Written by Gary
Opening Market Commentary For 09-01-2014
The US Markets are closed today, but London is open. The SP500 futures are down along with the oils. The US dollar is up and the markets in London, Paris and Germany are down fractionally.
The World and its geopolitical issues did not become any worse over the weekend, but tomorrow’s opening could be ‘not-so-good’ for the bulls.
Markets are expected to open fractionally lower tomorrow, but what happens immediately after the opening is anyone’s guess in this casino market.
Technical Outlook: European stocks rise, close gap with US, Asia, despite miserable data, Russian invasion of Ukraine. Guess Why?
Fundamental Outlook: The only market driver that really matters, how long the bull market can last, why, and what to monitor.
The Key Questions: What to ask for the coming week and beyond.
Market participants return from vacation to a week filled with economic data.
Employment data is more important than ever in the wake of the Jackson Hole Symposium.
World events continue to raise concerns, but the market shows continuing strength.
Economic news has been mixed — consumption items weak, yet confidence strong.
I would advise caution in taking any position during this coming week as some technical indicators have starting to turn bearish.
Investing.com members’ sentiments are 56 % 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 ($TNX) is at 23.43. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009.
StockChart.com Overbought / Oversold Index ($NYMO) is at 40.93. (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. Wednesday, 8-27-2014, XLY edged up to 69.03 and that is another notch in the gun signaling that we might have another reversal very soon – at least to cover the gap below.
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.
Sometime in the future, there will be another three percent drop, only it will go to four, recover somewhat and the BTFDers will cry halleluiah and buy again. Only this time it doesn’t recover fully like in the past and drops again, increasing the net drop to seven percent and so on.
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.
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”.
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 Margin Debt Peaks May Indicate End Of Cyclical Bull Market. (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.)
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 SP500 Futures is at 1998.95 down 2.55 or -0.13%.
(Closing Market Averages at end of this article)
WTI oil is trading between 95.90 (resistance) and 95.51 (support) today. The session bias is quiet, trending down and is currently trading up at 95.61. (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 103.30 (resistance) and 102.82 (support) today. The session bias is neutral and is currently trading up at 103.08. (Chart Here)
Gold fell from 1290.91 earlier to 1286.80 and is currently trading down at 1287.60. The current intra-session trend is negative. (Chart Here)
Dr. Copper is at 3.147 falling from 3.173 earlier. (Chart Here)
The US dollar is trading between 82.83 and 82.68 and is currently trading up at 82.75, the bias is currently neutral and quiet. (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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Written by Gary