Big Wednesday Market Wipeout: Dave's Daily

Earnings season is about over and now all we have is economic data which sucks.
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We melted-up on light volume and then crashed on high volume. This has been the ongoing pattern and what's been bugging many investors. Just when you think it's safe to enter a big rogue wave crashes in on you and it's "cowabunga dude!"

Further, the disconnect between bond and stock market action has been disturbing. Bond yields have been at Depression Era lows while stock prices were rising. Something had to give.

I confess to being sucked-in this weekend to some long ETF positions. I entered kicking and screaming but enter we did. Ugh!

What happened Wednesday we didn't know already? The economy is weakening? There's nothing new there. It's just that earnings season is about over and now all we have is economic data which sucks. That must be it.

It's revolting that stocks have been manipulated higher by HFTs the past month. There were few complaints about that; but, now with a serious decline politicians like Chucky "where's the camera" Schumer are complaining.

Volume was higher again today on a down day and breadth also sucked big time. As of this writing I don't have the precise totals but we probably had a 10/90 day.

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SPY:

It's all working as far as the technicals go from these charts. Resistance has proven to be just that on weeklies and on one of two daily views.

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MDY:

This is nearly a 5% turnaround on the week.

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IWM:

Small Caps underperformed on the comeback rally Tuesday afternoon and it's been pointed out is the most economically sensitive sector.

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QQQQ:

All one can say is, the week's not over.

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

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IGN & CSCO

: Networking sector leader CSCO reported earnings after the close that missed on revenues and guidance wasn't great.

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AAPL, GOOG & AMZN

: It used to be the Four Horsemen but we've lost one so we'll just call them the "three amigos" and leave it there. All we can say for now is they have better relative strength overall. That and a Quaalude won't help much.

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GS & XLF:

According to an article in the

LA Times

things for GS will continue unaffected by anything their friends in Washington do to them beyond the cameras.

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XLI:

The chart speaks for itself.

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PFE & XLV:

Not a strong showing for defense Wednesday.

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XLB:

Materials are the seeds of good economic growth. Here resistance proved an accurate level...so far.

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XLY, XRT & DIS:

The consumer sector should even be as high as it is IMHO but here we are.

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PG & XLP

: You see better relative performance means you lose less than the next guy if that floats your boat.

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IYR:

REITs resistance held but it remains a quest for yield and if dividends are safe.

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IYT & $BDI:

Maybe some container ships were mothballed and taken out of service, but the rally in the Baltic Dry is interesting.

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IEF, TLT, TIP:

Bonds are in "panic" phase.

Continue to Currency & Commodity Markets

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$USD, DXY, UDN, FXE & FXY:

When markets get this bearish, traders take profits wherever they can.

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GLD:

Gold was pressured early and suddenly during the trading day but hung in there overall.

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DBC:

If the economic outlook is grim commodities won't do anything to the upside.

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$WTIC/CRUDE OIL & XLE:

With economic weakness comes slack demand for energy.

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DBB & JJC:

Base metals and copper in particular are going along with the economic weakness facts.

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XME:

They're just stocks at the end of the day and reflect more the stock market than metals.

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DBA:

Ag commodities are affected by the goings on in Russia with wheat but DBA is much more diverse away from a pure grain play.

Continue to Overseas & Emerging Markets

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EFA:

European stocks hit hard on liquidations after large run higher.

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EEM:

No interest in higher beta risk sectors Wednesday.

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EWJ:

If I were in the predicting business I could have said this would happen since we've seen this a lot over the past year.

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EWY:

Korean markets are no different from other high beta sectors with big moves needing a correction.

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EWA:

Down with commodities and risk aversion.

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EWC:

Up north things aren't any different when it comes to performance when commodity markets weaken with economic worries.

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EWZ:

Brazil markets weaken like all others with high betas and commodity based.

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RSX:

Just another commodity market with a high beta.

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EPI:

India joins the rest of the world in succumbing to selling.

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FXI:

China markets didn't sell-off last night but most likely will tonight. There are many worries about the state of the economy there and last night's data wasn't encouraging but markets held up.

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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

We've been going through this kind of volatile nonsense since the market top in April. We rally on light volume and then abruptly fall into a hole and wipe-out. Bernanke took his baby-steps yesterday and around the world economists are downgrading future economic growth. Why was this so hard to see? Because these phony rallies bring out the animal spirits in most investors. Now reality has hit and hit hard. It's hard for individual investors to stomach 2% yields on most safe investments away from stocks. Some institutions have bonds as their mandate and buy them if they're 1% or 15%. Perhaps I cut my teeth in bond markets in the 70s and know how much money can be lost in bonds. As they say, the market you know best is the market you love least.

CSCO reported earnings after the bell that was poor overall. This won't help matters.

It doesn't help that Jobless Claims (maybe an upside surprise?) arrive tomorrow. Even if they're poor perhaps bulls can spin it their way.

The disconnect between economic data and stock market performance seems to be resolving. Perhaps we have a trading range ahead even though that's really what we've been experiencing the past few months.

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: TZA, GLD, DBC, UDN, FXE, DBC, EEM, EWZ, EPI and FXI.

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

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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.