Bottom Picking Not Allowed: Dave's Daily

After resting along the unchanged line most of the day, bulls threw in the towel late.
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Bulls tried hard to get it together most of the day encouraged early by news from Europe the ECB facility to handle stressed bank demand saw less than expected. But strong headwinds showed up with a dreadful

ADP

report which came in at 13K new jobs vs. the street consensus of 75K. Ouch!

So after resting along the unchanged line most of the day, bulls threw in the towel late and stock indices cascaded sharply lower in the last 40 minutes of trading.

The critical support levels mentioned yesterday for Dow Theorists (9816) and oft suggested S&P 500 Index (1040) which both failed to hold. This may lead some to designate us in a bear market versus the White House theme "Summer of Recovery."

The only bright spots were bonds and gold ("fear") and some agricultural commodities for fundamental reasons.

Volume fell today while breadth still stuck up the place.

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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 Major U.S. Markets

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SPY:

Once again we're at "must hold" levels. Since we primarily follow "weekly" charts you can see we're in a bad spot with two important days left in the week to complete this week's price bar. It's hard waiting it out sometimes and this is one of those times.

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MDY & IWM:

Both index ETFs are showing more strain but are still a short ways from the cliff.

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QQQQ:

No help here either and we're really at a troubled point. Thursday and Friday "must" hold the line!!!!

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

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XLF:

There will be no vote on new FinRegs this week per my understanding of Harry Reid's comments which are always difficult to believe. Nevertheless, we know or understand that the $20 billion in taxes have been stripped-out and the Volcker Rule watered down enough so as not to matter. What really are the asset values of major banks? They have been covered up for now on the hope they'll be okay sometime in the future.

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XLI:

Industrials are in the same boat.

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XLB:

Materials have been the most important "tell" for economic weakness as demand here are the roots of the economy.

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XLY:

Consumer Discretionary sector is flopping like everything else.

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IYR:

The economy is weak and so is commercial real estate so it's only the hoped-for dividend holding IYR together.

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IYT:

If the economy is slow then nothing's moving.

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IEF, TLT & TIP:

All I can say is if bed bugs paid dividends you'd earn more yield with cash under the mattress than bonds.

Continue to Currency & Commodity Markets

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$USD/DXY & FXE:

So the euro rallied some on Wednesday as hopes were strengthened by lower demand from the ECB facility for distressed banks.

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FXY:

The yen is showing strength as other currencies falter but it's really a messy affair.

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GLD:

No matter if there are bear raids here and there, the metal remains resilient since trust has been lost in many financial assets.

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DBC:

Why bother even posting DBC everyday when trends have been nonexistent? This is a good question but it remains important to know what's going on or not in the sector.

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$WTIC/CRUDE OIL:

Crude oil down with inventory data Wednesday although it seemed a little strange since supplies were down not up.

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XLE & UNG:

Natural gas doesn't seem able to hang on here and I'm glad we're still on the sidelines. XLE is just moving erratically with overall stock market. There's little to like.

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DBB:

When base metals (copper, aluminum and zinc) falter, it just reflects poor industrial demand and a weakening economy.

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DBA:

Grains (led by corn) rallied sharply Wednesday on government reports of less planting than forecast and inventories from last year's crop were reduced by more as well.

Continue to Overseas & Emerging Markets

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EFA:

European stocks rallied but that was stale news for U.S. investors heading to the close. Bad news from Europe will resurface like tar balls on a Florida beach.

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EEM:

EM's are in a trading range until they're not. It's frustrating but we just can't seem to breakout over the past 9 months.

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EWJ:

Japan has been one of the least rewarding markets for a long time. There's nothing going on there to indicate a change.

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EWY:

A new trade agreement is possible. Isn't that positive? But, no matter the issue Korea is captive to the global market funk.

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EWA:

A new prime minister and this isn't the greeting she was looking for no doubt. But the market here is stuck with commodities (coal, iron ore, etc) much in demand from China when things are rosy.

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EWC:

North of the border a slackening in commodity demand hits markets.

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EWZ:

Behaving just like any other commodity based market.

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RSX:

Another commodity driven market with a high beta.

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EPI:

India markets are behaving noticeably better than other markets paying them only slight attention.

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FXI:

Over a year of this trading range and I'd like to observe something different but can't. Mainland Chinese markets are still in a bear market.

Continue to Concluding Remarks

Where's the catalyst for a rally? Will Bernanke & Co do something creative with monetary policy? That's a rumored possibility and you should listen for the sound of helicopters on a dollar dropping strafing run. Or, will good earnings lead the way? July will provide the answers.

Thursday and Friday investors will be focused on jobs. Many (including myself) would have preferred an extended holiday but something tells me early departures from trading desks and hedge funds are being cancelled. So, I'll remain in the turret even if commentaries grow lighter.

Lucky for us, we have 90-100% in cash positions for two months now. Unlucky for us is we're not short which is annoying and represents the greed and fear within all of us.

Major indices are down between 6-7.5% YTD. According to ICI, investors have pulled $32 billion from equity mutual funds since the "flash crash" nearly two months ago. Where is the money going? Most likely to bonds, gold and paying down debt. 

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: SHY, TIP, GLD & DGP

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.