Written by Gary
Opening Market Commentary For 06-12-2014
Premarkets were even with yesterday’s closing numbers until the US Initial Claims came in higher than expected, but futures only fell -0.13%.
Markets opened down and proceeded to melt further south on negative news from the US financial reporting and Iraq. By 10 am the averages were sea-sawing mostly trending down under low to moderate volume. Caution Flags are out again!
I am not so sure I agree with Mr. McMahon regarding people ‘looking’ for a reason to sell when it is actually quite simple. The reason for NOT selling is greed, pure and simple. The reason for NOT buying is also simple as investors are not sure where this market is going in light of the many, many financial issues around the world and in the US.
“People are looking for a reason to sell stock right now,” Dan McMahon, director of institutional equity trading at Raymond James and Associates, said in a phone interview. “You can’t make new highs everyday, and with uncertainty coming out of D.C. yesterday, there would have to be a really compelling reason to buy right now.”
Investors are also watching Iraq where Islamic militants have extended gains after capturing the country’s second-biggest city. After seizing Mosul, north of Baghdad, a group fighters calling itself the ‘Islamic State in Iraq and the Levant‘, or ISIL, took dozens of hostages at the Turkish consulate, as hundreds of thousands of residents fled. The Iraqi Government has asked the US for help and now the U.S. Is considering the request for air support.
“It’s purely a fear-factor hitting right now,” as Brent crude jumps more than $2 to $112.29/bbl and U.S. oil adds $1.83 to $106.23/bbl on worries over escalating violence in Iraq. OPEC has announced it has not changed its output target of 30M barrels a day, despite a higher demand forecast of 30.4M barrels for the rest of the year, stating the rest of demand will be covered by growth outside the group. Production is still facing challenges though, with turmoil enveloping Libyan output, Iran sanctions, and political unrest in Iraq.
The short term indicators are leaning towards the hold side at the open. 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 flat, but remains above zero at 17.90. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 40 % sell. Investing.com members’ sentiments are 67 % bearish and Investors Intelligence sets the breath at 67.3 % 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.
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 has been very high and as of Monday, 4-7-2014, it stood at $466 billion. (Read More at NYSE Statistics Archive) (It has since gone down slightly, but remains high.)
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 and Iraq Anxiety Pushes Oil to Three-Month High.
The markets are still susceptible to climbing on ‘Bernankellen’ vapor, use caution!
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 10:30 is at 16793 down 50 or -0.29%.
The SP500 is at 1937 down 7 or -0.34%.
SPY is at 194.28 down 0.65 or -0.33%.
The $RUT is at 1161 down 6 or -0.50%.
NASDAQ is at 4312 down 19 or -0.45%.
NASDAQ 100 is at 3780 down 18 or -0.46%.
$VIX ‘Fear Index’ is at 12.18 up 0.58 or 5.00%. Bearish 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 mixed and the current bias is negative.
Oil Update by Marc Chandler
WTI oil is trading between 106.51 (resistance) and 104.37 (support) today. The session bias is elevated and sideways and is currently trading up at 105.97.
Brent Crude is trading between 111.79 (resistance) and 109.40 (support) today. The session bias is elevated and volatile and is currently trading up at 111.27.
Maybe I’m Wrong – Justifying $2,000+ Gold by Jeffrey Dow Jones
Gold rose from 1260.10 earlier to 1268.40 and is currently trading up at 1268.40. The current intra-session trend is positive.
Dr. Copper is at 3.021 falling from 3.047 earlier.
The US dollar is trading between 80.83 and 80.70 and is currently trading down at 80.71, the bias is currently sideways and relatively quiet.
Real Time Market Numbers
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary