Opening Market Commentary For 05-02-2013
Premarkets were up nicely (+0.55%) and started to to melt down around 8:40 to where SPY was at +0.21%. The US and EUR financial reports this morning were good and ECB’s Draghi didn’t have anything really negative to say except that the ECB doesn’t go around with helicopter money!
Markets opened up with the small caps up 0.45% to 0.55% while the DOW lagged at +0.40%. Volume is low and the ‘dippers’ have jumped in during the opening minutes and moving the averages sideways. Obviously, weakness is the overwhelming force in the background and should be watched carefully.
By 10 am had dried up to ‘anemic’ levels to which the HFT computers will probably melt the markets up as today’s session advances.
Leavitt summed up yesterday’s action nicely.
The market fell hard yesterday. By itself this is no big deal and not a surprise. The S&P had rallied 7 of 8 days and was sitting right at resistance. It’s hard building gains on top of gains, so pulling back or at least pausing was desirable movement compared to trying to breakout. But while the S&P dropped less than 1%, the Russell small caps dropped 2.5% – not good.
The small caps tend to lead the market in both directions. If traders and investors have an appetite for smaller, more speculative growth stocks, it’s a very good sign. If they don’t, it’s a bad sign. The small caps performed well Jan-Mar and then under-performed in April when the market struggled. They then led again during the most recent winning streak.
This is one of my favorite indicators. When money rotates out of small caps and into safer larger caps, a major warning is flashed. Perhaps yesterday was just a 1-day aberration. We’ll see. The market will not breakout and rally hard without participation from the small caps.
The long term trend is solidly up, but two things make me pause in the near term. 1) The indexes are range bound, and until we get a forceful breakout, we have to keep trades shorter term and be skeptical of rally attempts. 2) Charts . . . suggest a top may be forming. I want to see the RSI trendline break negated.
The RRR** has been narrow at the opening bell for the past several months, over a year actually, and it looks like it is going to be this way all week, like last week. This continuing trend makes predictions of session movements nearly impossible making trading futile and unprofitable. As of right now, it is too late to jump in to catch the highs, safely anyway. As for shorting it may be too early to start shorting, but I fell you will not have to wait much longer.
As long as market volume remains light or the trading range is narrow, one can expect successful, or at least profitable, trading to remain elusive. The RRR** has been wider on some volatile sessions lately and is expected to become more so as 2013 enters the second quarter, unfortunately a lot of guessing remains. Correctly ‘guessing’, of course, is the tricky part of the successful trading equation. Any trades today will probably end up on the meager side of profitability if you are lucky as most trades have been less than optimal during the past several years.
I also have continuing issues with some pundits, writing almost every day, that there are setups for day trading. Best Stock Market Indicator Ever: Rises to 87% up From 84% and Secondaries Confirm “Tradable” This might be true, but still above 75% where I think it should be! Hard to believe and challenging to deal with considering current events. The trading range is so narrow that way too much money has to be put on the table just to get back meager gains. Do not fall into the trap of money burning a hole in your pocket, sit tight better days are coming. I keep hoping for increasing volumes to signal improved trading.
Swing trading is also at your own risk for all the reasons mentioned above although guessing overnight trades would have been most profitable over the past year. Again, guessing where the market is going to be tomorrow or next week, at this time anyway, can be a foolish and costly endeavor.
The DOW at 10:15 is at 14772 up 71 or 0.49%.
The SP500 is at 1591 up 9 or 0.56%.
SPY is at 159.19 up 0.90 or 0.57%.
The $RUT is at 931.85 up 8 or 0.85%.
NASDAQ is at 3322 up 23 or 0.71%.
NASDAQ 100 is at 2897 up 22 or 0.78%. (A lot of analysts are currently watching the 100 for a heads and shoulder formation.)
The longer trend is up, the past months trend is bullish, the past 5 sessions have been bullish and the current bias is bullish.
WTI oil is trading between 90.13 and 91.88 today. The session bias is bullish and is currently trading up at 91.54.
Brent crude is trading between 98.78 and 101.05 today. The session bias is bullish and is currently trading up at 100.58.
Gold rose from 1440.88 earlier to 1472.46 and is currently trading down at 1466.95.
Dr. Copper is at 3.111 rising from 3.059 earlier.
The US dollar is trading between 81.47 and 82.23 and is currently trading down at 82.11, the bias is currently bullish.
** RRR = Risk Reward Ratio
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Written by Gary