I Love the Smell of Kinko's in the Morning: Dave's Daily

The markets have a serious bullish undertone fed by these ideas of a further injection of liquidity.
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There's a lot of buzz among bulls that bad economic news is great news. They believe it will lead to

another round of Fed quantitative easing (QE2)

which will cause another stock market moon shot a la March 2009. So, the worse the news gets the antsier the administration. Bernanke and the Treasury get to unleash another round of stimulus. One idea floated today via

Reuters

is to empower Fannie and Freddie to bailout home owners who are underwater. That is, give them new lower mortgages more aligned to the current values of their homes. This then would require more money printing and future debt for those paying their mortgages as agreed now. Moral Hazard be damned! (I can almost hear Santelli screaming from afar!)

The markets have a serious bullish undertone fed by these ideas of a further injection of liquidity. The worse the economic news, the greater QE2 becomes it seems. After all, Monday we had a huge light volume rally. It was followed by terrible economic and earnings news Tuesday but markets barely budged. Wednesday we rallied back eliminating Tuesday's decline on little positive news. Thursday's jobless news led to a gap open lower which was quickly bought and stocks closed little changed on light volume.

Is it a massive liquidity injection Da Boyz smell or insiders know?

Volume was once again ultra-light but breadth negative.

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SPY:

We're right at resistance and with volume light bulls can keep things managed to their advantage. Those at the wheel may know many things us earthlings don't.

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MDY & IWM:

I'm watching Small-Caps more closely since they reveal more sensitivity to economic data.

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QQQQ:

Tech still rules the roost frankly and it's breaking out.

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

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AAPL & GOOG

: Two notable tech names, one drifting along the other challenging resistance.

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IBB

: Biotech looks strong and breaking into the neckline.

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GS, KIE & XLF:

Why should we worry about financials when the Fed and government will do anything to keep things going in the right direction? For those interested buying into a GS prop desk spin off, this should be interesting. GS is just a large hedge fund anyway.

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IYZ:

Telecom has been a volatile winner given lots of M&A discussions and new contracts for this and that.

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XLB:

Materials remain strong overall despite DOW's poor performance the other day and toppiness in base metals.

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XLY & XRT:

Long/short trades haven't worked well in this environment but one would ⿿think⿝ long XLY vs short XRT would make some sense.

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IYR:

It's hard not to let your emotions get in the way. IYR is caught up in the positives on the low interest rate environment plus the panic for yield.

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IYT & $BDI:

Transports are strong while the Baltic Dry is trying to recover. Perhaps some ships are being mothballed for now.

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IEF & TLT:

Mortgages are priced off the 10-year Treasury. Rates now hit 4.49% today, a level not seen in my lifetime.

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TIP:

It's another massive money print investors' fear here. No inflation? My a$$.

Continue to Currency & Commodity Markets

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$USD/DXY, UDN, FXE, ULE & FXY:

If there is a QE2 you can kiss Uncle Buck goodbye.

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GLD & SLV:

Gold will explode higher with QE2 and silver could do the same. My understanding is a lot short positions are being unwound in silver currently.

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DBC:

You want QE2, you'll be paying for it one way or another.

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$WTIC/CRUDE OIL & XLE:

I don't have a lot of love for XLE given its choppy and trendless behavior. When I feel this way emotionally is probably the time to get interested.

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DBB & JJC:

Base metals took Thursday off.

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XME:

Still fighting for a larger breakout in the miners.

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DBA & JJG:

DBA is held back by other ag commodities like meats and softs. In the meantime, Russia's wheat export ban due to drought could continue to reverberate through the entire commodity sector.

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MOO:

This agribusiness sector is loaded with ⿿seed⿝ companies (Monsanto & Mosaic) among others that produce drought and disease resistant seeds. Whether you like GMO or not, this is where it's happening. Herein are also fertilizer companies like Potash that assist farmers particularly in third world countries where production per acre is a fraction of those in the U.S.

Continue to Overseas & Emerging Markets

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EFA:

You really have to put your emotions aside even though the nonsense coming from the ECB is just that.

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EEM:

EM's are doing well with commodities plus their internal demographics are superior to growth versus most developed markets.

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EWJ:

The strong yen helps U.S. holders but hurts Japanese exporters.

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EWY:

South Korea conducting naval operations. Should that be a worry beyond bluster? Probably not.

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EWA:

Rio Tinto reports monster earnings results and things overall are doing well down under.

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EWC:

Pushing new resistance levels on rising commodity prices.

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EWZ:

Moving higher with commodities overall.

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RSX:

Russia bans wheat exports due to internal drought conditions.

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EPI:

There's little new to add since nothing has changed much and the market just inches higher each day it seems.

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TUR

: Turkey is a market where the demographics are perfect for growth as long as there's peace.

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FXI:

Right, I didn't change anything in the chart above since there isn't any reason to.

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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

There was nothing to talk about yesterday so there was no post. Today's a different story. The bad economic news continues but bulls don't seem to mind since Uncle Sugar is gonna get that Kinko's fired-up and launch the liquidity shot heard round the world. This could or should crush the dollar, may raise interest rates, spike commodity prices and will put you, your children and grandchildren on the hook. Clearly, nobody wants to pay somebody else's mortgage. If you've been doing your job paying your bills why should you bailout somebody who made an investing mistake? Why did we bailout Wall Street for that matter?

And after we helped those on Wall Street what did they do? They made money trading the very toxic waste they created for which they were bailed out. Astounding, isn't it?

So now Bernanke puts his academic theories to the test and we're the guinea pigs. It's all pretty crazy and politically desperate.

Okay, so that's my little rant. I'm sure Rick Santelli will do a better job when given the chance.

Friday we get employment data. I guess bulls must be hoping for a bad number so they'll get the QE2 they've been expecting. If we open lower then rally the table will be set for something larger. I'll go out in the street yelling, "I love Big Brother!" since that's my job.

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, UDN, ULE & TUR.

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.