Written by Gary
Closing Market Commentary For 03-10-2014
Markets generally melted up during the afternoon session on low volume to close near the closing numbers on Friday.
By 4 pm many investors are convinced the markets have just paused before plunging higher and are buying in at a low point. The more savvy ones are not quite sure the averages will post new highs any time soon, so we wait.
One of the greatest fears many investors have currently are the serious financial issues plaguing the Chinese financial future. This one chart below is not good.
So when China said its exports fell 18.1% year-on-year in February-economists had been expecting growth of 5%-it sparked waves of sales in equities and commodities that reverberated from New York to Frankfurt.
The short term indicators are leaning towards the hold side at the close. 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 and Barchart.com shows a 40% 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’ closing resistance at 1878 and close there?
The old historical closing high at 1859 (now 1878) 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 and the week before that. 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 market trend will reverse.
In looking at the 50 DMA the current SP500 is 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 plus those in the emerging markets.
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 Fed’s ‘Tapering’ game plan. 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. Read at DailyFX, “wouldn’t it be easier if the Fed would just announce the proper level for the S&P and spare us all the policy announcements and market gyrations?”
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.
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 Argentine Peso and 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 Best Stock Market Indicator Update says the market is untradable. The OEXA200R ended the week at 82%, unchanged from last weekend.
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The DOW at 4:00 is at 16419 down 34 or -0.21%.
The SP500 is at 1877 down 0.87 or -0.05%.
SPY is at 188.20 down 0.10 or -0.05%.
The $RUT is at 1201 down 2.79 or -0.23%.
NASDAQ is at 4334 down 1.77 or -0.04%.
NASDAQ 100 is at 3706 down 2.94 or -0.08%.
$VIX ‘Fear Index’ is at 14.22 up 0.11 or 0.78%. Neutral Movement
The longer trend is up, the past months trend is positive, the past 5 sessions have been positive and the current bias is positive.
WTI oil is trading between 102.73 and 100.87 today. The session bias is neutral and is currently trading down at 101.06.
Brent Crude is trading between 108.84 and 107.22 today. The session bias is neutral and is currently trading down at 107.39.
Gold rose from 1329.50 earlier to 1344.77 and is currently trading up at 1340.10. The current intra-session trend is negative.
Dr. Copper is at 3.044 falling from 3.086 earlier. (Morning low was at 2.995)
The US dollar is trading between 79.78 and 79.9974 and is currently trading down at 79.89, the bias is currently sideways.
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Written by Gary