Written by Gary
Opening Market Commentary For 08-25-2014
Premarkets were up +0.50% extending the exuberance from Friday’s session. Markets opened likewise, gaping up whee the SP500 set a new historic high of 2000.24, crossing the 2000 mark for the first time. Note the resistance at the 2000 level was difficult to penetrate and there wasn’t much enthusiasm. It appears it was all done by the HFT algo computers.
By 10 am the averages were elevated and trading sideways on low volume. I would be very cautious on any stance at this point.
This very low volume of late may be a signal were are near a top and could start to roll over, but that can take 6 months or longer. Many analysts have been looking at such a possibility of a market top for over a year proclaiming when SP500 reaches 2000 you might want to consider your options. Well, we are here, but you need not panic – just yet. Our short term market direction meter is very negative and the $VIX is neutral to bearish and it shouldn’t be.
It is now when the investors out there need to wonder just how much further the averages can go upwards, but we said that months ago when the DOW and the SP500 reached new highs. The rubber band is getting ever so much tighter as it is stretched out and I am personally VERY concerned about further gains, but the trend is your friend until it isn’t!
I have been saying for months that the economies across the ‘Pond” are not doing well, several EU members are in a recession, and their problems will, sooner or later, come to the US shores and wreak havoc. Now the Israelis are confirming that fear.
The Israeli economy is particularly sensitive to global conditions – it has a small population, and trade with their neighbors is extremely limited – so it’s worth noting what the central bank has to say there. And it’s not particularly optimistic.
The medium term indicators are leaning towards the hold side at the opening. The all important signs of reversal, up or down, have not been observed so we are mostly, at best, neutral and conservatively holding. The important DMA’s, volume and a host of other studies have not turned and that is not enough for me to start shorting,but I am now concerned. The SP500 MACD has turned up, but remains above zero at +9.01. I would advise caution in taking any position during this uncertain period although some technical indicators have starting to turn bearish.
Investing.com members’ sentiments are 53 % bearish and when it switches over to bullish, as it did on Tuesday 8-5, watch for the market bottom to fall out some are saying as the markets usually go against ‘Sheeple’ buying high and selling low.
StockChart.com 10 Year Treasury Note Yield Index ($TNX) is at 23.96. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009.
StockChart.com Overbought / Oversold Index ($NYMO) is at 30.17. (Chart Here) (Need to type in $NYMO) It is now around the area where it turns and starts to descend, but any thing below -30 / -40 is a concern. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. Wednesday, 8-20-2014, $NYMO climbed to 58.24 is signaling a market reversal in our near future.
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. Today 8-25-2014, XLY edged up to 68.98 and that is another notch in the gun signaling that we might have another reversal very soon – at least to cover the gap below. Protect thyself!
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.
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.
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.
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 game plan, Russia’s annexing game playing and of course the World’s newest player 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.
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 10:30 is at 17095 up 93 or 0.55%.
The SP500 is at 1999 up 11 or 0.54%.
SPY is at 200.23 up 1 or 0.53%.
The $RUT is at 1169 up 9 or 0.78%.
NASDAQ is at 4566 up 27 or 0.60%.
NASDAQ 100 is at 4074 up 21 or 0.52%.
$VIX ‘Fear Index’ is at 11.60 up 0.13 or 1.13%. 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 positive.
WTI oil is trading between 93.94 (resistance) and 93.09 (support) today. The session bias is negative and is currently trading down at 93.15. (Chart Here) There is a very large gap at 97.06 and these types of gaps are usually filled sooner rather than later. It would not surprise me to see the oils move back up in the very near future. (Chart Here) (Look at the 60 minute time scale.)
Brent Crude is trading between 102.68 (resistance) and 101.78 (support) today. The session bias is negative and is currently trading down at 102.12. (Chart Here)
Gold fell from 1282.08 earlier to 1276.47 and is currently trading up at 1278.90. The current intra-session trend is neutral and volatile. (Chart Here)
Dr. Copper is at 3.233 rising from 3.202 earlier. (Chart Here)
The US dollar is trading between 82.65 and 82.36 and is currently trading down at 82.52, the bias is currently elevated. (Chart Here) NOTE: There is a large gap at 82.38 and the dollar is expected to fall and close that gap.
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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Written by Gary