German Vote to Save Euro Friday: Dave's Daily - TheStreet

German Vote to Save Euro Friday: Dave's Daily

The German government is forced to make the hard choices required which, if approved, would save the euro. If they fail, chaos will ensue, period.
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How many themes and images are there to describe Thursday's action? More than we can apply to one commentary. Suffice it to say a lot a bad news hit the fan Thursday and throughout most of the week.

Friday the German government is forced to make the hard choices required which, if approved, would save the EMU or euro. If they fail, chaos will ensue, period.

The 2010 gains markets worked hard to accumulate have been, as of today, wiped-out.

The Congress has passed a questionable or controversial financial reform legislation which some believe is another government overreach into the private sector while others feel it too weak. (It may have enhanced selling today.)

The SEC scrambles to put together new circuit breakers to prevent another "flash crash".

The U.S. Fed/Treasury is busy intervening theoretically along with their European counterparts to support the euro by selling dollars. Is that a good thing?

Precious metals and any other asset not perceived as without risk continue to be heavily sold.

Rumors also swirled regarding the integrity of Japanese debt and even Mexican debt before Calderon can eat dessert.

Volume remains high on the downside and breadth negative in a 10/90 manner as markets become extremely short-term oversold.

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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 oversold now and be careful.

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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. We're back to those mean old days of 2008/9.

Continue to Major U.S. Markets

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SPY:

This may have been a "Mutual Fund Sell Day" with many sell orders bunched up into the close where they must be executed. Funny thing, I was just reading somewhere how great it was during the "flash crash" to be in mutual funds versus ETFs because you got better executions. How's that workin' for ya today? SPY and many other major market sectors took out 200 day MAs which will prompt more automated selling.

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MDY:

The further down the food chain you go there is more underperformance as risk aversion increases.

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IWM:

Once again the riskier the sector the bigger the decline on down days. You'll see that in spades in Small-Caps.

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QQQQ:

Tech performs relatively better given its heavy weighting in higher priced constituents like Google.

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

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DELL & BRCD

: Both tech companies reported earnings and outlooks that disappointed investors.

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GOOG:

Google is breaking down like many other stocks but also after aggressive announcements for a TV network.

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XLF, KBE, KRE:

Banks and most financials are being hit hard obviously with the two prominent bank sectors down nearly 10% on the week.

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XLI, MMM:

You can pick any stock within the group and find poor results including BA, CAT and even the big dog MMM.

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XLV:

Healthcare sector has been struggling since healthcare bill passed and then upon various drug trials with disappointing results.

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XLB:

The materials sector is struggling with everything else but also being hurt by commodity prices.

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XLY:

Sometimes things will make sense like consumer discretionary sector finally seeing some selling after its meteoric logic-defying rise.

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IYR:

There's not much chance for REITs to do well in an environment like this. What will hold it up is the dividend as long as companies pay them.

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IYT:

Not much to say about this other than markets are "forward-looking" right? They don't see as much activity going forward.

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SHY, IEF, TLT:

Have all of us been looking for love in all the wrong places? It seems so.

Continue to Currency & Commodity Markets

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$USD DXY, UUP, FXE:

A high level of government and central bank intervention to stem losses in the euro was a central theme today. Is that the best use of US taxpayer money? I don't think so.

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FXY:

The rally in the yen is an unwinding of cross-rate "carry trades" from those short the euro vs yen.

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FXA:

Other currencies like higher yielding Aussie dollar and NZ dollar were victims of the unwinding as central bank intervention forced unwinding of these trades.

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GLD:

The high prices of gold are a slap in the face to the central banksters and they'll do what they can to put this market down. They'll do it directly or through their Wall Street proxies.

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DBC:

Commodities hit just as hard as risk aversion trades rise.

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$WTIC/CRUDE OIL:

The trading range $70-90 is obviously perilously close to giving way. They'll have to unleash the Nigerian rebels to pump things up.

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XLE:

Energy ETF in complete breakdown with former trading range giving way.

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DBB:

Here's a market that didn't close on its low perhaps they ran out of zinc somewhere which is one-third of the index.

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JJC:

Copper rallied today and may have been one of the few commodities to have done so.

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XME:

Base metals mining and some finished products like steel were hurt all week from a perceived lack of forward demand and risk aversion.

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DBA:

The story remains the same--too much acreage planted, too much carry over inventories and, until today, a stronger dollar.

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MOO:

Nicely conceived product that is struggling with everything else for now. Evidently farmers won't be wanting fertilizer, seed or equipment right?

Continue to Overseas & Emerging Markets

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EFA:

At the heart of the matter is EFA and its cousin IEV. If the German's approve the harsh measures things can be saved temporarily. If not, all hell will break loose.

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EEM:

Higher beta/volatility, higher risk. It's just that simple. Stir in heavy commodity market weakness and the story gets worse.

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EWJ:

Little to comment on since the market's been pretty boring overall.

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EWY:

What's a torpedo between neighbors?

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EWA:

A lot of pressure regarding Chinese economic situation and subsequent demand for raw materials. End of story.

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EWC:

North of the border, they're still playing hockey and doing other neat stuff like drilling for oil, mining, timber and etc. No one's liking that stuff right now except maybe the hockey part.

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EWZ:

Brazil is in the same shape as any other commodity driven export country--not a good thing right now. You're seeing the downside of the high beta.

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RSX:

Here too it's the same story with commodities and pressure from them.

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EPI:

Nothing much to report since like all other EM's it's mimicking them.

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FXI:

Here we see another level of support being tested. The main markets in Shanghai are officially in bear markets down over 30% from recent highs.

Continue to Concluding Remarks

A confluence of events is taking place. And no, I won't use that hackneyed

perfect storm

analogy.

Tomorrow is options expiration. A lot of traders within and without the pits are on the wrong side of things. They'll be trying to manipulate markets toward strike prices for fun and profit.

Tomorrow Germany decides the fate of the euro. A no vote will destroy markets everywhere causing chaos unless they're hording a large stash of D-Marks somewhere.

This afternoon was no doubt a mutual fund redemption extravaganza. Those mutual fund managers had bundled up wads of "get me out" orders to be completed at the closing NAV levels at 4 PM. They must be still working with that.

My only advice is to be patient and don't jump at things but I'll admit to be seriously worried about Merkel et al.

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, TIP, SHY, UUP, GLD, 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.