Written by Gary
Opening Market Commentary For 03-17-2014
Premarkets were up 0.55% this morning amid speculation on how Mr. Market was going to handle the Crimea situation.
Markets opened up and the DOW immediately climbed to +0.95% along with the small caps sneaking over +1.0%. By the 15 minute mark the averages were putting a solid bullish morning session, but on low volume and that could be a warning sign.
By 10 am the DOW had climbed past 1.2%, $VIX falling to 15.40 and volume was falling. What is going to happen next as it appears the bears are asleep this morning.
This mornings bullish opening could be a simple correction because of the past 2 negative sessions and nothing more. This morning I am having difficulty understanding how today’s market can be so bullish in light of the fluid and negatively adverse issues in the Ukraine and Crimea; maybe I didn’t get the memo Ms. Yellen sent out declaring QE 5.
This mornings financial reporting was favorable, but I believe the larger World issues will dampen investors euphoria after a while. US manufacturing and Industrial Production was up and the US Housing Market Index misses expectations again as outlook plunges to a 10 month low.
S&P 500 rise to new high recently was a “party for one” as other global indexes did not participate; “there are so many issues with the market that it strains the imagination,” writes Sterne Agee technical analyst Carter Worth in note.
Nikkei 225 “deteriorating for weeks” has “look and feel of an important topping-out formation” while European stocks at or below February lows.
Small cap stocks, including solar, marine shipping, new-era dot.com, and micro-cap biotech stocks “surging with abandon”
The short term indicators are leaning towards the hold side at the opening. The all important signs of reversal, up or down, have not been observed so we are mostly, at best, neutral and conservatively holding. 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 67 % sell. (was 100% sell at the opening)
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 to turn downhill, but not convincingly signaling a down trend as it is very weak. Lastly, the markets are oversold and the margin debt for stock purchases are at an all time high.
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 flatting slightly, but not descending which is always the first sign the bears are smacking their lips in anticipation of a medium rare steak.
There is always continuing pressure to climb higher, but we may have to see some more ‘consolidation’ or sideways trading before we can start counting our ‘Bulls’. I am not saying the markets can’t go higher, but that it will be tough sledging in light of prevailing global 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 IF the Feds continue tapering.
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. For those who are hell-bent bears, this article, 5 Reasons Your Simple Bear Market Plans Could Backfire, should be required reading.
It is its ending of QE that worries me the most as many financial institution and emerging markets can not continue to push forward or 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.
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. (Don’t forget China.)
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?”
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. The tension in Ukraine and Crimea along with proposed sanctions against Russia are also negatively effecting the World markets. 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 in the markets on what I think is a sinking ship of fools.
My inner instincts tell me there is a distinct 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.
But at the same time, 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 80%, down from 82% last weekend.
Of the three secondary indicators:
RSI is NEGATIVE (below 50).
MACD is NEGATIVE (black line below red).
Slow STO is POSITIVE (black line above red).
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The DOW at 10:15 is at 16246 up 180 or 1.12%.
The SP500 is at 1860 up 19 or 1.02%.
SPY is at 186.49 up 2 or 0.99%.
The $RUT is at 1194 up 13 or 1.08%.
NASDAQ is at 4292 up 47 or 1.10%.
NASDAQ 100 is at 3670 up 42 or 1.17%.
$VIX ‘Fear Index’ is at 15.86 down 1.95 or -10.94%. Bullish Movement
The longer trend is up, the past months trend is positive, the past 5 sessions have been negative and the current bias is positive.
WTI oil is trading between 98.90 and 97.74 today. The session bias is negative and is currently trading up at 98.14.
Brent Crude is trading between 108.58 and 107.09 today. The session bias is negative and is currently trading down at 107.28.
Gold fell from 1392.43 earlier to 1375.11 and is currently trading up at 1378.70. The current intra-session trend is negative.
Dr. Copper is at 2.964 up from 2.922 earlier.
The US dollar is trading between 79.69 and 79.42 and is currently trading up at 79.46, the bias is currently negative.
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Written by Gary