Euro Continues to Make a Splash: Dave's Daily - TheStreet
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I won't be the first to inform you markets are a mess. No durable trends exist as day-to-day volatility remains extraordinarily high.

Today Germany's Angela Merkel drove the euro lower with comments about shorting restrictions in those markets and negative political pressures regarding the euro. Monday you noticed how both U.S. stocks and the euro were locked together step for step as both rallied. The opposite occurred Tuesday as both fell.

Volume was heavier on selling which repeats a common pattern while breadth was again negative.

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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. We're oversold again and we can stay this way longer than most imagine.

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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. The correction is continuing from the high readings of May.

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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. Put option protection is rampant especially which will make for an interesting options expiration Friday.

Continue to Major U.S. Markets

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SPY:

If the daily closing low of $111.26 doesn't hold the next level of support might be just below $105.00 as shown on weekly charts.

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MDY:

Support for Mid-Caps is clear but a break to support at around $135.00 would represent about a 14% correction from the highs.

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IWM:

Small Caps are messier and have also been a stellar performer but a break to support around $63 would be a 15% correction.

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QQQQ:

A break to support here would be over 17% roughly.

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

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XLF:

Many components here especially weak and there are doubts about European exposure and political pressure within the U.S. to bar any bailouts overseas.

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KBE, MS, C, GS, JPM:

The banksters all look to be in precarious positions and their troubles could lie in Europe debt where they might get stiffed.

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V:

What's the deal with Visa? The new financial reform package puts a burden on credit card companies to limit interest rate charges to limits set state-by-state. This will mean lower profits from many states and some accounting issues as well.

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XLB:

Demand for materials is critical to economic growth. No demand then there's little production from factories and higher unemployment.

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XLY:

Most retailers reported earnings that beat estimates although outlooks were disappointing from many including WMT today.

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IYR:

REITs suffered "finally" with the rest of the market. IYR rests now on important support. A failure to hold will cause a test of $45.

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IYT:

Transports are just grinding within the trading range.

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SHY, IEF, TLT, TIP:

Bonds were the safe place to be especially on short maturities and in inflation protected issues.

Continue to Currency & Commodity Markets

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$USD, DXY, UUP:

Bucky is on a roll as fears of a collapsing euro haunt investors. The dollar is as overbought as the euro oversold.

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FXE:

The euro is being pummeled from within Europe and without. Political leaders with Europe succumbing to tremendous political pressures are pandering to their electorate.

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GLD, DGP:

Gold is suffering from profit-taking and a flight to positions that might offer less risk like short-term dollar debt.

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DBC:

Commodity indexes like that associated with DBC are heavily weighted by energy markets and when they suffer so too will the indexes.

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$WTIC/CRUDE OIL:

Investors are scrambling away from any sector associated with risk and future economic demand. A substantial decline here indicates poor economic conditions ahead.

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XLE:

It's about demand here as well and it doesn't look promising.

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DBB:

Base metals (copper, aluminum and zinc) rallied a little today after the shellacking they took yesterday. Curious we're back at support.

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XME:

Base metals and mining shares were hit hard this week and are now at support.

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DBA:

Grains are in the midst of planting season buffeted by the strong dollar crimping exports, heavy inventory carryover and record acreage planting statistics. Not a good recipe for a rally.

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MOO:

Popular ETF is under pressure from overall market funk.

Continue to Overseas & Emerging Markets

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EFA:

Yes, EFA is the second most popular ETF by assets. But it's bearing the brunt of disaffection and turmoil in Europe.

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EEM:

Emerging Markets are dependent on commodity markets and they reflect each other in weakness or strength. With commodities weakening EM's so too is EEM.

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EWY:

If Obama doesn't send the Clintons to North Korea how about Madeline Albright? She knows how to get deals with the little man in high heels since they're about the same size.

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EWA:

Concerns about exports to China are crimping Aussie markets.

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EWZ:

Brazil is another EM dependent on commodity exports and demand from China in particular.

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RSX:

Russian markets are naturally resource rich and as prices go for this "stuff" so too goes RSX.

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FXI:

In Shanghai markets are in official bear markets. This makes things fairly simple but you can expect U.S. investors to be slower on the uptake it seems. Tuesday Shanghai markets rallied but with so many markets mimicking each other expect Shanghai to be down tonight.

Continue to Concluding Remarks

The euro and U.S. major market indices are still in a tango -- euro up, U.S. stocks up and vice versa. So risks are rising and certainly a breakup of the euro would be catastrophic to all markets in the short and intermediate term.

Earnings are ending and tonight HPQ reported earnings that, ahem, beat expectations. Logically it's trading higher in after hours trading but the major index ETFs like SPY are being brutalized.

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Today just about ended earnings reports as many consumer companies like WMT and HD reported. We posted a video podcast interview with Richard Davis of Consumer Metrics

here

. He takes consumer data apart and tells you the real story.

If you care, CPI data will be released tomorrow and no doubt this much manipulated data will show no inflation. That's comforting right?

Let's see what happens. You can follow our pithy comments on

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By Dave Fry, founder and publisher of

ETF Digest

and author of the best-selling book

Create Your Own ETF Hedge Fund.

Disclaimer: Among other issues the ETF Digest maintains positions in: MDY, IWM, QQQQ, UUP, GLD, DGP, BOM, DPK and FXP.

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.