Written by Gary
Opening Market Commentary For 06-10-2014
Premarkets were down generally close to -0.20% this morning with the absence of early financial news. Markets did open down and did the sea-saw thing with a small bull-trap, then headed down to yesterday’s low point support and paused on moderate volume.
By 10 am the averages were trending down slightly recording fractional losses until the April JOLTs Job Openings reported more openings. The averages at that point started heading down recording losses of -0.25%. Is this just a stopping point to correct for over bought conditions or are seeing a correction in progress?
The low volume of the markets lately has been disturbing making investors wonder who is really buying and now perhaps a correction has started. This lack of volume and some sort of a secret anti-gravity machine is obviously what is being used by Mr. Market and his Wall Street ilks to keep the averages up lately.
SAN FRANCISCO (MarketWatch) – We’re straddling 17,000 on the Dow Jones Industrial Average. But it just doesn’t feel right. It has to be the most unenthusiastic rally in a generation – maybe more.
No one is really buying. Stock prices are edging higher, but it’s not retail investors driving the trend. Lipper reported that investors last week actually pulled $921 million from U.S. stock mutual funds in the week ended June 4, and $451 million the previous week.
Corporate earnings are flat. You’d think that as the market reaches this milestone, corporate profits would be churning, or a least growing. They aren’t.
There are no alternative investments. Rather than higher prices for goods and services and a devalued currency, the real consequence of the Federal Reserve’s efforts to stimulate the economy through lower interest rates, bond buying and easy credit seems to be inflation in the stock market.
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 18.68. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 32 % sell. Investing.com members’ sentiments are 66 % bearish and Investors Intelligence sets the breath at 67 % bullish with the status at Bear Correction.
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.
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.
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.
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!
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The DOW at 10:15 is at 16907 down 35 or -0.21%.
The SP500 is at 1947 down 5 or -0.24%.
SPY is at 195.16 down 0.43 or -0.22%.
The $RUT is at 1169 down 7 or -0.59%.
NASDAQ is at 4325 down 12 or -0.27%.
NASDAQ 100 is at 3791 down 5 or -0.13%.
$VIX ‘Fear Index’ is at 11.47 up 0.33 or 2.96%. 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 depressed.
WTI oil is trading between 105.05 (resistance) and 104.43 (support) today. The session bias is sideways and volatile and is currently trading down at 104.81.
Brent Crude is trading between 109.50 (resistance) and 108.95 (support) today. The session bias is negative and is currently trading down at 109.08.
Maybe I’m Wrong – Justifying $2,000+ Gold by Jeffrey Dow Jones
Gold rose from 1262.49 earlier to 1263.30 and is currently trading down at 1260.00. The current intra-session trend is positive and volatile.
Dr. Copper is at 3.045 rising from 3.028 earlier.
The US dollar is trading between 80.86 and 80.57 and is currently trading up at 80.82, the bias is currently elevated, sideways and volatile.
Real Time Market Numbers
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Written by Gary