Stocks Close Up on the Week! : Dave's Daily

Markets are facing serious difficulties and the up week is a deception. The possible breakup of the euro and new found worries over debt is the reason.
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It's true...really! If you asked the average investor how markets were last week they'd no doubt say, "things sucked." But, because of two large up days surrounded by significant down days, we still closed the week higher. So, you think I'm just a pimpin' shill for the financial media, eh?  Not a chance but you'll come across those kinds of headlines today.

The truth is markets are facing serious difficulties and the up week is a deception. The possible breakup of the euro and new found worries over debt is the reason. Leaders from Volcker to Sarkozy are voicing their lack of confidence in the entire EU system. The political pressures are enormous.

Market tops and bottoms are never tidy affairs. They're pretty messy and you need some tools to help you turn a deaf ear to the noise of talking heads. Our DeMark weekly/monthly "9"sequential discipline has luckily kept us to the sidelines for a while now. It sounds like so much technical mumbo-jumbo right? But, I'll put up a typical chart and you tell me if it's been wrong.

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Friday's economic data was good overall as Retail Sales and Industrial Production were higher than consensus while Michigan Consumer Sentiment was about as expected. Chain stores were reporting good earnings although the news from companies like Nordstrom's was sold given the

other

news of the day.

Repeating previous patterns, volume was heavier on a down day while breadth was probably another negative 10/90 day.

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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. Oversold again.

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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. The correction continues.

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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. The "fear" is back.

Continue to Major U.S. Markets

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SPY:

Here's the deal. Look at the weekly charts and things look "okay". Some will see a new bearish Head & Shoulders Top formation building while dip buyers are programmed to buy as long as the Fed punchbowl is in place. Take your choice. What do I think? I'm cozy on the sidelines and at best see a trading range.

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MDY:

It's hard to imagine a week better than 4.4% for a major market index but, guaranteed most investors won't feel well Friday since a lot of profits were given back.

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IWM:

Small Caps finish the week with gains of nearly 6.5%. That's a great week in my book. You'll note how support held throughout the week.

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QQQQ:

Tech had a good week although CSCO was a little disappointing with its outlook and got sold.

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

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AAPL, AMZN, GOOG & GS:

Or,

THE FOUR HORSEMEN

. I've put GS in there just because I think they belong in the group despite their fall from grace. All are doing well with the exception of GS which eked out a gain on the week despite all manner of investigations and ugly rumors.

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XLF:

Financials were ripped all week by rumors of government probes and legislation. Further, some are said to be deliberately, as agents for central banks, short silver and gold.  Finally, many institutions are reported to have massive exposure to Euro Debt that needed to be fixed; hence, the many White House office visits by Jamie Dimon. In the end, the index and ETF came out unscathed.

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XLI:

Not much to say about industrials since they're all in the same program trading basket.

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XLV:

Not a favorite sector since healthcare reform was passed and in a delicate position.

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XLB:

No growth in basic industry demand for raw materials means slow economic growth.

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XLY, JWN:

The consumer sector has been on fire now for nearly a year defying most common intuition. Unemployment high and housing depressed. But certain segments have thrived.

MCD, AMZN, KO, BBY

and now JWN have enjoyed success.

JWN

is an upscale retailer and I've only been there to eat once. It gives me the creeps.

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IYR:

It amazes me because most banks report terrible problems with commercial real estate. That said, there is talk of M&A, more traffic in malls which is good for REITs and yield chasing.

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IEF, TLT & TIP:

The quest for safety has come and gone all week long. TIPs are way ahead in performance as investors fear inflation and don't believe government BS.

Continue to Currency & Commodity Markets

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$USD, DXY, UUP, FXE & EUO:

This is where most of the trouble is. It's gotten serious when folks are seriously discussing the dissolution of the euro. All hell could break loose and this is not lost on high-ranking EU and Fed officials. It's quite possible that there would be central bank intervention in currency markets over the weekend.

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GLD, DGP:

The gold bugs smell big trouble. As much as this offends central bankers there's little they can do about it except to raise interest rates sharply.

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DBC:

There is no economic growth or recovery without stronger commodity prices.

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$WTIC/CRUDE OIL:

A lack of confidence in demand is dragging crude oil and energy down. Go buy a hummer!?

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DBB:

No demand for copper, aluminum and zinc means little economic expansion.

Continue to Overseas & Emerging Markets

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EFA:

Sure, this is where the problems lie. Will they fix them? We're at support and we could go a lot lower on follow through next week.

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EEM:

When commodity markets fall so too will export dependent emerging markets. That's where all the "stuff" is.

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EWJ:

Not a lot going on in this, a very boring market.

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EWZ:  

Commodity dependent Brazil just raised their interest rates today. Maybe they're working with the Chinese on that as well.

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RSX:

Russia is loaded with natural resources and I'll bet they have some of those gold vending machines around Red Square.

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FXI:

The China CSI 300 Index is officially in a bear market. It's likely that this will not be ignored by other players in the region or an ETF like FXI.

Continue to Concluding Remarks

I'm pressed for time so let's just say markets are in a lot of trouble, especially if there's more follow-through to the downside next week. Sure we finished higher on the week for most sectors but that is very misleading for if the euro does indeed blow-up you might need to take up farming. This is potentially a very big deal.

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

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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, EUO, GLD, DGP, EFA and EEM.

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.