Another Round of POMO: Dave's Daily

Thursday will feature a tsunami of economic data, Fed POMO and the tail-end of earnings news.
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Thursday we'll get another round of Uncle Sugar's special blend via more POMO (Permanent Open Market Operations). This private label brew will go directly to the Primary Dealers (dba: Da Boyz) who will use it to trade as before. We'll also get more earnings from Staples, Ross Stores and Dollar Tree, among other retailers. Also on tap is more economic data from Jobless Claims, Leading Indicators and the Philly Fed.  Together, these will give ammo for bulls and bears to duke things out.

Meanwhile, there's Wednesday to digest. There was no economic data and earnings news featured a good report from Deere but the news got sold. Retail results highlighted Target which matched expectations but still propped up retail-related ETFs overall.

Markets were lower early on profit-taking and then were kicked higher midday perhaps on enthusiasm for POMO Thursday. Late in the day, fatigue set in similar to Tuesday's late day selloff and we barely eked out a gain.

Volume was still summertime light and breadth was mildly positive. (It's instructive to note in the Nasdaq, advancers barely beat decliners but volume was superior indicating heavier trading in bigger names.)

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SPY

: You know, I'm not such a big fan of these H&S tops and bottoms but this one has been striking in its appearance on weekly charts. It's as impressive as the inverse H&S pattern when the 2009 rally began. The Fed is doing what it can to prop things obviously.

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MDY & IWM

: Here too we see the dramatic H&S top. But, many technical indicators aren't working well in this zero interest rate environment since we just may be trolling along in a trading range.

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QQQQ & AAPL:

Since Apple is 20% of the QQQQs you must watch it. Apple is struggling within the range at the 22 period MA.

Continue to U.S. Sectors, Stocks & Bonds

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DE, MOS, POT, MOO:

This was quite a week in the ag sector as the action is fast and furious. The issue has to do with the world food supply and how the companies within this sector can provide solutions to feed the planet.

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TGT, KSS & XRT

: Retail in the news most of Wednesday and while TGT just matched expectations, more attention was focused on KSS.

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XHB & IYR:

Homebuilders off clear support as mortgage applications increase while yield and hope drive REITs.

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IEF & LQD

: These two issues were featured prominently Wednesday as stories were put out how stocks are being avoided by both hedge funds and institutions. The former is making big bets on gold so the story goes thinking that inflation will come back. In the meantime, institutional investors (apart from mutual funds with "stock only" mandates) are focusing on corporate bonds for safety and known results. The spread from corporate to Treasurys is narrow. What's interesting to me is Treasurys are not "callable" whereas most corporates are. With Treasurys at least you get all the upside as rates drop while with corporates the bonds will be called away limiting gains. So, you take all the interest rate risk with corporates and make little appreciation potentially. Institutions buying corporates are responding to demand from their clients for safety and return of principal above all other considerations. We live in interesting times.

Continue to Currency & Commodity Markets

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$USD/DXY & UDN

: Uncle Buck still has problems in spite of eurozone issues that will bob to the surface from time to time. After all, the stress tests in Europe were a joke.

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GLD, DGP, GDX & SLV

: The paths taken by many hedge funds is to be long gold among other things. The bet here is inflation and ultimately a much lower dollar. This is in sharp contrast to bond buyers who are betting on deflation (PIMCO) and institutional investors on a bond binge that has bubble written all over it. Yet the Fed and Treasury are in a bind until bond vigilantes' force their hand to raise rates. The Fed can only buy so many Treasurys to keep the wolves at bay. At some point, the thinking goes, the bond bubble will pop.

Gold stocks are a good bet if both the metal and stock market are rising. If the stock market should suffer a "severe" decline while gold prices rose, gold stocks would decline as well--think 1987 market crash.

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$WTIC & XLE

: Supply data held back oil prices but oil stocks really lost half their previous gains on Wednesday. I don't like the action in the sector.

Continue to Overseas Markets & ETFs

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EFA

: Really trying to power through resistance and struggling to do so.

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EEM

: A flattish day on Wednesday and still just moving along with commodity markets overall.

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EPI

: I'll put this one up because we're long--and we're not long much!

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EEB

: Well, once again I'm running out of time for posting. Therefore, EEB will cover a few markets not posted Wednesday.

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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.

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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.

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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.

Continue to Concluding Remarks

The current retail reports weren't as great as the action in both stocks and related ETFs but that's the way it was. I note that AMAT (Applied Materials) report showed a large miss.

The debate over bonds (deflation and double-dip) vs. gold (inflation and double-dip) is also fascinating. Are hedge fund managers brighter than those at institutions? Based on compensation alone you'd probably have to go with them but then there's that old "more money than brains" mentality. We live in interesting times that's for sure.

Thursday will feature a tsunami of economic data, Fed POMO and the tail-end of earnings news. I don't see much conviction with either bulls or bears at the moment but the Fed's intervention in markets is something to reckon with.

Let's see what happens. You can follow our pithy comments on

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Disclaimer: Among other issues the ETF Digest maintains positions in: FAZ, TZA, GLD, DGP, and EPI.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

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Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.