Some investors know what to do when trouble strikes and that's to act like lemmings. I thought this would be a quiet time before month's end and employment data on Thursday and Friday. Such was not to be.
A trifecta of blows hit markets Tuesday. First, Chinese authorities made some math mistakes in calculating their Leading Indicators first reporting growth at 1.7% only to realize it really was just .3%. That put heavy downward pressure on Shanghai and Asian markets in general. Next, European markets didn't like that news and more negative rumors of a massive IMF bailout in the works in the eurozone plus more troubles at Bank Santander. The U.S. Consumer Confidence came in at the miserable reading of 52.9 versus expectations of 62 and U.S. stocks crumbled.
One chart we've been displaying now and again is from our own internal chart data. It shows the "weekly" DeMark "9" reading we value as showing
meaning most of the time the market could move sideways or reverse. When the indicator is wrong, less frequently it means the existing trend is very strong and will overpower it. Below is a weekly chart of
(S&P 500 ETF) and it speaks for itself.
Some Dow Theorists' believe the DJIA must not close below the recent low 9816 while other analysts following the S&P 500 Index must not close below 1040, its recent low. The former closed today about 50 points above that level while the latter eked-out a rise of only 1 point above having been below 1040 with only a few minutes to go.
Volume once again on a major down day was high. Breadth (by the time the dust settles) probably scored a 10/90 negative day.
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. Short-term getting somewhat oversold and another day like Tuesday and it will be oversold.
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 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. Fear is on the rise big-time.
Continue to Major U.S. Markets
The charts explain everything better than me. You can see support and resistance as we've been drawing them for many weeks now.
The same situation applies to these markets as stocks crater and support lines are being tested. Again, the further down the menu you go the worse things appear.
Even tech fell substantially with even (shock & awe) Apple falling.
Continue to U.S. Market Sectors, Selected Stocks & Bonds
THE FOUR HORSEMEN WITH SMH, MU, AAPL, AMZN, GOOG, GS, KBE & XLF:
It's all pretty straightforward. Semi's fell with Micron's report which was good from first views but confusing in outlook. Then Apple announced late in the day perhaps they'll have a Verizon phone in January. Amazon, on the other hand, is rumored as prepared to dump the Kindle. Google continues to have problems with China. Barney "A fella's gotta do, what a fella's gotta do" Frank has removed the $20 billion bank tax to win approval. Most of this stuff was good news to all these sectors but investors weren't in a listening mood.
Every sector the same.
A defensive sector like healthcare is at serious support.
Materials are where it all begins for industry and it looks like demand is slack.
With Consumer Confidence this low, XLY is doing better than you'd expect.
Hanging on by its hoped-for dividend.
Transports show nothing is moving but support levels are clear.
SHY, IEF, TLT & TIP:
Clearly this has been where the action is.
Continue to Currency & Commodity Markets
$USD/DXY & FXE:
The eurozone problems continue to bubble to the surface like oil in the Gulf.
Gold found some but not much support Tuesday as investors continue to not trust fiat money.
Energy and most commodities weighed on DBC as a weakening economy stifles demand.
: Not all precious metals are built alike and silver is still the poor man's gold.
$WTIC/CRUDE OIL & UNG:
Commodities were led lower by energy. UNG couldn't hold the 22 period moving average but it's only Tuesday.
Now from my perspective as a trend-follower this is one ugly chart.
Base metals took it on the chin along with other commodities. This sector is important toward diagnosing economic health.
Stocks are stocks no matter their involvement in base or precious metals.
Grains just can't get a bid as dollar rise hurts and most everything else comes down.
Continue to Overseas & Emerging Markets
There's a reason sometimes to be in cash.
EM's suffer with declining commodity prices. EEM chart looks similar to XLB since they have similar forces driving them.
Manufacturing data has been poor and the rising yen doesn't help exports.
For Korea a trade deal is in the works but if the U.S. consumer is slowing down then all bets are off.
The Aussies are dependent on strong export demand from their primary consumer in China. Weakness there means slack growth down under.
And I thought we were the only ones spending money foolishly. Canada had the Olympics which may be a bust financially but also they hosted the G-20. Why would they want to? It cost them $900M in just security and what was accomplished besides violence and no agreements worth a damn.
Another commodity-based economy with a good soccer team.
The Russian's are said to be furious over the spy arrests. It's embarrassing when you get caught with your pants down especially by this administration.
India seems able to withstand the pressure more than most sectors. How long that will last is anyone's guess.
China markets started things off Tuesday with math problems from on high and were crushed by 4% for the most part. Nevertheless, all we see here is a very long trading range that's now over a year old.
Continue to Concluding Remarks
Today was a surprise since all the bad news coming in wasn't expected at all. It drove some investors right off a cliff!
Now, important support has held for now in most index ETFs. As a follower of "weekly" charts primarily, the week must play out before we put a fork in it.
If you're a dip buyer, you should view this decline as an opportunity. We're not so don't. Rather, as a trend-follower we'd look to be short at some point. Our only saving grace, and it's a big one, is we've been primarily in cash since mid-April when DeMark "9's" started to proliferate.
We're not big aficionados of head and shoulders patterns since you can see them often with little result; however, the plethora of them currently on both daily and weekly charts is impressive.
Wednesday marks the end of the month and there's little it seems in economic data or earnings that bulls will find to save the quarter or YTD results.
Bernanke and Obama said all was fine in the garden with some difficult conditions still remaining but growth was still unfolding. Further, the Summer of Recovery is upon us they tell us. It shouldn't surprise if Bernanke engineers more liquidity for Da Boyz to use.
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: SHY, TIP, GLD and DGP.
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
Dave Fry is founder and publisher of
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