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No company or government likes to see their ratings cut; but, over the past three years investors have borne the brunt of delayed rating revisions lower. This was true during the financial meltdown and it's rearing its head again with sovereign ratings. No doubt you're aware of the inherent conflicts of interest these organizations face. They're paid for ratings and no customer wants a bad one. The more good ratings they put out the more fees they earn. It seems the heat they took during the financial crisis in 2008 didn't last long despite their assurances that they would do better next time.

The problem naturally is institutional and retail investors must rely on these agencies to confirm the wisdom and safety of their holdings. Today Portugal's credit rating (A-) was put on Credit Watch with negated implications by S&P.  No "Johnny on the spot" these guys.

This is the kind of stuff that is undermining the current market environment and is an eerie replay of 2007-08 when ratings were cut late but always after the damage had been done.

In the U.S. economic data was mixed with more disappointment in home prices while the Chicago PMI and Consumer Confidence data were better than expected. But, all eyes remain on Europe.

EU banks will face new stress tests which "they say" will really be legit.

Volume was again heavier on selling and breadth was negative as now markets are 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

Almost all investors rely on rating agencies to support their investment decisions to clients and boards. It's becoming more important with each passing day investors must do their own due diligence since these companies along with monoline insurers can't be relied upon.

We are hung-up currently in a state of uncertainty by problems in the eurozone. We've also been lied to and deceived by the EU and their previous bank stress tests that only valued sovereign bonds rather than what was under the rug. This could be a major crisis since the future of the euro as a viable currency is at stake and for many that outcome is unthinkable.

A lot of economic data is on tap for Wednesday including: ADP Employment, Productivity and Unit Labor Costs, Auto Sales, the ISM Index, Auto Sales and lastly The Fed Beige Book. The latter should be the most important and have market moving consequences.

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, TBF, GLD, DBA, EWA, EWJ, EWC, & 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

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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.