Written by Gary
Opening Market Commentary For 01-23-2014
Market futures started to fall last nigh on negative China news of its first default. The futures recovered 8 points of it initial 15 point drop only to fall again after Continuing Claims rose this morning along with Congress dropping the Emergency Claims Benefits. Today’s fall appears to be the correction everyone has been waiting for and not Armageddon some have been preaching.
SP500 left a notable gap down on opening (bullish) and paused after dropping over ¾ of a point. Can we expect a further drop, yes, but this isn’t the start of a cyclical or secular bear market as there is way too much pressure to challenge the previous highs.
By 10 am the markets had paused somewhat with a definite trend to melt further down. The $VIX rose from 12.84 to 13.93 in just a minute as some shocked investors were caught off-guard with today’s opening. Just hold on as the averages will recover and you can get out if you have cold feet.
Last night I Tweeted that the SP500 futures had dropped 13 points and that was because Local and international media (e.g. Caixin, Financial Times) reported that a RMB 3bn three-year investment trust issued by China Credit Trust Company (CCT) is at risk of not making its principal repayment due investors on January 31. (Read More Here)
Plus, Congress axed the Emergency Unemployment Compensation Beneficiaries from 1.37 million to ZERO and that was enough to see the markets react in a negative fashion.
Congress decision not to extend this [benefit] means there are 2 million fewer people on benefits than a year ago.
The 1.4 million drop also means the number of people NOT in the labor force is about to rise by the same amount, which as we explained before, means the US unemployment rate is about to drop by up to 0.8%, which means the January unemployment rate could be as low as 5.9%.
The short term indicators are leaning towards the hold side at the opening, but I would advise caution in taking any position during this volatile transition period. (and this morning proves my point) There will be pressure to climb higher if only to test the previous Blue Chip highs, therefore I do not foresee the markets descending below the sideways channel they are currently in until AFTER those highs are tested.
The longer 6 month outlook still remains 40-60 sell until we can see what the effects are in this almost nothing start of the Fed’s ‘Taper’. By March investors should know how the taper is going to work out in relationship to the stability of the US financial markets and their ability to not to slide downward. For now, I am continuing to expect weak to negative markets for the foreseeable future.
Here is the quandary some investors have now. They have bet on the QE program to bolster their profits and knowing full well they may see some eroding of profits over the next few months, so what should they do? Start reducing positions now, my choice, or let profits ride a bit longer? What I am afraid of is that if a serious ‘Black Swan’ pops up, the market decent would wipe out a lot of profits. This ‘house of cards’ the Fed has built is fragile and would not take a lot to tear it down.
I would also take chart and other technical indicators with a grain of salt for the time being and watch what the Fed does over the next 4 months. Removing 10 billion from the bond buying program each month isn’t going to do much in reducing the QE program in the beginning, but halving it in 4 months certainly will – IF – the Fed’s continues the taper program.
My instincts tell me that the Keynesian’s are going to be reluctant to stop their grand financial experiment and will want to taper the taper within the next several months – especially if the employment rate increases. Also, watch for QE5 when Obamacare starts drags the economy down into trouble in 2015.
Also, many pundits have stated that we may have seen the top – but I wouldn’t count it as long as the Fed continues to hand out ‘Market Viagra’, even if it has been reduced somewhat! I would like to see a blowout candle (shooting star) to verify a top along with heavy volume to signify a market top.
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The DOW at 10:15 is at 16224 down 149 or -0.91%.
The SP500 is at 1829 down 15 or -0.84%.
SPY is at 182.76 down 2 or -0.84%.
The $RUT is at 1171 down 11 or -0.91%.
NASDAQ is at 4205 down 38 or -0.90%.
NASDAQ 100 is at 3599 down 29 or -0.80%.
$VIX ‘Fear Index’ is at 13.96 up 1.12 or 8.72%. Bearish
The longer trend is up, the past months trend is bullish, the past 5 sessions have been sideways and mixed and the current bias is negative.
WTI oil is trading between 96.42 and 97.39 today. The session bias is positive and is currently trading up at 97.36.
Brent Crude is trading between 107.54 and 108.28 today. The session bias is neutral to negative and is currently trading up at 107.92.
Gold rose from 1231.30 earlier to 1265.33 and is currently trading up at 1263.80.
Dr. Copper is at 3.332 rising from 3.304 earlier.
The US dollar is trading between 81.40 and 80.65 and is currently trading down at 80.66, the bias is currently negative.
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Written by Gary