Data Overwhelms POMO: Dave's Daily

The battle between bulls (better earnings and Fed POMO) and bears (horrible economic data) continues.
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Not all the Fed's efforts will lead to good results. Even with a few billion of POMO (Permanent Open Market Operations see link

HERE

) thrown the Primary Dealers' way Da Boyz couldn't defeat the absolutely miserable economic data (Jobless Claims +500K and Philly Fed -7.7) announced Thursday.

We hit the end of the road for earnings for the most part as DELL, GPS & HPQ and a few others report earnings after the close -- more on these reports in the summary.

What we have is one of the most difficult types of markets for traders and investors to deal with -- a volatile trading range environment in stocks and many commodities. Toss in a bond bubble (the 10-year below 2.6%), higher gold prices (the deflation vs. inflation battle), a rapidly declining economy, light volume and things get more and more difficult for everyone.

Further, financial engineering games don't end with the Fed as private companies, using cheap money and high cash balances, buy back shares.

We repeat the previous pattern of heavier volume on a selloff vs. these light volume melt-ups. Breadth was quite negative.

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SPY

: This pesky trading range endures along with the H&S top formation.

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MDY & IWM

: Smallies are in the worst shape presently and that's because they tend to underperform when markets decline especially when economic news is poor.

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QQQQ & AAPL

: The twins put in the same overall performance for the week thus far.

Continue to U.S. Sectors, Stocks & Bonds

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IGV & MFE

: Software shares were higher due to the McAfee acquisition by Intel. McAfee virus protection software sucks so count me as a nonbeliever.

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GOOG & FDN:

Internet giant Google was a drag on FDN which is a nicely constructed but poorly followed ETF.

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'

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SMH & INTC

: Intel's decision to buy McAfee wasn't well-received and not because it was dilutive but because it was perceived as dumb. Yes, it's true, many devices will have chips with embedded security which customers will demand. But McAfee?

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SHLD, SPLS & XRT

: Sears missed on earnings slightly while Staples made its number but guided lower. XRT is looking better than it should IMHO.

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XLB

: Materials are at the core of industrial growth and the reality from the data hurt the sector Thursday.

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BAC, KBE & XLF

: Many bank stocks show a similar look to Bank of America. They look quite fragile but Uncle Sugar is tossing them some dough.

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IEF, TLT & MUB

: You could examine just about any fixed income sector and find the mania and panic still present. Eventually there will be zero yields, then what? As far as munis are concerned, and despite financial stress, buyers expect higher taxes and that stokes more buying.

Continue to Currency & Commodity Markets

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$USD/DXY:

The dollar may find more buying if safe haven buying resumes.

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GLD & GDX

: Gold still finds buying while GDX saw some profit-taking since they're primarily regarded as stocks first and gold second.

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DBC

: Poor economic data weighs on commodity markets.

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$WTIC & XLE

: Here too energy prices and related stocks succumb to fears about low demand in a declining economy.

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FCX & DBB

: Declining economic data hits home here as well.

Continue to Overseas Markets & ETFs

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EFA

: Most European shares rose early with higher GDP data from Germany but then succumbed later with linkage to U.S. data.

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EEM

: All things considered, not a bad week given the sell-off in commodity markets.

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EWY

: Korea shares do better but hard to imagine them decoupling from the U.S. given trade relationship.

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EPI

: India's major index, the SenSex, made 30 month highs Thursday.

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EWZ

: Restrained by commodity markets and overall economic uncertainty globally.

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RSX

: Russian markets are just in the same trading range view as many others, especially those connected to commodities

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FXI

: Over a year now of just churning about in a trading range. Hard to make much progress in this environment.

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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

The battle between bulls (better earnings and Fed POMO) and bears (horrible economic data) continues apace. This puts us in a trading range which is difficult for most trading systems to deal with. You go along a few days with light volume melt-ups only to see markets smashed lower in high volume distress. It ruins good risk management strategies.

Investors continue to exit stock mutual funds with, according to ICI, the 15

th

straight week of outflows. As noted yesterday, many institutions are being forced by clients to stick with a bond which has now created a bubble. Hedge funds, on the other hand, believe inflation will occur ultimately and have built large positions in gold.

After the close Thursday, more earnings were released from HPQ, DELL and GPS to name a few. The action for most after the release was mostly negative. Tomorrow will end most earnings news for the previous quarter.

Bulls only have the Fed to help them build some type of rally with their POMO programs with the next ones scheduled for the 24

th

and 26

th

.

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, DGP, UDN 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.