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Critical levels of support were broken Thursday for the Dow Industrials 30 (10K, psychological) and S&P 500 (1050). There's a day left in the week when GDP and Confidence data will be delivered and Bernanke will speak. This makes tomorrow's action (notwithstanding a possible Fed surprise before the open Monday) where bulls must fight to hold things together. It's getting that serious.

Jobless Claims were better than forecast but through it all they're still just crawling along the ocean floor. But, it gave bulls a headline to boost things early only to see conviction fade later as selling took hold.

The Fed also launched another

POMO

TST Recommends

of only $1.4 billion which gave Primary Dealers some cash to work with. What's the point? The Treasury sells and the Fed buys--a silly Keynesian Ponzi Scheme that accomplishes what?

Volume was somewhat lighter than Wednesday's fun and games but breadth sharply reversed course in a negative way.

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SPY

: I can post any number of charts of major indexes but you'll get the same view. The week's not over and Friday should be significant to see if bulls can hold the line. The DJIA is an important index and much followed. It's the index most of the world and Main Street follow. The psychological level of 10K is just another number--cynically some say, it's "just window dressing for the tourists". Below this often watched index is the real story from SPY, MDY, IWM & QQQQ. That's where the important action takes place and where investors should really focus their attention.

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MDY & IWM

: Deeper into the bowels of Mr. Market and you can better see the distress and potential for a much more serious decline.

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QQQQ & AAPL

: The trends are faltering as support is near. The 22 period MA has turned over and is now declining and the MACD is negative. We remain on the sidelines while the battle rages.

Continue to U.S. Sectors, Stocks & Bonds

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IBM, CSCO & IGN

: A couple of select tech names and sector to give you a sense of current precariousness.

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BA & XLI

: Boeing led markets higher early but then fell apart late.

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WMT, GES & XRT

: The good, the bad and the ugly.

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MCD & XLY

: Do folks in all those McMansions cook? Or, do they just go to McDonalds then eat in their designer kitchen complexes?

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XLB

: Materials rose the most in the recent ramp higher and now have a ways to go before they break apart.

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XLF

: Financials struggle but aren't they the ones getting all this love money from Uncle Sugar?

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IYR

: It's about the yield until it's not--simple as that. Once investors start questioning the safety of the yield they'll bail.

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IEF, TLT, LQD, TIP & MUB

: You couldn't make this stuff up if you tried!

Continue to Currency & Commodity Markets

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$USD/DXY, FXE & FXY

: The end game for Uncle Buck would be QE2 many smart people believe. Where would they turn? Next chart please.

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GLD & SLV

: It's not rocket science to suggest if the Fed starts easing aggressively, the dollar would be toast and gold would rally. On the COMEX today was options expiration and we had our usual games there. But, keep your eye on silver for a breakout from this range.

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DBC

: Back and forth we go within a trading range going back 18 months.

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$WTIC, XLE & FCG

: The pop in crude oil can only be explained by oversold conditions combined with fears over QE2 potential. With the latter the concern is with a sharp decline in the dollar which would drive commodity prices higher.

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DBB & XME

: Metals prices can move higher but related stocks can always fall in a bear market.

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DBA & MOO

: Ag prices recovered some on Thursday but here too, stocks related to this sector suffered.

Continue to Overseas Markets & ETFs

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EFA

: European stocks had a better day but even those linked there couldn't avoid some late Thursday selling.

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EEM

: EM's are simply range bound for now.

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EWZ & BRF

: Things are as great in Brazil now with many weather related problems including drought, fires and crop failures.

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RSX

: Moving sideways within a trading range is about all one can glean.

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EPI

: India isn't immune from economic difficulties globally although this chart isn't that bad.

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FXI

: This wraps it up for us on Thursday. China stocks did advance slightly Thursday but not on the NYSE.

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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

This where we fight?!? You betcha! Support lines have been broken, but there's another day to go before we can hammer it down. So bulls had better get their HAL 9000s cranked up and ready to go.

Friday Bernanke will make a speech and we'll see if he launches QE2 or even hints at it. There was more POMO today and perhaps there will be more in the future. So far they've just dipped their (ours?) collective toe in the water but they could do much more. The printing presses are running but on idle. It does seem a right hand (Treasury sells bonds) left hand (the Fed buys those bonds) scheme. What good can come of it is beyond my ability to know since I slept through Money & Banking classes.

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: GLD, TIP, LQD, DBA, BRF and EPI.

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.