The Fed Keeps the Party Going: Dave's Daily

After the large sell-off Tuesday, stocks were no longer overbought; the Fed played ball; Europe seemed okay today; dip buyers were back in business.
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Dave's Daily

By Dave Fry, founder and publisher of

ETF Digest

and author of the best-selling book

Create Your Own ETF Hedge Fund.

April 29, 2010

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THE FED KEEPS THE PARTY GOING

The Fed gave bulls the green light to keep the good times flowing yesterday putting Eurozone worries to the background. It didn't hurt that earnings are coming through and Jobless Claims data while (cough) were "worse than expected" improved slightly over the previous week (448K vs 459K). I guess this is good but it seems that data is just crawling along the bottom. Also a little watched economic data from the Kansas City Fed showed economic activity at the highest level in two years.

Nevertheless, this is all bulls needed to get things going again. After the large sell-off Tuesday, stocks were no longer overbought; the Fed played ball; Europe seemed okay today; dip buyers were back in business.

The pattern remains the same--violent sell-offs on heavy volume followed by lighter volume melt-ups. Weak hands, or those cautious folks with trailing stops are screwed while Da Boyz on trading desks know just what to do with more cheap money from Uncle Sugar.

Also, the so-called financial reform package is working its way through congress apparently, based on stock prices it's giving Wall Street just what they wanted. Reform they can believe in. Could there be any other conclusion?

Volume was heavy by recent standards but much lighter than down days. There's still turmoil and churn in markets. Breadth was as positive as you'd expect.

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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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Per Investopedia:  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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Per Investopedia: 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 Major U.S. Markets

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

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Continue to Currency & Commodity Markets

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Continue to Overseas & Emerging Markets

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Continue to Concluding Remarks

This is really simple.  The Fed is keeping trading desks juiced and they're buying dips. It's been going on for over a year in this fashion. And, unless an asteroid or something hits the planet, things will continue this way.

The financial reform package is laughable and to verify this just look at the prices of GS, JPM and MS. They'll know how to deal with things. The smaller broker/dealers, financial planners, independent financial advisors will be the ones to suffer. They'll be overwhelmed with paperwork and compliance issues. The big boys have the staff and resources to handle it. They'd love to see competition eliminated.

The oil spill threatening the Gulf is a serious matter and will mean less, not more, domestic drilling. This means we'll continue to rely on the Chavez's of this world since politically the U.S. won't be able to get its act together. This is a shame.

Friday brings GDP data, Chicago PMI and Michigan Consumer Sentiment. These indicators will be handled well by bulls no matter the reading since it's the end of the month remember? 

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: VTI, MDY, IWM, QQQQ, GLD, DGP, UUP, YCS, DBB, XLE, PBW, EFA, EEM, EDZ 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.