Market Commentary: Large Caps Set New Highs On Moderate Volume

Written by Gary

Opening Market Commentary For 06-09-2014

Premarkets were down -0.05% and there was no US financial news this morning other than Fed Bullard speaking.

Markets opened mixed, flat on moderate volume with the small caps trending upwards. By the 5 minute mark the SP500 and the DOW once again made new highs and ultimately to 1952.30 and 16952 respectively. The $VIX fell to 10.84 but not as low as the Friday session (06-06-2014) at 10.73 marking the lowest investor ‘complacency’ since February, 2007.

By 10 am the averages had stopped climbing and were sea-sawing in what may become a sideways trend.

News from this mornings meeting as Fed’s James Bullard spoke on US Economic Outlook in Palm Beach, Florida.

WASHINGTON (MarketWatch) – There is evidence that inflation is now “moving higher,” said James Bullard, the president of the St. Louis Fed, on Monday. This is a significant shift in Bullard’s outlook. Only last month, Bullard said that inflation was stable and any uptick… Full Story

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 18.16. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 16 % sell. Investing.com members’ sentiments are 66 % bearish and Investors Intelligence sets the breath at 66.1 % bullish with the status at Bear Correction – chart is on a p&f sell but is rising without having moved above 68%.

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 small cap trend is now positive and the $RUT is rising to the next resistance at 1179.

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.

Any talk of a recession one needs to check with Georg Vrba’s Unemployment Recession Update Signal. The unemployment rate model (explained here), updated with the May figure of 6.3 %, does not signal a recession now.

Steve Hansen proposes The Economy Is Flying Close To Stall Speed and believes “there is NO evidence using any recession forecasting tools which suggest a recession in the near term”.

Summary

• There is no indications in the data showing a recession is near.

• Yet, historically, 2% GDP growth is a warning sign of an impending recession.

• One needs to look at the detail in 1Q2014 GDP.

Note that even the drag by the government on GDP will disappear shortly – the further we get away from the end of stimulus and the beginning of austerity. The real economic issue is the lack of investment. So there is no reason to be overly concerned about 1Q2014 GDP. Still, it is concerning when year-over-year real GDP hovers near 2% or less. At 2% it is too easy for a poorly performing economy to trip over a rather insignificant “disruption” – say bad weather or other act of God.

Using pilot speak, 2% is the stick shaker for economic stall speed.

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.

The large caps having bounced back and forth between losses and gains for over 10 weeks have once again approached all time highs or have reached them. The last six months of trading in the SP500 has been within a narrow 4.8% range. This sideways movement and falling volume may be foretelling signs of waning energy and the lack of ability to continue higher and investors need to be alert for a possible significant market selloff.

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”.

For those who are hell-bent bears, this article, 5 Reasons Your Simple Bear Market Plans Could Backfire, and Stocks Need To Breakout Before They Breakdown should be required reading.

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.

Best Stock Market Indicator Ever: Weekly Update

According to this system, the market is now Tradable. The OEXA200R ended the week at 94%, up from 90% last week.

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 16936 up 12 or 0.07%.

The SP500 is at 1921 up 0.36 or 0.10%.

SPY is at 195.62 up 0.25 or 0.13%.

The $RUT is at 1172 up 7 or 0.59%.

NASDAQ is at 4330 up 9 or 0.21%.

NASDAQ 100 is at 3793 down 2 or -0.06%.

$VIX ‘Fear Index’ is at 11.09 up 0.37 or 3.45%. Neutral Movement

(Follow Real Time Market Averages at end of this article)

The longer trend is up, the past months trend is positive, the past 5 sessions have been positive and the current bias is positive.

How Oil Really Gets Priced

WTI oil is trading between 103.91 (resistance) and 102.62 (support) today. The session bias is positive and is currently trading up at 103.90.

Brent Crude is trading between 109.18 (resistance) and 107.79 (support) today. The session bias is positive and is currently trading down at 108.98.

Maybe I’m Wrong – Justifying $2,000+ Gold by Jeffrey Dow Jones

Gold fell from 1257.24 earlier to 1253.28 and is currently trading down at 1253.80. The current intra-session trend is negative.

Analysts forecast a corrosive year for copper prices

Dr. Copper is at 3.034 falling from 3.061 earlier.

The US dollar is trading between 80.70 and 80.32 and is currently trading down at 80.68, the bias is currently positive.

Real Time Market Numbers

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Written by Gary