Markets in Turmoil: Dave's Daily

Stocks are still oversold by most measures but that doesn't mean they can't remain so for longer than most expect.
Author:
Publish date:
Image placeholder title

U.S. stocks and global stocks for that matter are still having a rough time. Worse was the obvious intervention in currency markets to rally the euro and a subsequent bear raid on gold, silver and other precious metals. The powers that be, don't like the message high prices send investors and these actions today crushed prices.

Important news not well delivered was $9 billion was removed from equity mutual funds following the so-called "flash crash". This reflects how poor retail investor confidence in all things Wall Street remains.

Markets were near the lows of the day Wednesday when the FOMC minutes were released that showed a more optimistic Fed as to U.S. economic growth so stocks rallied some off their lows. They were unable to decide when to sell their horde of mortgage-backed securities however.

Stocks are still oversold by most measures but that doesn't mean they can't remain so for longer than most expect. Remember, options expiration is Friday and will play a big role in a market like this.

Volume was heavy once again on selling while breadth remains negative.

Image placeholder title
Image placeholder title

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 and you can expect a rally off these levels.

Image placeholder title

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. Markets continue to correct from their much overbought levels.

Image placeholder title

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 dominates investors at the moment. This should be interesting during options expiration.

Continue to Major U.S. Markets

Image placeholder title
Image placeholder title
Image placeholder title

SPY:

I'm not sure given how oversold markets are short-term that we won't rally out of this range if only briefly. The catalyst may be options expiration where the least obvious things can happen.

Image placeholder title

MDY:

It's strange that Mid-Caps are suddenly underperforming their big brother. This may not be a good sign.

Image placeholder title

IWM:

Small-Caps also are underperforming which emphasizes distribution and weakness. But with IWM we're just on support right now.

Image placeholder title

QQQQ:

Tech got a relative lift today from HPQ which in turned helped semiconductor sectors.

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

Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title

XLF:

It's a sign of how pathetic conditions are when financials are leading markets in strength today. It must be because of the mess that so-called financial reform has come to in the Senate.

Image placeholder title
Image placeholder title
Image placeholder title

XLI:

Industrials were the big market losers today as their leaders CAT and BA for example struggled.

Image placeholder title
Image placeholder title

XLB:

Materials performance reflects poor economic conditions overall and AA does that in spades.

Image placeholder title
Image placeholder title

XLY:

The consumer discretionary sector is confounding most logic. It's true MCD, DIS, KO and TW for example are doing well with movies and dollar meals; but, even XRT which is mostly chain stores, stuns with the same performance. It's stunning because of unemployment and housing data.

Image placeholder title

IYR:

If we rally out of the range the sell-off will be dismissed as just a too far too fast move. M&A activity will have to pick up as will mall traffic once again.

Image placeholder title

IYT:

You need to cut transport sector a wide berth given its inherent volatility. If shipping slows then that's a sign economic conditions are slowing.

Image placeholder title
Image placeholder title
Image placeholder title

IEF, TLT, TIP:

Bonds overall are the big winner this week due to safe-haven rules.

Continue to Currency & Commodity Markets

Image placeholder title
Image placeholder title
Image placeholder title
Image placeholder title

$USD,DXY, UUP, FXE, FXA:

Whether direct or through proxy brokers/banks, central banks went all out intervening in currency markets to stop the bleeding in the euro. This is done frequently often with abrupt effectiveness but usually short-lived.

Image placeholder title

Image placeholder title

GLD, SLV:

Today featured a massive bear raid on precious metals and I would encourage you to read

Jesse's Café Americain

for the brutal details.

Image placeholder title

DBC:

The commodity tracking index is now at the bottom of its trading range and in a precarious position. Metals and energy are holding it back.

Image placeholder title

$WTIC/CRUDE OIL:

Remember, this view can differ some from what you might see elsewhere as they vary the rollover to new month contracts from quote vendors. Nevertheless, this crude oil is fighting at support.

Image placeholder title

XLE:

Energy remains weak and so are stocks overall so that just drags things down period.

Image placeholder title

DBB:

Made up of equal parts copper, aluminum and zinc the condition of base metals indicates strong or weak demand period. Things aren't looking good at the moment.

Continue to Overseas & Emerging Markets

Image placeholder title

EFA:

This popular ETF is struggling with Europe and to a lesser extent Asia. Support is clear. European and Asian markets were hit hard before NY opened and it just shows you how quickly those declines become stale data.

Image placeholder title

EEM:

Emerging Markets have more volatility and therefore on down periods they underperform especially when commodity markets are weak as now.

Image placeholder title

EWJ:

At best a trading range...until it's not.

Image placeholder title

EWY:

Oh those pesky North Koreans--what to do? Nothing it seems.

Image placeholder title

EWA:

Falling sharply with commodity prices, especially base metals, and now the Aussie dollar for overseas investors.

Image placeholder title

EWC:

It is pretty amazing, or not, how many markets are resting on support levels.

Image placeholder title

EWZ:  

This market is breaking down much like Australia. You have to be mindful of the downside especially in Brazil given previous severe and abrupt downturns.

Image placeholder title

EPI:

Here too the market remains on support. It appears obvious StockCharts hasn't yet scrubbed their data of the bad data point.

Image placeholder title

FXI:

The market is doing much better than its index would lead you to believe since most of China is in an official bear market off 30% from its highs. Below is the FTSE Xinhua Index weekly chart and you can see the poor tracking. Remember, this is what stale data will produce.

Image placeholder title

Continue to Concluding Remarks

The attempts by governments whether directly or through proxies to intervene in currency and precious metals markets isn't surprising even though it's disappointing. Markets should be allowed to work without the nanny activities of the oligarchs running the world. Even German and European attempts to thwart CDS trading are amusing since it can't be stopped. Placing restrictions on naked shorting of bonds is understandable frankly but any attempts to restrict shorting in general are a mistake. Again maintaining the integrity of free markets is important. These manipulations of the rules and direct or indirect market interventions are no different than a major casino kicking you out for winning too much.

Zero Hedge

has this well analyzed anyway.

But I digress.

Obviously, since we're long gold and silver I'm none too pleased with this interference.

Tomorrow we get more Jobless Claims, Leading Indicators and the Philly Fed data which, taken together, and given options expiration and oversold conditions make markets ripe for a rally. 

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

twitter

and become a fan of ETF Digest on

facebook

.

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, UUP, GLD, DGP, SLV, AGQ, 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.