Have you noticed almost every image posted here has been made to look silly the next day? It's the yo-yo market at work. But, I offer no apologies since someday things will become normalized. Er, they will won't they? Was Tuesday that day? Not really. The DJIA rallied over 1% on strength from the previously weakest sector, materials (DuPont the leader mostly) and a handful of banks and energy companies. Tech, weak all day, tried hard to come to the party but didn't quite make it.
Why the rally? There wasn't any further bad news making headlines unless you're in the UK. Central Banks (the Swiss primarily) were busy intervening in currency markets (denied of course) supporting the euro. But, more importantly, there was our man Bernanke who was sweet-talking like Chance the Gardener saying all is well. There will be no double dip recession (most likely, roots okay not severed) and the U.S. economy will continue to grow but still not reducing unemployment much or "feel great" to most. What inspiration!
The most impressive thing about today was a break in the pattern of low volume up vs. down days. Volume was good today while breadth was mixed.
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.
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 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
: This is the market Main Street investors focus on the most. Manipulating it for their benefit is easy given only 30 stocks and Bernanke's little talk.
Volume was excellent on the rally in DIA and SPY. Breadth was okay but rally confined to a few sectors which we'll view below.
MDY & IWM:
The action in this sector was hardly encouraging given what Main Street will view from the permabulls.
Sure it's strange tech isn't participating much today but the important issue is dollar strength and European weakness or uncertainty. This will sap sales and hurt exports from currency losses.
Continue to U.S. Market Sectors, Selected Stocks & Bonds
XLF, BAC, JPM:
A few banks rallied today lifting the index and stocks off serious support.
The weakest sector was rallied higher by a rise in base metals and news from DuPont that the Agricultural Dept. has given them approval for a GM soybean seed as noted
Mostly a rise in Coke today but little else from the heavyweights.
Bernanke's soothing words brings comfort to REIT holders in the sense interest rates will stay low making dividend attractive and, of course, consumers will spend more making malls lively.
SHY, IEF & TLT:
A busy week for bond auctions. Today the 3-year auction went off at a 1.22% yield with a cover of 3.23 which meant it was mediocre in its reception. Wednesday is the 10-year and Thursday the 30-year.
Continue to Currency & Commodity Markets
$USD/DXY, UUP & FXE:
There wasn't much news today other than Swiss central bank intervention which always throws things off some.
With the markets moving higher and less negative news gold succumbed to some profit-taking.
Stopping the descent at support.
Just at the bottom of the range and these are important times for all markets it seems as so many are at support.
XLE, XOM & BP:
The index ETF bounced off support like so many other markets and the thought of a short BP long XOM trade must have entered some traders' minds.
Base metals jumped which helped EM's and materials sectors greatly today.
Here we have the throw-off of a rally in stocks, materials and base metals.
Continue to Overseas & Emerging Markets
Oversold rally and that's about all you can say.
EM's loved the rally in base metals Tuesday. They were extremely oversold so the bounce wasn't unexpected.
Base metals rally so Australia rallies. Simple.
It's the same situation here--Brazil thrives on raw material exports like base metals to their number one customer, China.
Commodity prices higher today lifts Russian market appeal.
India not worried about Europe, economic difficulties in China, the euro and so forth. They have plenty to do at home.
China markets internally are in a bear market with indexes down 30% from their highs. But FXI is down but unconcerned evidently.
Continue to Concluding Remarks
I shortened this commentary as we're having some java technical issues with StockCharts which haven't been helpful.
Markets on Tuesday just turned around late for SPY and DIA but left most other indices in the dust with the notable exception of XLB (Materials). The latter had been the most oversold sector led by a sharp deterioration in base metals prices. Further, the news from DuPont helped the sector greatly.
But overall everything was mixed and rather sloppy. Heavier volume was encouraging at least for the headliners but it didn't carry over to the rest of the market.
Many markets rest on support lines outlined here for the past month. And you know something--sometimes these lines actually mean something.
Wednesday offers Wholesale Inventories and the Fed's Beige Book. These could get bulls going once again...or not.
Please tune into the video/podcast interview just posted with Martin Kremmenstein CIO of DB Commodity Funds. Therein we discuss all the commodity products so frequently posted here. He gives you a few trading tips on how to use them which I believe are useful. You may access the interview
free of charge and with no registration requirements.
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Disclaimer: Among other issues the ETF Digest maintains positions in: SH, SPY, SDS, SMN, SHY, UUP, GLD, 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
Dave Fry is founder and publisher of
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