Closing Market Commentary For 02-07-2014

From the looks of it the bears have been pushed back into their caves as the bulls take over the markets. Just as a reminder that the emerging markets are still a worry spot, Argentina’s money woes are getting larger and the EU’s problems have not got any smaller – trade accordingly.

By 4 pm the averages had closed solidly in green and all over 1 percent dashing the hope of any bears still lurking out there hoping to get a piece of a bull. The correction is all but over, but I would wait for a few more sessions before celebrating.

Now before anyone gets their hopes up for a continuation of this bull run, remember we have seen reversals before even though there are some very strong bullish signals coming in. The oils went up, with Brent closing above 100.00, and the US dollar went down forming a very bullish signal for investors and perhaps the end of the correction.

Crude Oil Price Impact on Stock Market Trends

The general consensus is that rising oil prices are generally bearish for the stock market, and falling oil prices are generally bullish. This is not exactly true in that most of the time the oil price and the stock market (Dow Jones index) can be expected to trend in the same direction. This clearly implies that most of the time a rising oil price is associated with economic growth and thus rising future prospects for corporate earnings are discounted by rising stock prices. Whereas a falling oil price is associated with weaker future economic activity and thus implies lower future corporate earnings which is again discounted in the present. Read More. . .

The short term indicators are leaning towards the buy side at the closing, but I would advise caution in taking any position during this volatile transition period of Mr. Market trying to figure out which way he wants to go. As it stands right now I do not have much in what Mr. Market has up his sleeve as the bulls and the bears both have convincing arguments why the markets should go up or that the markets should go down. Remember, corrections during a pronounced negative market movements are to be expected regardless of the overall trend.

There is pressure to climb higher if only to test the previous Blue Chip highs, but we may have to see some more ‘correction’ before we can start counting our ‘Bulls’.

Also, have to watch out for these overnight negative emerging market news announcements which many are pundits unsubstantiated guesses and rumors which can make markets move dramatically. Make sure you have stops in place if you are not in a position to monitor the markets.

The longer 6 month outlook is now 30-70 sell and will remain bearish until we can see what the effects are in the game of the Fed’s ‘Tapering’. By March investors should know how the taper and emerging markets are going to work out in relationship to the stability of the US financial markets and their ability to not to slide further downward. The middle of March should, may, perhaps be the end of any correction.

For now, I am continuing to expect weak to negative markets for the foreseeable future.

What I am really afraid of is that if a serious ‘Black Swan’ pops up, the resultant market decent would wipe out a lot of profits and undoubtedly be the start of a bear market. This ‘house of cards’ the Fed has built is fragile and would not take a lot to tear it down.

Again, 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 couple of months. Removing 10 to 20 billion from the bond buying program each month isn’t going to do much in reducing the QE program at first, but if it can be cut in half by the end of March 2014 certainly will. We are assuming the Fed’s will continue the taper program – so far, they are moving ahead in spite of the emerging market worries.

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 or expand the program later in the year – especially should the employment rate suddenly start to increase. 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 is being 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 4:00 is at 15794 up 166 or 1.06%.

The SP500 is at 1797 up 24 or 1.33%.

SPY is at 179.80 up 2.20 or 1.24%.

The $RUT is at 1117 up 13 or 1.14%.

NASDAQ is at 4126 up 69 or 1.69%.

NASDAQ 100 is at 3562 up 64 or 1.84%.

$VIX ‘Fear Index’ is at 15.29 down 1.94 or -11.26%. Bullish

The longer trend is up, the past months trend is sideways, the past 4 sessions have been positive and the current bias is positive.

How Oil Really Gets Priced

WTI oil is trading between 97.13 and 108.18 today. The session bias is positive and is currently trading up at 100.00.

Brent Crude is trading between 106.90 and 109.71 today. The session bias is positive and is currently trading down at 109.41.

Gold fell from 1271.59 earlier to 1256.41 and is currently trading up at 1267.10.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.244 rising from 3.222 earlier.

The US dollar is trading between 81.09 and 80.64 and is currently trading up at 80.74, the bias is currently negative.

To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

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<p><strong><span style=”font-family: arial,helvetica,sans-serif;”><span style=”font-size: medium;”>Written by <a rel=””author”” href=”/files/gary.htm”>Gary</a></span></span></strong></p>