Market Commentary: Averages Melt Up To Morning Highs Trade Sideways On Falling Volume

Written by Gary

Midday Market Commentary For 02-18-2014

The Fed’s bond buying at 10:30 am brought the sagging averages out of the dumps moving them to near opening highs and then sliding sideways with an occasional jump on falling volume.

By noon the averages were trading sideways with the blue chips unable to best the morning highs. Meanwhile the small caps have made a continuous track to the upside posting new highs matching November, 2000.

Bad news apparently is still good news for the markets as the small caps and large caps alike keep on melting upwards in spite of ‘not-so-good’ news. Also, total volume for the day appears to be less than the last session and it will not take long for Wall Street to close up shop and go home if this trend continues. None of this is a good sign for a healthy bull market to continue moving upwards. Something has to give and I do not think a simple 10% correction will be the remedy – what do you think?

Homebuilder Confidence Crashes By Most On Record

Surprise! For the 3rd time in the last 20 years, homebuilder sentiment got way ahead of reality… and as the February NAHB data shows, reality is starting to catch up to them.

The NAHB sentiment index crashed by its most on record in Feb, missed expectations by its most on record, and fell back below the crucial 50-level, as it starts to play cyclical catch-down to home sales and mortgage apps.

Think it’s the weather? nope…It’s across every region (with The West dropping the most on record – hot dry weather?)

The short term indicators are leaning towards the hold side at the midday. Why ‘hold’, because the all important signs of reversal, up or down, have not been observed. The 50DMA, MACD, volume and a host of other studies have not turned, only a 6% correction and that is not enough for me to start shorting. 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 any idea 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 why they should go down. Several notes of negativity are that the daily volume is very low matching the period of historical highs a few weeks ago and that could set the stage for addition weakness and market decline. The longer MACD view is starting downhill, but not convincingly signaling a continued down trend.

On the other hand, there is pressure to climb higher if only to test the previous Blue Chip highs, but we may have to see some more ‘consolidation’ or sideways trading before we can start counting our ‘Bulls’. The latest question investors have lately is, will the SP500 go above the resistance at 1850 and close there? This is the historical high and there are many doubts that the SP500 can go higher.

In looking at the 50 DMA the current SP500 is somewhat above that line, but way above the 200 DMA and on 02-06-14 crossed above the 100. I can not see, as of right now where the MA’s are rolling over to indicate any permanent bear run. The 50 DMA has flattening out, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.

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.

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.

The longer 6 month outlook is now 40-60 sell and will remain slightly bearish until we can see what the effects are in the game of the Fed’s ‘Tapering’. By the end of 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.

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

The Best Stock Market Indicator Update says the market is untradable. The OEXA200R is well above 65%, currently at 75%. However, all three secondary indicators are negative.

Again, I would also take chart and other technical indicators with a lessor degree of reliability for the time being and watch what the Janet Yellen’s 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. What is currently causing problems for the Emerging Markets is directly related to the tapering and most investors are considering this factor along with the emerging market woes.

We are assuming the Fed’s will continue the taper program – so far, they are moving ahead in spite of the emerging market issues.

My inner instincts tell me there is a possibility 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 12:00 is at 16144 down 10 or -0.06%.

The SP500 is at 1841 up 2 or 0.13%.

SPY is at 184.34 up 0.33 or 0.18%.

The $RUT is at 1160 up 11 or 0.96%.

NASDAQ is at 4270 up 26 or 0.62%.

NASDAQ 100 is at 3678 up 15 or 0.40%.

$VIX ‘Fear Index’ is at 14.00 up 0.42 or 3.10%. Neutral movement

The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is positive.

How Oil Really Gets Priced

WTI oil is trading between 100.30 and 101.41 today. The session bias is positive and is currently trading up at 101.39.

Brent Crude is trading between 108.85 and 110.02 today. The session bias is positive and is currently trading down at 109.89.

Gold fell from 1332.30 earlier to 1312.67 and is currently trading down at 1321.90. The current intra-session trend is positive.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.286 rising from 3.256 earlier.

The US dollar is trading between 80.26 and 79.99 and is currently trading down at 80.05, the bias is currently negative.

** Readings above 0 indicate expansion, while those below point to contraction.

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Written by Gary