Written by Gary
Opening Market Commentary For 04-07-2014
Premarkets were just below the closing numbers on Friday and first look indicates a nominal rest day for the markets, but we have seen Mr. Market decide otherwise.
Markets opened down and mostly flat for the first several minutes and then some bears moved in and pushed the DOW down -0.20%, the SP500 down -0.40% and the NASDAQ down -0.55% on low to moderate volume. By 10 am the markets had melted back up to flat status and may go green.
I have, along with numerous others, complained, bitched and otherwise damned High Frequency Trading (HFT) by these low-life algo computers (and the humans that operate them) for the last five years. The article below is required reading for Monday.
Is HFT really good for the markets? Does it really provide a necessary function of increasing liquidity? Considering that the financial markets have operated successfully for over 100 years, was an increase in liquidity really needed? Or, was HFT transformed from a benign concept into an intentionally malevolent “profit generation” scheme by the financial elite?
# 2. Not only is HFT legalized front-running. It is also a socially worthless activity that amplifies market movements, increases market fragility, inflates asset price bubbles, and naturally worsens market crashes. And as we saw with the ‘Flash Crash‘ of May 2010, it can also fuel market mayhem.
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, 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. The MACD has turned down slightly, but remains above zero. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 0 % hold. (Remember this has been negative for weeks.)
@ReformedBroker: Look, no one knows what’s going to happen here – the important thing is that you panic.
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.”
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 and Russia’s annexing game playing. 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 which could set the stage for addition weakness and sudden market decline. The margin debt for stock purchases are at an all time high and investors are also worried about issues directly related to the Fed’s tapering. They are considering this factor along with the Argentine Peso, South African Rand and Japan. And of course, China’s defaulting businesses are dropping like flies. And now the Second Chinese Bond Company Defaults, First High Yield Bond Issuer.
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. 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 90%, up from 86% 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. One in particular will be when the Nasdaq reaches 5000, the same top as in year 2000, maybe by this June or July. I’m very surprised at how large this bubble has grown, fueled by the Fed’s single-minded determination to support Wall Street.
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 10:00 is at 16375 down 38 or -0.23%.
The SP500 is at 1861 down 4 or -0.20%.
SPY is at 185.93 down 0.49 or -0.26%.
The $RUT is at 1148 down 5 or -0.43%.
NASDAQ is at 4123 down 5 or -0.13%.
NASDAQ 100 is at 3539 down 2 or -0.07%.
$VIX ‘Fear Index’ is at 14.81 up 0.85 or 6.16%. Bearish Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is sideways, the past 5 sessions have been sideways, but mixed and the current bias is negative.
WTI oil is trading between 100.23 and 101.32 today. The session bias is positive and is currently trading up at 101.25.
Brent Crude is trading between 105.25 and 106.66 today. The session bias is positive and is currently trading down at 106.38.
Gold fell from 1304.32 earlier to 1297.64 and is currently trading up at 1299.40. The current intra-session trend is negative.
Dr. Copper is at 3.044 rising from 2.977 earlier.
The US dollar is trading between 80.60 and 80.34 and is currently trading up at 80.38, the bias is currently negative.
Real Time Market Numbers
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Written by Gary