This end-of-month window dressing was brought to you courtesy of those lapping-up bad news meaning more QE on the way. The bad news was the implosion in Consumer Confidence (44.5 vs expected 52.5 & prior 59.5). But Consumer Discretionary sectors continue to run higher which is of course hard to explain. Later in the day bulls started cherry-picking previous Fed minutes for hints of more QE ahead. They jumped on what they liked and ignored the rest. Further, Fed Governor Kocherlakota has already indicated he's no longer a dissenter.
The DJIA is perhaps poised to finish the month strongly so as to be back in the green for the year. This is the essence of window-dressing for the benefit of a headline. This makes everything look good for portfolio managers and Main Street. But many Main Street investors are leaving the scene.
Talk of more stimulus whether from the Fed or Obama administration got gold and commodity prices roaring once again. The bottom line is officials will always choose inflation over deflation no matter the spin.
Bonds were higher on the day while the dollar was flat.
Volume was higher as traders made it back to work and breadth once again was marginally positive meaning markets are now short-term overbought.
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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.
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.
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
We're in a perverse situation with the old meme "bad news is good, good news is better". This will encourage more QE which bulls are convinced will repeat the same stock market rally as experienced a year ago. It becomes a hollow experience when it ends since beyond the price of the S&P it didn't translate to job growth or better economic conditions. Doing it again may be just going to the well once too often leading to inflation and a weaker dollar. The only groups helped are multinational corporations which will use this liquidity to do more financial engineering (stock buybacks using proceeds from cheap bond sales) and perhaps more M&A with this only leading to more layoffs.
It's dismaying to us but the tape is the tape and if we're to remain systematic and disciplined we'll follow its instructions.
Let's see what happens.
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Dave Fry is founder and publisher of
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