Market Commentary: Markets Open Down, Further Weakness Is Seen

Written by Gary

Opening Market Commentary For 07-31-2014

Premarkets were down -0.80% and the markets opened the same way after digesting ‘not-so-good’ financial news this morning. The weekly jobs claims rise and the Midwest Manufacturing expanded at its slowest rate since June of 2013.

By 10 am the averages had leveled out after dropping almost one point. Volume is medium to high, $VIX has climbed to mid 14’s and the small caps are taking a beating as they melt further down. Many investors are betting that is now the time to exit.

The medium 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 down, but remains above zero at 4.70. I would advise caution in taking any position during this uncertain period.

Investing.com members’ sentiments are 54 % bearish and Investors Intelligence sets the breath at 65.7 % bullish with the status at Bear Correction. (Chart Here )

StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 68.69. (Chart Here)

StockChart.com S&P 500 Bullish Percent Index ($BPSPX) is at 79.60. (Chart Here)

The Market Is Overpriced But The Correction Will Likely Be Shallow

StockChart.com Overbought / Oversold Index ($NYMO) is at -52.27. (Chart Here) (Need to type in $NYMO)

StockChart.com Consumer Discretionary ETF (XLY) is at 66.61. (Chart Here)

Chris Ciovacco says, “As long as the consumer discretionary ETF (NYSEARCA:XLY) holds above 67.06, all things being equal, it is a good sign for stocks and the U.S. economy.” (Actually the support looks to be in the 66.88 range)

Do You Trust The Fed?

By Bret Jensen

My own opinion is that the Federal Reserve should have taken off the “training wheels” some time ago. The economy would have taken a short-term hit, but I think we would be much further along in our recovery by taking our lumps earlier in the cycle before the Federal Reserve expanded their balance sheet to such a massive level.

So, going forward; Do you trust the Fed? There are myriad reasons I do not and I believe rough times are ahead in the market.

Why You Should Not Be Comfortable With The Level Of The Stock Markets

Summary

• The Dow Jones has set a new record above 17,000.

• The NFP came out with a stronger than expected number of 288,000 new jobs for June.

• Wage growth remains low, well below the level the Fed would like to see.

The U.S. economic recovery is not on sure footing yet. There are foundation issues, especially in the housing market and with wages. The Fed should take into account these problems before raising rates. The Fed is in the middle of tapering its massive bond buying program, hoping to end it by end of October 2014. They have continued to keep short term rates near zero, amid speculation they will raise them soon. The Fed is correct in keeping them as is. It is still too early to raise rates. While 200K new jobs a month is a good thing, a print of 300K would point to a stronger economic recovery.

There are reasons to be concerned. While there is a feeling of euphoria over the Dow Jones hitting 17,000 and closing above it, do not expect it to stay at this level. There is no real economic growth supporting it.

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 daily 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. There hasn’t been a 10% correction in several years and some investors are becoming increasingly concerned an imminent correction is on the way.

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 players Iraq and Israel. 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.

Charts and other technical tea reading exercises are, for the most part, not worth the effort to discern directions now that the Fed has refilled the sand box with gravel, rocks and old beer cans. That is just my view, but they have completely thrown a monkey wrench into the works and no one knows anything anymore with certainty.

Also, the margin debt has been very high and as of today, 6-29-2014, it stood at $464 billion. (See monthly margin debt at Securities Market Credit) (It has since gone down slightly from March, 2014 at 466 billion, but remains higher than previous years. (See current chart here.)

NYSE Margin Debt Explodes To Near-Record High In June: Risk Rank At No. 1

Summary

• New York Stock Exchange margin debt rocketed to about $464.31 billion in June from about $438.55 billion in May, the exchange reported Monday.

• NYSE margin debt at its latest level thus is just -$1.41 billion, or -0.30 percent, lower than its all-time high of around $465.72 billion in February.

• The European Central Bank’s move to tax reserves held by financial institutions at the ECB may have contributed to the explosion in market debt.

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’. The debt stands at 4 trillion and will be at 5 trillion by the time the taper (October 2014) is completed and that is one hell of a debt that ‘someone’ has to pay. But, that is not all, Cris Sheridan writes in his article, What Happens When Quantitative Easing Ends, “Once liquidity starts to dry up at the end of this year it looks very likely that the yield on 10-year government bonds will go up. That will cause mortgage rates to go up… the property market to come down, a significant correction in the stock market, a negative wealth effect, less consumption and, I think, then the US will start moving back towards recession.”

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 10:15 is at 16752 down 128 or -0.76%.

The SP500 is at 1955 down 15 or -0.77%.

SPY is at 195.43 down 1.50 or -0.76%.

The $RUT is at 1134 down 13 or -1.12%.

NASDAQ is at 4420 down 43 or -0.97%.

NASDAQ 100 is at 3936 down 40 or -1.00%.

$VIX ‘Fear Index’ is at 14.54 up 1.19 or 9.93%. 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 negative and the current bias is negative.

How Oil Really Gets Priced

WTI oil is trading between 100.37 (resistance) and 99.09 (support) today. The session bias is depressed, sideways and is currently trading up at 99.44.

Brent Crude is trading between 106.81 (resistance) and 105.53 (support) today. The session bias is down, sideways and is currently trading up at 106.31.

Gold fell from 1298.61 earlier to 1285.98 and is currently trading down at 1287.70. The current intra-session trend is negative and volatile.

Dr. Copper is at 3.328 falling from 3.257 earlier.

The US dollar is trading between 81.66 and 81.42 and is currently trading down at 81.53, the bias is currently neutral and volatile.

Real Time Market Numbers

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Written by Gary