Stocks Fall in a Sinkhole: Dave's Daily

BP gives up on a plan to cap leak and stock investors give up in the end as well.
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BP

(British Petroleum) gives up on a plan to cap leak and stock investors give up in the end as well. Frankly, it surprised me stocks rallied much Tuesday even with a good results from home construction. But, much of the gains were led after central banks intervened to support a falling euro which reversed serious stock declines in the eurozone. While central banks should conduct supportive monetary policies as needed, direct intervention in markets is a waste of money and just postpones the inevitable. 

Leading declines in U.S. markets were energy stocks and associated ETFs. These declines eventually pulled the entire market down with them offering no last minute support.  

Volume was light which shouldn't surprise for the day after a long holiday weekend. Some traders no doubt extended their holiday. Breadth was negative.

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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. We're close to being short-term oversold.

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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.

Fear is on the rise.

Continue to Major U.S. Markets

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SPY:

First thing to note is the early counter rally from the gap open lower abetted by home construction and central bank intervention in currency markets. Next, is the waterfall decline as the energy sector primarily dragged everything down the sinkhole with it. On daily charts you'll see we still can't capture the 200 day moving average and the February low may be tested again soon. Weekly charts demonstrate on the candlestick price bars the large "tails" which indicate elevated volatility and the battles fought between bulls and bears.

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MDY, IWM:

Both Mid and Small Cap sectors declined more than their larger peers which is typical on down days. The ranges are large and on weekly chart view most indexes are presenting a potential bearish H & S top formation.

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QQQQ:

Here tech leads markets in relative performance as AAPL constitutes nearly 15% of the index.

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

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XLF, KBE, KRE, C, BAC, JPM:

Financials continue to dominate but most are making little progress other than churning about. KRE should reflect economic growth when conditions are supportive. Things look "iffy" in that regard.

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AA, XLB:

I guess when things are tough workers think of striking. Always a bad idea so Alcoa workers decide to settle.

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XLY:

Still the strangest sector given unusual relative strength. Maybe those reading the tea leaves expect home sales and construction spending to translate to higher earnings for retailers.

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IYR:

Holding it up is the dividend and "hope" that it's safe. Naturally if retail is doing well then so are malls and commercial REITs.

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IEF, TLT:

So, U.S. bonds didn't attract much buying on the downside today--they didn't have time.

Continue to Currency & Commodity Markets

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$USD/DXY, UUP, FXE:

The central banks, including the Fed, were active early trying and successfully reversing euro losses.

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GLD:

There's as much buzz about gold as there is for iPads.

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DBC:

With over a 50% weighting in energy DBC is going nowhere. Obviously this market has been sideways for many months.

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$WTIC/CRUDE OIL:

Crude oil fell sharply toward the close of trading as investors worry about demand. China is a major cause of concern as economic growth there slows.

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XLE, BP, RIG, HAL, SLB:

There must be fleets of lawyers heading to class action lawsuit friendly jurisdictions.

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DBB:

Base metals need to show strength which would reflect economic growth down the road.

Continue to Overseas & Emerging Markets

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EFA:

Despite some furious central bank intervention EFA couldn't hold onto gains.

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EEM:

Commodity markets cause some selling at the end of the day.

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EWA:

With base metals weak it isn't surprising to see EWA take a hit.

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EWZ:

The deal here is the same as with many commodity and export related countries--demand from their best client China remains uncertain.

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RSX:

The IMF is selling many tons of gold and reports/rumors have Russia buying it.

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EPI:

India isn't exporting anything but sweat according to recent reports as temps reach 122 degrees F.

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FXI:

China markets are at a crossroads. Manufacturing data was weaker than expected and property speculation is rampant and authorities are trying to rein it in with some results. But some said today the bubble there is much worse than what occurred in the U.S.. That doesn't sound too encouraging.

Continue to Concluding Remarks

Markets did a repeat of Friday with an end-of-day sharp sell-off. No, there weren't any "stick saves" to be found. There isn't any taste for stocks now and mutual fund withdrawals continue at high levels.

The idea of criminal probes into the Gulf oil disaster took many investors by surprise. What it would solve in terms of stopping the spill is nothing. Yet, there will be many calls for scalps and some perp walks. If some of the reports that BP went ahead with the final process despite evidence that it was risky perhaps negligent homicide for those who died is in order.

Tuesday will bring us home sales and auto sales.

The geopolitical situation is heating up once again especially in the Middle East. All of sudden everything except for iPad sales looks awful.

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: GLD, DGP, UUP, EUO, EFZ and EUM.

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.