Publish date:

Complacency Kills: Dave's Daily

Was this an out-of-the-blue selloff? Yes and no.
Author:
Image placeholder title

Investors were going along complacent as stocks were rising on light volume. Then before you could order that new Porsche "BAM!" things fell apart.

What was the big problem?

China raised interest rates a touch which caused commodities to sell-off sharply; earnings news from Apple and IBM were sold; and, the drip, drip, drip from bank mortgage issues continues. As to the latter, Pimco (the Treasury's best domestic customer) and the NY Fed want

BAC to repurchase bad mortgages

TST Recommends

. This would be sort of a reverse bailout.

Be sure to tune in to our

interview

with Telvent DTN Senior Analyst Darin Newsom as we discuss current commodity markets and the factors driving markets.

Anyway, volume increased on the sell-off while breadth was negative and perhaps enough so to register a 10/90 day for the NYSE.

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

Continue to U.S. Sectors, Stocks & Bonds

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

Continue to Currency & Commodity Markets

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

Continue to Overseas Markets & ETFs

Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title
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.

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.

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.

Continue to Concluding Remarks

Was this an out-of-the-blue selloff? Yes and no. We've been pointing out overbought conditions, the low VIX level (complacency) and the Summation Index (getting overbought) which in the past has led to sell-offs.

Also a string of daily DeMark sequential 9 readings on many indexes led to us exiting all related leveraged issues on Monday. 

Paging David Tepper!? Maybe we should ask CNBC to interview him again quickly to reinforce his "win-win" theme. Or, perhaps his previous appearance on CNBC was his opportunity to sell us stock. I'm just wondering.

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: SPY, MDY, IWM, QQQ, XLI, XLY, FAZ, XLB, IYR, UDN, FXE, GLD, SLV, AGQ, DBB, BDD, JJC, DBA, JJG, MOO, EFA, DZK, EEM, EWA, 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

.

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.