Written by Gary
Opening Market Commentary For 03-24-2014
UK stocks opened in the red on Monday as rising geopolitical tensions in Ukraine and yet more disappointing economic data from China dampened sentiment. US premarkets were up +0.25%, WTI oil rising +0.45%, gold off -0.90% and the US dollar up +0.15% as apparently US traders are shrugging off China and Ukraine problems.
Markets opened up as expected and jumped to +0.65% minutes after the opening bell, but just as quickly started to head downwards to flat status.
By 10 am the market landscape had changed dramatically with the averages falling into the red on moderated volume.
More and more negative news, yet the bulls are everywhere it seems. Several more reasons to be cautious and not jump blindly onto what might be the ‘Train of Fools’.
Chinese factory activity has contracted for the fifth straight month in March, with flash manufacturing PMI slipping to 48.1 from 48.5 in February and missing consensus of 48.7. “Weakness is broadly based with domestic demand softening further,” says HSBC. “We expect Beijing to launch a series of policy measures to stabilize growth.” Hopes of such stimulus helped push the Shanghai Composite up 0.9%, while the Hang Seng rose 1.9%.
Eurozone business activity has cooled slightly this month, the flash composite PMI slipping to 53.2 from 53.3 in February but topping consensus of 52.6. Manufacturing and services PMI fell, although the eurozone enjoyed its best quarter for business activity since Q2 2011, says Markit, with the PMI survey signalling a 0.5% increase in Q1 GDP after growth of 0.3% in Q4. German PMI readings disappointed, but France’s business activity surprisingly returned to growth.
Last month’s exuberance-filled, and instantly extrapolated, Markit US PMI print at the lofty levels of 57.1 (proving that the weather-delayed pent-up-demand was truly back) has been dashed on the shores of ugly reality.
March’s print dropped to 55.5, missing expectations by the most since Feb 2013 as jobs grew at a slower pace and factory orders declined.
This slowing in the US economy’s growth adds to last night’s weakness in Chinese growth. Given weather was not a majr issue in March, what excuse can we find for this?
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 72 % sell.
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.
Chris Puplava writes, “As shown below, the long-term outlook for the S&P 1500 is clearly bullish as 77.0% of the 1500 stocks in the index have bullish long-term trends.”
The market’s intermediate-term outlook is on the verge of moving into bullish territory as it improved to 59% from last week’s 55.2% reading. The market’s short-term trend remains in bullish territory at 67.4, slipping from last week’s 80.8% reading.
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.
The longer 6 month outlook is now 35-65 sell and will remain 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. 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?”
Several notes of negativity are that the daily volume is very low matching which could set the stage for addition weakness and market decline and the margin debt for stock purchases are at an all time high. Investors are also worried about issues directly related to the Fed’s tapering and are considering this factor along with the Argentine Peso, South African Rand and the Yen. And of course, China’s defaulting businesses are dropping like flies.
If the Russian President Putin stops at annexing Crimea, the markets may alleviate current weakness and the bull run will continue as some bullish pundits seem to indicate. It is also possible that this is simply a pause where Putin will take the slack time to consider his next global conquest. One of the many issues investors face is that a Reuters article suggests that tensions in Eastern Europe/Central Asia aren’t going away as Russian posturing persists in spite of Russian Propaganda.
The real story behind the current weakness is the US weak housing, layoffs and poor employment data, inventory reductions and soft economic outlook including a mediocre sales outlook.
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 tradable. The OEXA200R ended the week at 84%, up from 80% last weekend.
Of the three secondary indicators:
RSI is POSITIVE (above 50).
MACD is POSITIVE (black line above red).
Slow STO is POSITIVE (black line above red).
My feeling is that we’re entering the final euphoria phase of the five-year stock market bull, and I’ll be watching warily for major resistance points in the coming months.
If you would like to get advanced buy/sell tweets, sign-up in the column to the right of this post by clicking on the ‘Follow‘ button. Write me with suggestions and I promise not to bite.
The DOW at 10:15 is at 16299 down 2 or -0.01%.
The SP500 is at 1860 down 6 or -0.34%.
SPY is at 185.72 down 0.52 or -0.28%.
The $RUT is at 1183 down 11 or -0.93%.
NASDAQ is at 4241 down 36 or -0.85%.
NASDAQ 100 is at 3626 down 26 or -0.72%.
$VIX ‘Fear Index’ is at 15.42 up 0.42 or 2.80%. Bearish Movement
The longer trend is up, the past months trend is mixed, the past 5 sessions have been sideways and the current bias is negative.
WTI oil is trading between 100.28 and 99.05 today. The session bias is positive and is currently trading down at 99.94.
Brent Crude is trading between 106.45 and 107.49 today. The session bias is negative and is currently trading down at 107.09.
Gold fell from 1338.21 earlier to 1315.47 and is currently trading down at 1317.00. The current intra-session trend is negative.
Dr. Copper is at 2.954 rising from 2.922 earlier.
The US dollar is trading between 80.45 and 80.20 and is currently trading up at 80.36, the bias is currently negative.
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary