Written by Gary
Opening Market Commentary For 05-27-2014
Welcome back from a long weekend and hope it was enjoyable and safe as mine was.
Premarkets were up +0.40% this morning partially on a good bounce due to defense orders. Otherwise, machinery goods dropped most since February, 2012. The US dollar was rising nicely as the oils were dropping suggesting a down opening for the US markets.
The markets opened higher with the SP500 making a new historical high at 1909 and the DOW lagging 70 points below its historical high. Volume is mixed suggesting that many investors are not joining the bears in their euphoria.
By 10 the SP500, and others, could not move higher, volume was falling and our proprietary indicators are slightly bearish.
According to DailyFX.com, Markit US Composite Services PMI for May prints better than expected at 58.4 vs 55.0 forecast. Highest in 26 months, yet the markets seem to have run out of morning steam as they trade near their highs.
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 important DMA’s, volume and a host of other studies have not turned and that is not enough for me to start shorting. The SP500 MACD has turned up, but remains above zero at 7.67. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 64 % buy. Investing.com members’ sentiments are 70 % bearish.
In looking at the 50 DMA, the current SP500 opened above that line and the small caps remain above the 50 DMA. I can not see, as of right now where those large cap MA’s are rolling over to indicate any permanent bear run but the falling small caps are a real worry. (See deviation of large and small caps here.)The NASDAQ 145 DMA is about to cross over the 100 DMA and the small cap trend has broken upwards and the $RUT is above the 100 DMA for the first time in a month.
Bottom line here is that I have not seen any serious bears jumping out of the woods just yet, although I am VERY concerned that ANY minor correction could turn nasty in a heart beat. One significant signal would be losses in any of the major averages that go over the ‘magic’ 3 % and then you need to pay close attention to risk-off tactics. Any market correction over 6% would be an additional signal and I can’t see having one without the other.
In Lance Roberts article he asks, Is The Market Consolidating Or Topping?
There are two ways to look at stagnation in the markets. It is either a consolidation process that works off an overbought condition which leads to further advances, OR it is a topping process that leads to a market decline. Discerning which process is currently “in play” is critical for investor decision making.
Let me be clear. I am not stating that the current consolidation process will absolutely collapse into a sharp correction in the months ahead. However, I am stating that the current environment is more similar to past markets which did correct, than not.
While it is certainly possible that the markets could ratchet higher from here due to the “psychological momentum” that currently exists, the likelihood of a runaway bull market from here is remote.
It is still possible that Mr. Market is not through playing with the averages and even newer historical highs are a distinct possibility. Historically, accordingly to Eric Parnell, “major bull markets have almost never reached their final peak in a sideways grinding pattern. Instead, they have almost always peaked with flourish including one final crescendo toward a new all-time high before finally rolling over and succumbing to the forces of the new bear market”.
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. Also, the margin debt is very high and has been setting historic highs and as of Monday, 4-7-2014, it stands at $466 billion. (Read More at NYSE Statistics Archive)
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.
At some point during the taper process, this market will crack after one too many tapers. That, among the many other negative issues will most likely come without warning and the major average’s losses will be over 3 percent during a single session.
Several additional notes of negativity where investors are worried about issues directly related to the Fed’s tapering and Putin’s annexing. They are considering these factors 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. And now Another Chinese High Yield Bond Issuer Declares Bankruptcy.
The markets are still susceptible to climbing on ‘Bernankellen’ vapor, use caution!
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. I just can not buy the continual optimism of the bullish pundits when it comes to politicians and our economy. They lie and misrepresent the financial status just about every day, but of course, that is the definition of a politician, is it not? We may never know how ‘dark’ our shadow banking is, ‘Dark Pool’ activity and there are too many lurking ‘Black Swans’ on the horizon to be as confident as some bulls are. For now the ‘law of gravity’ does not apply to the stock market.
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The DOW at 10:15 is at 16668 up 6 or 0.38%.
The SP500 is at 1909 up 8 or 0.43%.
SPY is at 191.18 up 0.81 or 0.43%.
The $RUT is at 1137 up 11 or 0.94%.
NASDAQ is at 4216 up 30 or 0.73%.
NASDAQ 100 is at 3702 up 25 or 0.67%.
$VIX ‘Fear Index’ is at 11.75 up 0.39 or 3.43%. 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 up and the current bias is elevated and sideways.
WTI oil is trading between 104.49 (resistance) and 103.57 (support) today. The session bias is negative and is currently trading down at 103.67.
Brent Crude is trading between 110.80 (resistance) and 109.75 (support) today. The session bias is negative and is currently trading down at 109.89.
Gold fell from 1293.48 earlier to 1274.33 and is currently trading up at 1275.90. The current intra-session trend is negative.
Dr. Copper is at 3.180 falling from 3.191 earlier.
The US dollar is trading between 80.43 and 80.22 and is currently trading up at 80.39, the bias is currently positive and volatile.
Real Time Market Numbers
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Written by Gary