance has already begun and it will be tough sledding from here. When you are at the top of a hill the path of least resistance is down.

Further questioning a continuing rise is that in the past gold and the oils moved in opposite directions of the markets. Today they are all up, something has to give as one or the other group ‘normalizes’. The oils may continue to act independently because of the growing Mid-East tensions, but the precious metals continued climb of late can only depress the averages.

The RRR** was very narrow at the opening bell despite the large move up in the averages. It did improve, but that was after the fact unfortunately. Any trades will probably end up on the unprofitable side as long as this market remains flat. Swing trading is at your own risk and being the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly.

Having made the obligatory cautionary comments, there is a good chance the markets will retract a bit tomorrow, especially if the financial reporting in the morning is ‘not-so-good’. SPY has penetrated the upper Bollinger band and typically moves sideways and down from its highs when that happens.

I am just not sure if the RRR** will be profitable enough to take a chance If you are able to jump on the moving train in time. The ‘insiders’ have a distinct advantage over the cash crowd and the 3X ETF’s have only moved a point.

The DOW at noon is at 13277 up 230 or 1.77%.

The 500 is at 1429 up 26 or 1.85%.

The $RUT is at 837.89 up 16.65 or 2.03%.

SPY is at 143.50 up 2.58 or 1.83%.

The trend is up and the current bias is up.

WTI oil is at 96.87 trading between 95.58 and 97.50 and the bias is neutral.

Brent crude is at 114.82 trading between 113.30 and 115.10 and the bias is positive.

Gold is up today at 1704.68, trading between 1693.15 and 1714.00 with a neutral bias.

Dr. Copper is at 3.52 up from 3.54 earlier.

The US dollar fell from 81.67 yesterday to 81.02 earlier and is currently trading at 81.12.

@zerohedge:

In His Own Words: Draghi’s Debasement In Two Minutes

In case you missed it. Here is Draghi’s two minute diatribe, courtesy of Bloomberg TV, sprinkled liberally with every algo-headline-seeking word required to raise the perception that something actually just happened other than smoke, mirrors, and and conditional help best summarized by the phrase we used earlier to explain the Catch 22 Europe finds itself in now: “Spanish bonds soar on expectations Spanish bonds will plunge to allow Spanish bonds to soar on ECB purchases… but only after Rajoy hands in his resignation and gives the key to Spain to the IMF”

** RRR = Risk Reward Ratio

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Written by Gary