Market Commentary: SP500 Continues Historic Climb

Written by Gary

Midday Market Commentary For 02-28-2014

Morning volume has not been anything to write home about mostly low with a spurt of moderate every now and then. The SP500 continued to melt upwards as the morning progressed having many investors worry about the near term.

By 11:40 am the SP500 had made a new historical high of 1866.16 and still may go higher. Barchart.com is showing its indicators are 96% sell short term. I repeat, it is at this point I would be most cautious of a reversal.

Up and up the market goes, when it will descend no one knows.

Market Update

… In one chart which, because panic BTFATH means more panic BTFATH.

Now imagine what would have happened if Q4 GDP had actually beats instead of sliding. In other news, the S&P is now just a little over 30 points away from Goldman’s 2014 year end price target of 1900.

At this rate it will be taken out by 2 pm.

The short term indicators are leaning towards the sell side at the midday. The all important signs of reversal, up or down, have not been observed so we are mostly at best neutral and conservatively at hold. The 50DMA, MACD, volume and a host of other studies have not turned, only a 6% correction (and recovery) and that is not enough for me to start shorting. I would advise caution in taking any position during this volatile transition period.

Several notes of negativity are that the daily volume is very low matching the period of historical highs in the past which could set the stage for addition weakness and market decline. The longer MACD view is starting uphill, but not convincingly signaling a continued up trend as it is very weak. Lastly, the markets are oversold.

I still believe that Mr. Market is STILL not through playing with us and even newer historical highs are a distinct possibility beyond what we have seen mainly because the amount of bond buying the Fed still does on a monthly basis. The session on 02-27-2014 is a very important reminder of what QE has done in the past and remains a continuing and very powerful stimulus to the financial markets.

It is its ending that worries me the most as the financial institution can not continue to push upwards without the Fed’s ‘Market Viagra’. The debt stands at 4 trillion and will be at 5 trillion by the time the taper is completed and that is one hell of a debt that ‘someone’ has to pay.

There was a 3 day Symmetrical triangle forming with the apex ending by Friday (02-28-2014). A breakout downward happened on Wednesday (02-26-2014) and then reversed itself climbing to a new historical closing high.

There is continuing pressure to climb higher, 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 ‘new’ resistance at 1854 and close there?

The old historical closing high at 1848 is no longer and there are many serious doubts that the SP500 can go higher much higher, but of course, that is what they were saying last week. I am not saying it can’t go higher but that it will be tough sledging in light of prevailing financial winds. Agreed the current level of bond buying by the Feds is keeping markets becalmed, but at some point the trend will reverse.

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 in fact quiet the opposite. The 50 DMA is climbing slightly, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.

Now more than ever, I am really afraid of a ‘Black Swan’ popping up and watching the resultant market start falling like an over inflated tire with a nail in it and undoubtedly the beginning of a bear market. This ‘house of cards’ the Fed has built with QE is fragile and would not take a lot to tear it down.

The longer 6 month outlook is now 35-65 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.

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. All she did in the February testimony to a Senate panel is flap her lips but the charts and other technical indicators completely failed us this time around.

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 April 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 Chinese Banking woes. All along we have assumed the Fed’s will continue the taper program – so far, they are moving ahead and a lot of ‘sheeples’ are jumping on board what I think is a sinking ship of fools.

My inner instincts tell me there is also 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. After hearing Ms. Yellen speak 2-27-2014, I am more sure of it happening. 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 have been interpreted as a shooting star or a Dark Cloud, but the volume wasn’t very convincing and 02-21-2014 action did not wholly confirm it. It happened again on Monday (02-24-2014) and Tuesday (02-25-2104) ended in a red spinning top that usually means a direction change. Wednesday (02-26-2014) had another spinning top suggesting we could see change of direction once again. Thursday (2-27-2014) it was up and did confirm a reversal spinning top moving upward – will it stay or is this a faux bull run, many questions.

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The DOW at 12:00 is at 16385 up 112 or 0.69%.

The SP500 is at 1867 up 12 or 0.67%.

SPY is at 186.99 up 1 or 0.63%.

The $RUT is at 1191 up 3 or 0.26%.

NASDAQ is at 4338 up 19 or 43%.

NASDAQ 100 is at 3719 up 19 or 0.52%.

$VIX ‘Fear Index’ is at 13.60 down 0.44 or -3.13%. neutral movement

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

How Oil Really Gets Priced

WTI oil is trading between 102.81 and 101.88 today. The session bias is positive and is currently trading down at 102.49.

Brent Crude is trading between 109.30 and 108.41 today. The session bias is positive and is currently trading up at 108.97.

Gold fell from 1333.23 earlier to 1323.58 and is currently trading down at 1326.00. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.190 falling from 3.206 earlier.

The US dollar is trading between 80.33 and 79.77 and is currently trading down at 79.82, the bias is currently sideways.

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Written by Gary