Market Commentary: SP500 Melts Up Again To New Historical High As Volume Becomes Anemic

Written by Gary

Midday Market Commentary For 03-04-2014

Just before 11 am the SP500 eased up to a new historical high of 1871.39 but on low volume suggesting the HFT computers are playing with us. Volatility is low reflected by the volume and falling fast by the noontime mark.

Hard to tell what Mr. Market is going to do next, but a descending market is not out of the question for the near-term at least. In the meantime, the party goes on.

Now that the Ukraine ‘issue’ is passed, we can now start looking at (again) the issues that face the US and the emerging markets. Putting aside that Argentina, among others, may belly up at any time, China and its sinking banking community and a basket full of serious financial issues in the emerging markets we turn to the US.

The US is doing its best to pull the rug out from its stability with the auto and student loans that are out somewhere in outer space. This and the continuing Fed buying bonds is increasing the chances of a blow-out decline in the markets – it is only a matter of time.

The Debt Bubble Expands As Auto Loan Amounts Hit A New Record

Is anyone surprised that the poorest and least credit worthy of Americans are being saddled with piles of debt in order to buy new cars?

It’s not enough that a generation of our citizens will toil pointlessly to pay off more than $1 trillion of student loans, we may as well add some other form of debt burden on top of it.

It’s hard to even imagine this is happening so shortly after the last credit bubble train wreck, but happening it is.

Creative ways for people to purchase cars they can’t afford have been on our radar screen for some time now… Well the dancing has continued, and now we have Americans borrowing at all-time record levels to buy cars.

The short term indicators are leaning towards the hold 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 although Barchart.com shows a 72% sell.

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 and the margin debt for stock purchases are at an all time high.

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. Past bullish sessions 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’. Even if the Fed reduces its purchases by $10 billion every month for the rest of 2014, the Fed will have acquired $320 billion more for its portfolio. Note, that in 2013, the Fed added more than $1.0 trillion in securities to its portfolio. 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 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 1859 and close there?

The old historical closing high at 1848 (now 1859) 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. Now we have issues in the Ukraine and that is the reason for yesterday’s depressed market.

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’. 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.

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 12:15 is at 16396 up 228 or 1.42%.

The SP500 is at 1873 up 27 or 1.48%.

SPY is at 187.67 up 2.66 or 1.45%.

The $RUT is at 1212 up 36 or 3.05%. (This is a new percentage high and unusual)

Russell 2000 Up Most Since 2011

NASDAQ is at 4356 up 78 or 1.83%.

NASDAQ 100 is at 3721 up 52 or 1.43%.

$VIX ‘Fear Index’ is at 14.11 down 1.89 or -11.81%. Neutral Movement

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

How Oil Really Gets Priced

WTI oil is trading between 104.95 and 103.16 today. The session bias is negative and is currently trading down at 103.37.

Brent Crude is trading between 111.33 and 109.13 today. The session bias is negative and is currently trading up at 109.44.

Gold fell from 1351.37 earlier to 1331.56 and is currently trading up at 1336.20. The current intra-session trend is sideways.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.217 rising from 3.166 earlier.

The US dollar is trading between 80.22 and 79.92 and is currently trading up at 80.18, the bias is currently positive.

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Written by Gary