Written by Gary
Opening Market Commentary For 06-19-2014
Premarkets were up +0.10%, suggesting that a new SP500 high will be made at the opening. Another positive sign is that Jobless Claims fell last week to 312,000 but will this news push the markets to even higher numbers – and stay there?
The markets opened subdued on very low volume and the SP500 made a new high climbing 17 cents and by the 15 minute mark it has slithered up to 1959.78. By 10 am the $VIX had dropped to 10.44 moving in on the 02-12-2007 close at 10.02 and the averages had moved off their morning high marks trending down.
I have guessed incorrectly about which way Mr. Market is going to go on many, many occasions and this past week has been no exception. An example is yesterday when the Fed did EXACTLY what was expected and the markets made new highs anyway on mostly dovish news.
The past several sessions worked off the oversold conditions and was ready for further advancement, but I thought it would be a sideways move, rather than a negative one, as I have given previous supportive evidence. One would think that escalating violence in the Ukraine and now in Iraq would temper this hot bull market, it has done the opposite.
I can not see where this hot air balloon built on ‘Bernankellen’ vapor and other special effects of the Fed’s ‘Market Viagra’ can continue to fly, yet it does. I have said similar things three years ago referring to the markets as a ‘House of Cards’ and yet the bull charged ahead and continued to do so yesterday.
So what is in store for investors now? I am more in the bear camp than I have ever been, but unlike previous crashes or ‘corrections’, the next one may like the previous and present good buying opportunities or it may be something more than anyone expected, I suspect the latter.
The level of fantasy in the stock market is directly proportional to the relative price level.
The chronology of a mature bull market correction.
Some facts and fantasy comparisons in the current stock market.
The levels of fantasy in the world of money are ratcheting up a little more every week. If history is any guide, if human behavior retains its constancy, we can expect two events to follow in the stock market. The first event will be a “sudden” correction, one that usually comes some number of weeks, typically around six to twelve, after the onset of prominent names starting to worry about such a correction.
. . . here are some recent examples of fantasy: In the latest edition of Barron’s Trader column, Citigroup (C) equity strategist (and notorious Pangloss) Tobias Levkovich notes that corporate earnings “were surprisingly strong in the first quarter, growing about 5%.” Excuse me? I don’t know what machinations Mr. Levkovich must have pulled off to arrive at some variant of “operating earnings” to justify that claim.
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 flat, but remains above zero at 16.17. 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 64 % bearish and Investors Intelligence sets the breath at 67.4 % bullish with the status at Bear Correction.
Here is the John Carlucci weekly update on his best stock market indicator.
The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the “sweet spot” time period in the market when you have the best chance of making money.
According to this system, the market is now Tradable. The OEXA200R ended the week at 88%, down from 94% last week.
All three secondary indicators are positive.
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, Russia’s annexing game playing and of course the World’s newest player Iraq. 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 the final 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 factors of the Argentine economy, South African Rand and Japan. And of course, China’s defaulting businesses are dropping like flies. Now the Second Chinese Bond Company Defaults, First High Yield Bond Issuer and Another Chinese High Yield Bond Issuer Declares Bankruptcy. Iraq Anxiety Pushes Oil to Three-Month High is just another notch in the bears gun.
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 16899 down 7 or -0.04%.
The SP500 is at 1957 up 0.12 or 0.01%.
SPY is at 196.24 down 0.01 or -0.01%.
The $RUT is at 1183 down 0.08 or -0.01%.
NASDAQ is at 4357 down 6 or -0.13%.
NASDAQ 100 is at 3800 down 6 or -0.16%.
$VIX ‘Fear Index’ is at 10.55 down 0.06 or -0.57%. Bullish 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 negative.
Crude futures in Asia climbed higher today, after data was revealed showing a 579k barrel decrease in U.S. weekly oil stockpiles, and a growing crisis in Iraq. Still, U.S. domestic crude production is currently its highest in 28 years.
WTI oil is trading between 106.26 (resistance) and 105.13 (support) today. The session bias is negative and is currently trading up at 105.51.
Brent Crude is trading between 114.85 (resistance) and 114.13 (support) today. The session bias is positive and is currently trading up at 114.81.
Maybe I’m Wrong – Justifying $2,000+ Gold by Jeffrey Dow Jones
Gold rose from 1268.68 earlier to 1295.50 and is currently trading down at 1293.40. The current intra-session trend is positive and volatile.
Dr. Copper is at 3.060 rising from 3.043 earlier.
The US dollar is trading between 80.77 and 80.23 and is currently trading down at 80.26, the bias is currently negative.
Real Time Market Numbers
To contact me with questions, comments or constructive criticism is always encouraged and appreciated:
Written by Gary