Bear Market Ahead?: Dave's Daily - TheStreet

Bear Market Ahead?: Dave's Daily

What is there on the horizon to prevent the bear market's return? Evidently it's not the new iPhone since most of its whiz-bang features were already known.
Author:
Publish date:
Image placeholder title

What is there on the horizon to prevent the bear market's return? Evidently it's not the new iPhone since most of its whiz-bang features were already known.

The Fed has stopped buying mortgage-backed securities and is looking to start unloading them. Interest rates are about as low as they can get. The government's first time home buyer's credit has expired. There won't be any talk in an election year with polls negative for most politicians of another stimulus package or much about taxes.

The action has shifted to Europe, events in the Middle East and uncertainty regarding economic conditions in China. With markets always forward-looking nothing is looking good.

What's doing well? Bonds and gold, not to mention good old "cash".

Is this a bear market? Not until we fall 20% from the most recent high. Was the previous rally, just a bear market rally? I don't know but the rally was fabulous; but it was similar in percentage gain to the rally following FDR's first 100 days. That's an ominous comparison.

SPY

took out February's closing low which is significant. Volume remains light as buyers are on strike while breadth was decidedly negative.

Image placeholder title
Image placeholder title

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. Getting oversold but not yet.

Image placeholder title

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. Markets are still in a neutral range but heading slowly toward oversold levels not seen perhaps since March 2009.

Image placeholder title

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. Fear is widespread caused by the obvious news and uncertainty.

Continue to Major U.S. Markets

Image placeholder title
Image placeholder title
Image placeholder title

SPY:

There weren't many strong sectors within the index today except some nibbling here and there. Investors are just in a funk.

Image placeholder title
Image placeholder title

MDY & IWM:

Both Mid & and Small caps continue to underperform on down days. Both are near support while IWM clearly has an ominous looking bearish H&S top forming.

Image placeholder title

QQQQ:

It isn't necessarily just a garden variety correction anymore as the downturn is now in the teens.

Continue to U.S. Market Sectors, Selected Stocks & Bonds

Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title

AAPL, AMZN, GOOG & RIMM

: The Four Horsemen are stumbling along. I suppose RIMM has fallen out of the group probably but we'll put it here once more for old times sake.

Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title

XLF, C, BAC & GS:

Financials are an important component in SPY but they've been a drag lately just moving about in a protracted trading range. They've got the people's money, dressed-up toxic waste on their books and a subpoena here and there just to keep things interesting.

Image placeholder title

Image placeholder title

XLI:

So, industrial condition--critical. Is GE an industrial company or just a conglomerate? You'll find it crossing over to several sectors and dominant in the halls of congress.

Image placeholder title
Image placeholder title

XLP & XLV:

When times get tough we all could use some drugs and stuff like soap and deodorant. They used to say--booze, drugs and guns; what more is there?

Image placeholder title

XLB:

When materials breakdown this hard it means commodities are weak and demand for raw materials very weak. This was "the tell" from last week.

Image placeholder title

XLY:

When Chucky gives up the ghost, you know the parties over and the little rascal is tapped-out.

Image placeholder title
Image placeholder title

IYR:

REITs are in just as much trouble as anything else. The dividend is supportive but that's about it. As for builders, they got to keep selling AND building.

Image placeholder title

IYT:

As for transports? I just repeat myself as does the look of the chart.

Image placeholder title
Image placeholder title
Image placeholder title

IEF, TLT & TIP:

This is where the winners are so far this week, but the week is young.

Image placeholder title

Continue to Currency & Commodity Markets

Image placeholder title
Image placeholder title
Image placeholder title

$USD/DXY, UUP & FXE:

The euro continues its slide. It's not the first time we've seen these levels since nearly 10 years ago it was in the mid-80s. Then traveling to Europe was great as it was for Europeans to sell Bordeaux in the states.

Image placeholder title

GLD:

Gold is the alternative to paper money and investors, especially those in Europe, know it. It's also a vote against central bank monetary and government fiscal policies.

Image placeholder title

DBC:

We've gone nowhere for over a year now with most commodity indexes. Individual commodities are a different story naturally.

Image placeholder title

$WTIC/CRUDE OIL:

I cling to my belief in this trading range but it's starting to look like a bad bet. Turn loose the Nigerian rebels!!!

Image placeholder title
Image placeholder title
Image placeholder title

XLE, BP & UNG:

There was some early nibbling on energy stocks early but that faded quickly. The bottom picking in BP isn't being rewarding thus far. UNG needs a weekly close > the 22 period MA.

Image placeholder title

DBB:

When base metals fail you know industrial production is in trouble. The primary customer is China and manufacturing there may be turning south.

Image placeholder title

XME:

Base metals drag the sector lower.

Image placeholder title

DBA:

Overplanting, heavy stock carryover, great weather and a strong dollar hurt agriculture.

Continue to Overseas & Emerging Markets

Image placeholder title

EFA:

Europe is being shunned period.

Image placeholder title

EEM:

EM's are struggling with commodity prices and are now at support.

Image placeholder title

EWJ:

Japan is heading down just like every other market.

Image placeholder title

EWA:

Exporting raw materials north to China may be slowing down.

Image placeholder title

EWC:

There are plenty of bears in Canada but they seem to have them well behaved.

Image placeholder title

EEB

: BRIC's seemed to do better overall than their higher beta would normally indicate. Nevertheless, they're down on the day with everything else.

Continue to Concluding Remarks

Another late day swoon still took place despite BP claiming more oil now being recovered and the new iPhone presentation. Sure markets are starting to get oversold but there's something else troubling markets. It may be the end of Fed and government stimulus, the difficult to quantify troubles in Europe, uncertainty over China's economy and geopolitical troubles ever present in the Middle East. The combination of all these weigh on investors' psyche.

Whatever it is will be known soon enough and hopefully it isn't something terrible because it's that possibility Mr. Market must be sensing.

There aren't any significant economic or earnings reports due Tuesday so in a vacuum perhaps we can get a Turnaround Tuesday.

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

twitter

and become a fan of ETF Digest on

facebook

.

Disclaimer: Among other issues the ETF Digest maintains positions in: SH, SDS, SMN, TIP, GLD, UUP, EUO, EFZ and EUM.

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

www.etfdigest.com

.

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.