Markets on Autopilot: Dave's Daily

Equity mutual funds have historically low cash balances and large banks are phasing out trading operations. So what's the stimulus to take markets higher?
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Volume is as low as many holiday trading days and it is Rosh Hashanah after all.

Equity mutual funds have historically low cash balances and large banks are phasing out trading operations. So what's the stimulus to take markets higher? The only players are hedge funds and the HFTs.

Next week brings some real economic data which can and should move markets: Retail Sales, NY Fed Empire Mfg, Industrial Production, Jobless Claims, Philly Fed and Michigan Consumer Sentiment.

Friday's driving force was to recapture the 200-day MA once again which bulls hope will suck-in more buyers. Beyond this there wasn't any positive market moving news.

Volume was incredibly light but breadth was again positive putting markets short-term overbought.

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SPY

: Here's the deal -- we traded hardly any volume this week. It's a holiday for some and perhaps some of those operating those HAL 9000s have investors primed to jump-in markets long to sell you their accumulated shares. This is a programmable moment.

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MDY & IWM

: The positive action this week was away from the lesser sectors.

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QQQQ, AAPL & XLK

: Investors following the QQQQs and believing they're well exposed to tech are being misled by the weird overweighting of Apple within the index.

Continue to U.S. Sectors, Stocks & Bonds

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SMH, TXN & NSM

: All companies had poor reports. You can see why the Apple weighting in the QQQQ's is misleading to most tech investors. While many chip companies are offshore (Samsung) semis are at the heart of tech strength or weakness.

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XLB

: Materials just at resistance still.

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XLF & JPM

: It's hard to imagine how banks will profit as much in the future without their proprietary trading units.

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XLY, XRT & BBBY

: Is the consumer ready to go on a shopping spree? Some must think so. How many days until Christmas again?

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IYR

: If it weakens it might mean there's less desire for yield.

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IYT & CSX

: Transports remain one of the stronger sectors and some of this may be traced to inventory build and new car model rollouts.

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XLU & PCG

: A buying opportunity for PCG at support? You go first.

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XLV & MRK

: There is a lot of sector rotation taking place especially toward defensive bigger names.

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IEF & TLT

: A global sea of government debt coming home to roost. The Fed can try keeping interest rates low for an extended period but the bond vigilantes may not let them.

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TIP

: While off a little not nearly the decline experienced by the unprotected area.

Continue to Currency & Commodity Markets

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$USD/DXY

: Uncle Buck doesn't know up from down at the moment.

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FXE & FXY

: Currency confusion continues to ripple through the major issues. It's no wonder given the off and on troubles.

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GLD & SLV

: Gold hit the overhead ceiling like it was cement. Silver, on the other hand, showed less weakness comparatively.

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DBC

: The sector got a little help this week given the heavy weightings in energy.

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$WTIC & XLE

: Oil rallies with accidents and supply data while energy stocks continue their sloppy ways.

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DBB & JJC

: Base metal rally stalls out as profit-taking sets in.

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XME

: The rally in miners stalls as well right at resistance.

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DBA & JJG

: Important crop reports came in mixed with corn bullish while soybeans were more bearish.

Continue to Overseas Markets & ETFs

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EFA

: Really locked-in a trading range for now.

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EEM

: There's little new to sayâ¿"same chart as yesterday.

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EWA

: Aussie stocks are in good shape but backed away from resistance.

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EWC

: North of the border we're right at resistance with recent highs not far away.

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EWZ & BRF

: Brazil shares rise but small caps leave large caps in the dust.

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RSX

: Churning in the range.

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EPI

: Indian shares via EPI make new highs to close the week.

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FXI & HAO

: Here too small caps continue to outperform the larger sectors. You'll find a better consumer story with HAO.

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TUR

: Turkey is a great consumer story and may join the EU sooner than most think.

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EWM

: These are the markets of opportunity but we're much overbought.

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THD

: Another Southeast Asian market winner but also much overbought.

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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

We may have set a low volume record for a post Labor Day. I'm not going to be checking on it but clearly it's very quiet. HFT traders left their HAL 9000s on autopilot pushing the major indices above their 200-day moving averages.

Remember, in the fall of 2007, even though it was apparent to any thoughtful person that a financial bomb was about to explode, markets rallied sharply. Sometimes we must let those who can drive prices higher do so. But, I'm wondering -- Where's the beef!

No question there exist good opportunities in select Southeast Asian and Latin American markets. Away from those it seems bonds are coming back to earth in price while equities in developed markets remain in trading ranges at least for now.

The election may offer hope for bulls as the country seems ready to throw out the controlling party which misread and exceeded its mandate. Perhaps the change people really want is smaller not larger government. When president Coolidge was asked why he didn't enact more legislation he responded simply: "I believe the American people wish to be left alone." Amen.

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Disclaimer: Among other issues the ETF Digest maintains positions in: XLU, IYR, TIP, GLD, DGP, SLV, AGQ, DBB, BDD, DBA, DAG, EPI, TUR, BRF and HAO.

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

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