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Bad News Bulls: Dave's Daily

Stocks in this article: GOOG IBM AAPL XLK AA XLB GLD

NEW YORK ( ETF Digest) -- Let's see, Jobless Claims were terrible by recent comparisons and recorded a large miss (380K vs 355K expect and prior revised higher as usual to 367K). Some analysts blamed Easter for the rise which seems odd frankly. Plenty of rumors were planted that China's GDP growth (released Friday) would be better than expected and yields in the eurozone were lower on talk of more ECB buying. None of that is real news yet. Frankly the Chinese can make-up any number they want in their autocracy. Does anyone really believe otherwise?

The real news came from Fed Vice-Chair Janet Yellen who assured QE and ZIRP addicted bulls that ZIRP was here to stay, and by implication, more QE when and as if needed. This comment was echoed by NY Fed governor Dudley who said the Fed is analyzing recent poor employment data to determine if the recovery is losing momentum and more stimulus (Fed speak for more QE) is needed.

This is what this bull market has feasted on the last two years--QE and ZIRP. The Fed has bought 85% of all Treasury debt > 10 year maturities since Operation Twist began in November 2011. So the Treasury sells debt to pay its bills while the Fed prints money to fund it. It's like a government façade fronted by an ATM behind which is a large printing press. A consumer could drain their credit card but there are limits, the Fed has none beyond ink and paper.

Many bulls are also spinning the theme that earnings estimates have been lowered too much and earnings beats will be ubiquitous making PEs seem cheap again.

Stocks rallied sharply to reverse all losses from early in the week. The most oversold sector, materials (XLB) led the rally higher with a short-squeeze evident. Gold (GLD) moved higher, the dollar (UUP) was weaker which lifted other commodity (DBC) markets. Bonds (TLT) saw some profit-taking. After the close Google (GOOG) announced the creation of a new non-voting class of stock which effectively per the founders is a 2 for 1 split. (Beyond a handful of stocks where's the depth of the markets I wonder?)

Volume returned to its light melt-up ways and breadth per the WSJ was quite positive. We are definitely no longer short-term oversold.

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