You read a lot of negative opinion about HFTs (High Frequency Traders) when markets fall but not when they rise. Tuesday was a rally generated by algos building on rumors of a short-sale ban in financials, some buzz Bernanke will launch another round of QE of some sort and oversold conditions. Let's face it; nothing is being done in small ways these days. There are plenty of portfolio managers with positions to defend and today was as likely as any to go on offense since many sectors were at critical support levels.
Financials were finally able to participate in the rally although not Bank of America (BAC). The entire financial sector remains much oversold and was ripe for a counter-trend move. The only positive news for future earnings is massive layoffs about to take place, reducing costs.
More defensive sectors, gold in particular sold-off sharply by over 3%. Gold also faces a critical options expiration period Thursday where Da Boyz in the pits will disadvantage as many investors as they can. So, why not get started early they must think? Bonds also saw profit-taking as another safe-haven asset was sold as stocks rose. But the Fed was able to sell $35 billion in 2-year Notes at a record low yield of .222%. Other commodities like oil, base metals and much of the agricultural sector were higher.
Supportive bullish economic news was not present as New Home Sales data continued lower. In a perverse way this is good news since we don't need more inventory. But, the previous bullish mantra (if only for today): "Bad news is good, good news is better" was back en vogue Tuesday. In sum, the belief remains bad economic data will encourage Bernanke to launch another round of stimulus. The Kadaffy regime seems to have fallen but that hasn't made much impact on conditions overall.
For now anyway, the machines rule. Even though some investors might be pleased by a substantial rally such as Tuesday's, they still don't trust markets being conducted this way.
Volume was healthy and similar to recent levels. Breadth per the WSJ was quite positive but perhaps not a 90/10 day.
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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
Quite a rally based on HFTs, rumors regarding Bernanke and, one must admit, oversold conditions. With the exception of some Lazy portfolios and Hedged Lazy Portfolios we're almost 100% in cash with our 100 ETFs in the Selected ETF Menu and in the same condition with the 3 active portfolios. It's not sexy and on some days you'd like to be more active and then the next day not.
There isn't much data Wednesday to focus on but the news cycle is always unpredictable.
Let's see what happens.
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