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Markets followed-on Monday's malaise with heavy selling tied to worries from China that inflation was getting out of control. This caused commodity markets to implode. It was reported the Chinese government was dumping stockpiles of grains and meats on markets to drive prices lower. The commodity exchanges have increased precious metals margins twice in the last week which usually stems rallies and that continued this week.

Furthermore, investors are having second thoughts about the Fed's QE policies as they become more concerned with China's moves in the opposite direction. It just shows how leadership is changing in the 21

st

century.

Emerging Market stocks well-tied to commodity markets and with more volatility anyway fell harder than other markets.

Earnings were coming in roughly as expected from powerhouses like HD and WMT.

Meanwhile Industrial Production was weaker than expected and the PPI was up less than expected (and, yes the laughable "core" rate was down).

Bonds rallied, reversing previous declines, in perhaps a brief flight to safety.

It seems clear that our DeMark sequential weekly 9 counts well illustrated here many times have once again called an exit correctly with many such views on November 5th.

Volume was heavy once again on selling as no doubt stops were hit throughout the day. Breadth was very negative as markets are now short-term oversold.

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Continue to U.S. Sectors, Stocks & Bonds

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Continue to Currency & Commodity Markets

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Continue to Overseas Markets & ETFs

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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

Given that its mid-November, 2010 is shaping up to be crummy year with abortive rallies, flash crashes and extended trading ranges. DeMark counts have protected us from trouble but it's been hard to make decent returns beyond a few sectors or shares.

There isn't much in the way of economic data unless you think there's anything valid in CPI calculations. We'll continue to get more earnings news as the season winds up mostly with more retail reports.

Markets are short-term much oversold as you can clearly see by the reliable NYMO indicator with a reading of -87. You'll occasionally get readings near -100 but those are rare. So I wouldn't be initiating any short positions right now.

Away from all that, sometimes I think it would be better for governments just to leave markets alone, period. I was just reading about the Panic of 1837. There was no central bank at the time and Wall Street stocks and banks collapsed. (In fact one bank physically collapsed!) The Bank of England stepped-in to the vacuum as it saw a business opportunity. A year or so later everything was back up and running as before. Yes, fortunes were lost and that's a shame but fortunes were lost this time around as well. The only profits made today were by those undeserving folks running our taxpayer rescued banks. That's my thought of the day.

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: SPY, MDY, IWM, TZA, QQQQ, XLI, XLU, TBF, UDN, FXE, EMB, DBC, DBA, USL, EFA, EEM, EWJ, EWA, EWC, EWZ, RSX, EPI, EWY & FXI.

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.