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ETF Midweek Peek

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK (ETF Digest) -- On Monday, a Bloomberg anchorman was on the trading floor and said to one of the traders, "So it's all about The Bernank?" To which the trader responded, "It's always about The Bernank."

On cue, the Fed Chairman has speeches scheduled and can say the magic word "QE" and fix a selling market (without actually even having to deliver the money). Unfortunately, as we saw on Tuesday, the magic spell is having a shorter and shorter duration. End-of-quarter window dressing is all the fashion for fund managers, but with a historic run-up without pause, nervous fund managers want to be the first to sell the top.



Nervousness was aggravated by the Case-Schiller housing data down 3.8% following the previous report of down 4.1%. Homebuilders were hit after a spectacular run-up on calling a "bottom" after the previous report. Calling a "new" bottom was met with skepticism and selling went through the sector taking any related industry with it.

AAPL continues to mystify the market chalking up over 50% gain in a single quarter and taking the entire Nasdaq with it. Even in the most extreme overbought condition and declining volume, gravity-defying gains are a daily routine. AAPL is a "must own" for fund managers this quarter. We'll see if it becomes a "must sell" at the start of the second quarter on Monday.

Top Performers this week

With a historic quarter of weekly gains now surpassing the dot-com euphoria, the VIX hit comatose levels nearing the 2007 fearless market. Additionally, a collapse of TVIX, an ETN supposedly tracking the VIX, brought non-monetary based ETNs into question and taking some wind out of the sails of the VIX.


Crude churning in the $106-$107 level brought short selling speculators into the inverses.


The anticipated dollar decline from another round of QE gave gold a lift, but gold has not behaved in its normal role of an inflation hedge and has been more of a speculative play following the market. The brief pop was met with selling.
The mention of "QE" rang the "risk-on" bell and small-caps are the risk-on play of choice. Naturally, AAPL keeps the tech mega bull in the nosebleed section of the market -- the only issues on this table reaching new highs.


New Highs

 

AAPL took the Nasdaq and tech sector for a free ride again this week. Health Care, a defensive sector, hit new highs and is also in the center ring of the Supreme Court ruling on the constitutionality of Obamacare.


New Lows

Natural gas appeared to have formed a bottom around the $2.50 price, equal to its historic 2009 low. A brief pop in January looked like it was going to hold the previous lows as support and then collapsed again in March taking it to new historic lows.


Obviously, any inverse holding AAPL continues to be obliterated.


Unusual Volume

Speculative gold is being hit hard on selling volume. Although TVIX and UVXY are supposedly the same instrument, unreliability in TVIX has caused a flocking over to UVXY.

Copper is pulling the basic metals sector down as China slows on demand. Profit-taking on a spectacular run on financials having lagged the market since the '09 rally is only prudent. 


Overbought

A single day of selling at the beginning of March was the pause that was needed to propel the Nasdaq and tech back into a vertical run unknown before or since the dot-com theater. Anticipation of every human being on earth buying a new iPad on its release date took retail and consumer discretionary on the tech rocket ride.

Rapidly increasing inflation (which the Fed says we don't have), boosts retail on higher consumer prices. 


Oversold

The discovery that TVIX had no underlying intrinsic value led to a loss of over 50% of its share value in two days. The Nasdaq 100 inverse (PSQ) is now more oversold than at the time of the market's 2007 highs. An RSI on a major index below 20 is considered extreme.

PSQ only hit this level once before on Feb. 9 this year with an enormous selling spike. However, it must be qualified that indicators on inverse ETFs are not necessarily reliable. But in this case, they do reflect the extreme overbought conditions of the Nasdaq. Natural gas prices are nearing levels that exceed its production costs.


Trending Up

Most of these up trending positions are obvious in a euphoric market although relative volume shows little participation. Mexico has joined in the ride with U.S. markets, but highly dependent on it's northern neighbor, it will also ride down in a U.S. market selloff. Utilities have been a long-term solid position.

With its demand-driven fundamentals and high dividend, it's a no-brainer for the widow and orphan funds. UCO, leveraged oil futures ETF, will be the one to watch. Iran in the center of geopolitical debate could keep oil at elevated levels. However, the president can release the Strategic Petroleum Reserves at his will, and sink U.S. oil prices. If gasoline prices remain in the center of the political debate, the SPR is an inevitable magic wand for an incumbent.


Trending Down

Crude at high levels isn't necessarily a good thing across the board in the energy sector. Refiners have a higher price for raw materials and retailers are under pressure to keep margins low. The winners on high crude are oil futures and drillers. Gold miners have lost any relationship to the metal they mine as gold has become highly speculative and subject to high volatility. This hurts long-term confidence of mining companies with a lack of stable pricing.

Pressure has been on the Euro (FXE) throughout the European debt crisis. In spite of an actual default on Greek bonds, it's a known element in the market now and markets tend to fear unknown more than bad news. Although FXE hasn't broken its long-term down trend, it is showing a bottoming process and a watchful eye should be kept on it.

In summary, it's all about The Bernank and AAPL. Friday will end the first quarter with stellar reports (and fees) by fund managers. Monday will see the first of the month IRA contributions in late morning. By Monday afternoon, we'll know the true strength of this market. It would almost be irresponsible for fund managers not to sell at these extremes of profit.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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