Written by Gary
Opening Market Commentary For 10-07-2014
Premarkets slowly slipped from -0.2% to -0.4% on reports analysts are predicting further market erosion is to be expected. The markets opened down with the SP500 and DOW immediately dropping below the 100 DMA and the NASDAQ right behind them. Never the less there are BTFDers buying and keeping the averages from falling further.
By 10 am the volume was falling off as the averages continuing sliding, albeit slowly. The bears are feeding, be careful as this could very well be the 10% correction in action.
One thing to seriously take notice of is that neither the NASDAQ, SP500 or the DOW rose above the downtrend resistance yesterday, nor did the NASDAQ or the 500 close above the 50 DMA – bearish. Another is that both the DOW and the $RUT have slipped below the uptrend line for the first time since March, 2009 – VERY bearish. DOW chart below.
The 500 and the DOW both had spinning top candles that signaled a reverse in direction which we can see happened this morning.
Negative reports have in the past pushed the markets higher, but today that doesn’t seem to be the case.
Despite the impressive bounce in the S&P 500 post the jobs report, we are in for a deeper correction.
The jobs report headlines hide some disturbing truths.
The Fed is likely get more hawkish and hike faster.
Technical charts point to a further 10% correction by year-end.
In summary the timing now is probably optimal to heed David Tepper’s advice from May of this year, “I would not be so freakin’ long the market”.
The medium term indicators are leaning towards the hold side at the opening and the short-term market direction meter is bearish. We remain mostly, at best, neutral and conservatively holding. The important DMA’s, volume and a host of other studies have not turned significantly and that is not enough for me to start shorting, but now I am getting very concerned. The SP500 MACD has turned down, but remains below zero at -7.65. I would advise caution in taking any position during this uncertain period.
Investing.com members’ sentiments are 56 % Bearish and it seems to be a good sign for being bullish. The ‘Sheeples’ always seem to get it wrong.
StockChart.com NYSE Bullish Percent Index ($BPNYA) is at 52.75. (Chart Here) Below support zone and apparently going further down. Next stop was ~57 and now it is ~44, below that is where we will most likely see the markets crash.
StockChart.com 10 Year Treasury Note Yield Index ($TNX) is at 23.84. (Chart Here) Treasury Yield Curve Approaches Flattest Since 2009.
StockChart.com Overbought / Oversold Index ($NYMO) is at -23.34. (Chart Here) But anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold.
Chris Ciovacco says, “As long as the consumer discretionary ETF (NYSEARCA:XLY) holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy.” This chart clearly shows that dropping below 65.50 should be of a great concern to bullish investors.
This $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% – 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.
Today it represents the lowest levels seen since the beginning of the October, 2011 rally. Eric Parnell says, ‘ If nothing else, given that relatively fewer stocks are trading above their 200-day moving average at a time when the market is just off of its all-time highs suggests that an increasingly narrowing group of stocks is driving the rally at this stage, which does not bode well for the future sustainability of the uptrend.” It also strongly suggests there has been a ‘stealth bear market’ underway in recent months.
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.
As I predicted when it happened, the 2,000 level on the S&P 500 has proven to be a very stubborn resistance level for the market to breach decisively.
The recent downturn in the market has accelerated recently due to some of the concerns I highlighted for investors in another column.
These worries could remain for a while and the market started the fourth quarter with a thud. What I see ahead and how I am playing the market given these concerns.
My opinion continues to be no reason to go out on the risk scale until the environment improves.
The economy continues to slowly muddle along here. Despite massive largesse from the Federal Reserve that has quintupled its balance sheet since the crisis, some $7 trillion in deficit spending and a failed $800 billion stimulus package in 2009; the economy continues to post just 2% GDP annual growth. This is a level that is less than half the average rate of growth of the nine post war recoveries that preceded it. Inflation adjusted median income still remains 7% below the peak in 2007 and is actually down 4% since the recession officially ended in June 2009.
. . . I am starting to get a bit more positive on retail despite a still challenged consumer. Holiday spending growth is predicted to be up this year compared with 2013 and a strong dollar.
Sooner or later brighter skies will return over the market. Until then, investors should employ the first thing one learns in a foxhole and keep their head down.
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.
What I fear the most in relationship to the end of the infamous QE is that the FED has no backup plan to keep the markets from correcting as they have not done so for several years. As the liquidity starts to ‘evaporate’ that will in-turn deteriorate the props that have held the markets up so well. Each and every ‘correction’ will be deeper and deeper as this money phenomenon disappears.
The longer 6 month outlook is now 35–65 sell (probably should be 40-60 sell) and will remain bearish until we can see what the effects are in the Fed’s game plan.
The DOW at 10:15 is at 16869 down 122 or -0.72%.
The SP500 is at 1953 down 12 or -0.63%.
SPY is at 195.02 down 1 or -0.63%.
The $RUT is at 1088 down 6 or -0.59%.
NASDAQ is at 4428 down 27 or -0.61%.
NASDAQ 100 is at 3995 down 22 or -0.54%.
$VIX ‘Fear Index’ is at 16.39 up 0.93 or 6.02%. Bearish Neutral Movement
(Follow Real Time Market Averages at end of this article)
The longer trend is up, the past months trend is net negative, the past 5 sessions have been net negative and the current bias is down trading sideways.
WTI oil is trading between 90.56 (resistance) and 89.48 (support) today. The session bias is negative and is currently trading down at 89.60. (Chart Here)
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The general consensus is that gold prices will actually fall in the next twelve months (Sept to Aug. 2015). Goldman Sachs estimates that gold will fall to $1,050 an ounce, a drop of nearly 19%.
Gold rose and then fell and rose again from 1203.51 earlier to 1213.68 and is currently trading down at 1210.00. The current intra-session trend is elevated, but very volatile. (Chart Here)
Dr. Copper is at 3.021 falling from 3.043 earlier. (Chart Here)
The US dollar is trading between 86.21 and 85.77 and is currently trading up at 85.94, the bias is currently neutral and trending higher. (Chart Here) Resistance made in Aug., 2013 has been broken.
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