Written by Gary
Closing Market Commentary For 02-21-2014
At the end of a ho-hum session, investors, disappointed at best, left town not knowing if the markets were going to be up or down on Monday.
By 4 pm the averages were all in the red except $RUT and The NASDAQ showing the biggest loss at -0.25% on low volume. We are in no-mans land at this point where the warning signs are flying and Mr. Market is keeping mum on his plans for Monday.
This blurb below puts the week into perspective.
While The Russell 2000 briefly regained positive territory for 2014 (up 1.5% on the week), the Dow, S&P, and Trannies ended the shortened and low volume week practically unchanged (and the Dow -2.6% YTD).
Treasury yields oscillated as bad-news-good-news played out but ended the week practically unchanged (10Y -1bps, 5Y +1bps). The USD drifted lower today to end the week very modestly positive (+0.1%) as EUR strength dominated JPY and CAD weakness).
VIX went higher all week (admittedly OPEX-impacted) as underlying stocks remained bid. Credit markets ended the week wider than they opened on Tuesday (despite equity strength).
Despite the USD, commodities rose on the week with Silver and WTI crude up almost 2% and gold up 0.5%. For an options-expiration day, today’s volume was very weak.
And 2014’s best performing S&P 500 sectors… Healthcare and Utilities
The short term indicators are leaning towards the hold side at the close. 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.
The candle for 02-19-2014 SP500 could be interpreted as a shooting star or a Dark Cloud, but the volume wasn’t very convincing and yesterday’s action does not wholly confirm it.
Today, we had a Doji or Spinning Top candle at the midday, either way each time we have had one of these near the resistance, we have had a reversal. Sure enough by 2:30 the averages started melting down so don’t be surprised if Monday is a down day.
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The DOW at 4:00 is at 16103 down 30 or -0.19%.
The SP500 is at 1836 down 3.53 or -0.19%.
SPY is at 183.92 down 0.21 or -0.11%.
The $RUT is at 1165 up 2.51 or 0.22%.
NASDAQ is at 4263 down 4 or -0.10%.
NASDAQ 100 is at 3663 down 9 or -0.25%.
$VIX ‘Fear Index’ is at 14.67 down 0.12 or -0.81%. Bearish movement
The longer trend is up, the past months trend is sideways, the past 5 sessions have been positive and the current bias is negative.
WTI oil is trading between 102.80 and 101.71 today. The session bias is sideways and is currently trading up at 102.25.
Brent Crude is trading between 110.37 and 109.37 today. The session bias is sideways and is currently trading up at 109.80.
Gold rose from 1316.30 earlier to 1328.28 and is currently trading down at 1324.00. The current intra-session trend is negative.
Dr. Copper is at 3.288 rising from 3.270 earlier.
The US dollar is trading between 80.44 and 80.20 and is currently trading up at 80.30, the bias is currently sideways.
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Written by Gary