Fed Inflates Stock Bubble: Dave's Daily

Dave's Daily

By Dave Fry, founder and publisher of ETF Digest and author of the best-selling book Create Your Own ETF Hedge Fund.

April 6, 2010

FED STATES THE OBVIOUS

The Fed minutes revealed the stunning conclusion interest rates will stay low for an extended period if the economic outlook worsens or inflation drops. Wow, that's surprising logic! With those mighty words stocks picked up steam some and closed higher overall. Not mentioned by many mainstream media talking heads is the building stock market bubble which, of course, few would care to see or discuss. It's what the Fed does--making bubbles. I see little difference this time but we'll go with it for now.

There was little else in the way of news to motivate traders in either direction. 

Volume was pathetically light running nearly half the past three month average.  Breadth was again positive.

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE.  When readings are +60/-60 markets are extended short-term.

Per Investopedia:  The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended.

Per Investopedia: The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".  Our own interpretation is highlighted in the chart above.  The VIX measures the level of put option activity over a 30-day period.  Greater buying of put options (protection) causes the index to rise.

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