Market Commentary: Markets Open Up, Then Sea-Saw Sideways On Low Volume

Written by Gary

Opening Market Commentary For 08-14-2014

Premarkets were up +0.30% until the US Initial Jobs and Continuing Claims came unexpectedly higher and drove the futures down to flat status.

By the opening the futures were at +0.17% and the markets opened the same but with low green volume pushing the averages further upwards. By 10 am the averages were sea-sawing sideways on low volume.

Initial Jobless Claims jump 21,000 for the largest miss in 3 months and Continuing Claims rose missing analysts expectations for the past month and a half.

The first column is what was reported. The second is what was expected and the third is the last report.

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 up, but remains below zero at -6.62. I would advise caution in taking any position during this uncertain period although some technical indicators are starting to turn bearish.

Investing.com members’ sentiments are 48 % bearish and when it switches over to bullish, as it did on Tuesday 8-5, watch for the market bottom to fall out some are saying as the markets usually go against ‘Sheeple’ buying high and selling low.

Investors Intelligence sets the breath at 58.2 % bullish with the status at Bear Confirmed. (Chart Here )

StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 62.52. (Chart Here) Very close to support, but rising.

StockChart.com S&P 500 Bullish Percent Index ($BPSPX) is at 71.00. (Chart Here) Remains below support, now resistance.

The Market Is Overpriced But The Correction Will Likely Be Shallow

StockChart.com Overbought / Oversold Index ($NYMO) is at +21.47. (Chart Here) (Need to type in $NYMO) Oversold conditions on the NYSE McClellan. It is around the area where it turns and start to descend, but any thing below 30 / 40 is a concern.

StockChart.com Consumer Discretionary ETF (XLY) is at 66.88. (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) We have entered an area that concerns me should the XLY drops any further. This chart clearly shows that dropping below 65.50 should be of a great concern to bullish investors.

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.

Investors are currently unhappy, unenthusiastic, skittish and ready to jump ship every time it nudges against a small financial iceberg. They remain long for now unable to afford to sell and live off cash savings that have negative real rates thanks to the Feds. They feel in their guts, correctly, that a real ‘correction’ is coming and can’t do anything about it until it is too late. Greed rules the day and investors should be very cautious.

One thing to keep in mind is that stocks may not be setting up for a fearsome bear market. History shows that there are two types of corrections — sharp, brutal downturns that clear the air fairly quickly and prolonged periods of backing-and-filling that gradually remedy built-up imbalances. Time will tell which one lies ahead.

Eric Parnell, in his timely article below points out the obvious and we may very well see the starting of it right now.

The Slow And Perilous Death Of Bull Markets

Summary

• A primary worry among many stock investors today is that the long running bull market may soon come to an end.

• At the heart of their concern is the worry that the subsequent decline into the next bear market could quickly become swift and severe.

• History has shown that the transition from a bull market to a bear market is a process filled with rallies and correction that plays out over an extended period of time.

• Bull markets die long slow deaths, and it is this prolonged dying process that causes so many investors to find themselves unwittingly trapped in the next bear market.

A primary worry among many stock investors today is that the long running bull market may soon come to an end. At the heart of their concern is exactly what lies beyond the bull market peak, as many worry that the subsequent decline into the next bear market could quickly become swift and severe.

But history has shown that the transition from a bull market to a bear market is often a gradual and drawn out process filled with rallies and correction that plays out over an extended period of time. In short, bull markets die long slow deaths, and it is this prolonged dying process that causes so many investors to find themselves unwittingly trapped in the next bear market long before they even realize it.

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”.

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.

As long-time readers know, says David Moenning, “I believe it is VITAL to have systems and/or models to guide one in their investing journey. As the late Marty Zweig used to say, ‘Those who rely on a crystal ball will wind up with an awful lot of crushed glass in their portfolio’.” This basically states our views on the market too, although it is best to be ready for the unexpected if you are bullish.

The “Environment” is Neutral

And I saw this quote from James O’Shaughnessy’s book, “What Works on Wall Street” (hat tip to my colleague Jeff Pietsch for bringing this to my attention):

Models beat the human forecasters because they reliably and consistently apply the same criteria time after time. In almost every instance, it is the total reliability of application of the model that accounts for its superior performance. Models never vary.

They are always consistent. They are never moody, never fight with their spouse, are never hung over from a night on the town, and never get bored. They don’t favor vivid, interesting stories over reams of statistical data. They never take anything personally.

They don’t have egos. They’re not out to prove anything. If they were people, they’d be the death of any party.

We utilize a model-of-models system combined with a “weight of the evidence” approach in trying to determine the “mode” of the market.

Currently, our models are saying that the current environment is neutral. And in short, this tell us to take less risk at this time.

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 DOW at 10:15 is at 16656 up 4 or 0.03%.

The SP500 is at 1948 up 2 or 0.08%.

SPY is at 195.04 up 0.21 or 0.11%.

The $RUT is at 1141 down 1 or -0.08%.

NASDAQ is at 4434 up 0.36 or 0.01%.

NASDAQ 100 is at 3950 up 1.39 or 0.04%.

$VIX ‘Fear Index’ is at 12.94 up 0.04 or 0.08%. Neutral Movement

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

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

WTI oil is trading between 97.58 (resistance) and 96.83 (support) today. The session bias is negative and is currently trading down at 97.00. (Chart Here)

Brent Crude is trading between 105.09 (resistance) and 103.22 (support) today. The session bias is negative and is currently trading down at 103.36. (Chart Here)

Gold rose from 1310.22 earlier to 1320.58 and is currently trading up at 1315.90. The current intra-session trend is neutral and volatile. (Chart Here)

Dr. Copper is at 3.097 falling from 3.119 earlier. (Chart Here)

The US dollar is trading between 91.75 and 81.45 and is currently trading up at 81.50, the bias is currently negative. (Chart Here)

The markets are still susceptible to climbing on ‘Bernankellen’ vapor, use caution!

“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation inequities, they should try to be fearful when others are greedy and greedy only when others are fearful.” – Warren Buffett

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Real Time Market Numbers

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Written by Gary