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Deal-Making Drives Markets: Dave's Daily

Stock indices were sharply higher taking out 200-day moving averages again but volume was abysmally light...again. (HAL 9000s run wild, I guess.)
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Combing through news today and with markets rallying I figured to find lots of good news and volume today; but, alas, such was not to be.

Let's see: the Empire Manufacturing Survey showed slight growth but was (ahem) below estimates; weekly Chain Store sales were down .7%; Homebuilder's Confidence imploded; important stocks like Best Buy and Nucor sharply lowered forecasts. This was most of the news. What else was there?

Ah, Spain and Ireland successfully placed bond sales so the beleaguered and oversold euro rallied (one day Greece, next day something else); semiconductor stocks were racing higher on what must be either a short-squeeze or higher PC demand and that's about it.

Oh, I know, Goldman Sachs rumored to be active buying S&P futures Thursday and Friday last week, successfully placed IPO CBOE (Chicago Board Options Exchange) at the high end of the expected range $27-29. In fact, CBOE roared higher in subsequent trading another 12% to around $32.50.

So, yeah baby, that's the ticket, yeah!!! The dealer wins again.

Stock indices were sharply higher taking out 200-day moving averages again but volume was abysmally light...again. (HAL 9000s run wild, I guess.)  Breadth was overwhelmingly positive.

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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. Much overbought.

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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. Intermediate term neutral but now turning the corner.

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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. Is the correction now over as FEAR abates? Time will tell.

Continue to Major U.S. Markets

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SPY:

Roaring ahead on light volume, but as they always say, volume isn't on your brokerage statement.

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MDY & IWM:

Both lesser indexes joined the party today despite low volumes. Both are at resistance levels which may fall by the end of the week.

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QQQQ:

As noted below all things tech were flying especially semi's.

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

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SMH, INTC, BRCM & CREE

: The perceived demand for all things semi whether for new phone technology or computers is driving prices here. It's almost like pent-up demand to buy these stocks has been sitting there waiting for an opportunity. This must be it.

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XLF, GS & AXP:

Financials were helped along today with the placement of CBOE. This will allow the insiders there to really enjoy the impending holiday--Porsches all around please. AXP noted further improvement in their credit card business since most people had them taken away.

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XLI & BA:

Industrials along for the ride, after all they're in the buy program basket as well. Boeing stated they'd deliver 35 instead of 30 new planes a month.

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XLB & AA:

Materials moved right along with markets after having a mixed day Monday.

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XRT & BBY:

You are to ignore the bad news from BBY. Their report merely indicated everyone has their big screen TVs now so barring any new devices (3-D anyone?) they're set.

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IYR:

$1.3 trillion in commercial real estate loans due in the next 3 years is a real test for this sector. Yes, they're scrambling to refinance at low rates which is helpful but where will interest rates be in 3 years when the bill comes due? But, don't worry about that now since we have a few years to party.

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IEF, TLT, TIP & BWX:

The Treasury is still able to sell plenty of bonds judging by inflows to US bonds. Spain and Ireland placed bonds and so we rallied there too. All is well until the next event.

Continue to Currency & Commodity Markets

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$USD/DXY & FXE:

Currency markets reverse course as dollar overbought and euro oversold. The news overall is weak but it doesn't take much when markets are extended either way.

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GLD:

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Gold was rallying when the dollar was moving higher and now is rising as the dollar falls. It's a confusing world but the current move is at least the more traditional one.

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DBC:

Dollar weakness is a green light for commodities to rally.

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$WTIC/CRUDE OIL:

Crude oil rallies on weak dollar and perhaps perceived increase in demand.

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XLE, UNG & BP:

Natural gas is breaking out but we've seen plenty of false moves in this long decline. We'll have to wait for the week to be over to know the situation clearly. Further it may become more apparent natural gas will be more welcomed by the administration as an important fuel alternative.

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DBB:

Base metals are rallying along with the falling dollar and perceived improved demand.

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DBA:

A huge rally in softs (coffee, cocoa and sugar) plus a drop in the dollar is helping agricultural commodities move higher.

Continue to Overseas & Emerging Markets

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EFA:

It's not like things are great in Europe, it's just less worse but that's enough to get shorts to cover.

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EEM:

EM's rally along with everything else, especially commodities and the weaker dollar.

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EWY:

To the North they say: "You can huff and puff, but we don't care!"

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EWA:

Commodities rally as the dollar falls and this is the story for all the markets that follow.

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EPI:

India markets seem oblivious to issues revolving around Europe and elsewhere.

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FXI:

Even with a holiday you can still play on the next move in China with FXI.

Continue to Concluding Remarks

The dealer and the house usually win don't they? I suppose it would be sheer speculation to think the kings of Wall Street were propping markets late last week and this week to get deals done. But then it would be naïve to think otherwise. After over 35 years of being in the business let's just say I've seen this movie before.

Tonight we get a speech from the president telling us all he's doing to clean up the oil spill, punish the perpetrators and use the opportunity to push for another big government program "cap and trade". Don't buy it since it has nothing to do with what's happened in the Gulf.

Wednesday will feature Housing Starts, Building Permits, PPI and CPI, Industrial Production and energy inventories. These should offer plenty of opportunities to spin things one way or another; but, given today's show of cherry-picking only a shred of good news, it seems obvious the way things will go. But you know, that's why they play the game!

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: TIP, UUP, EUO, GLD, EFZ and EUM.

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.