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Waiting For the Beard: Dave's Daily

We're all just waiting for the words from on high. Maybe the rabbit will deliver the Fed decision to breathless news anchors.
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Yes, a completely irrelevant image but I liked it. We're all just waiting for the words from on high. Maybe the rabbit will deliver the Fed decision to breathless news anchors.

In the meantime, markets followed-through higher with Friday's late day "stick save." Was there any good news? Not really but bulls are thrilled by the prospect of another round of quantitative easing and at the very least continued low interest rates. The

SF Fed noted

a significant chance of a recession in the next 2 years which must be bullish. (So you're telling us we've got time to trade for awhile then?)  Stocks rose on that report and bulls aren't going to let anything stand in their way at the moment.

TST Recommends

There's a disconnect between bonds and stocks that's extraordinary. The panic buying of investment grade corporate bonds continues apace. IBM recently sold bonds yielding 1% for 3 years. What are companies like them doing with the proceeds? They're buying back their own shares in the open market driving up prices. Fewer shares outstanding make their earnings look better. In other words, they're taking what the market gives them.

I don't think we'll be doing much until after Wednesday's Fed announcement. Perhaps we'll just stay camped around these levels until then barring any other news or events. In fact tomorrow may take a day to sit at the beach.

Volume was as light as we've seen in a long time aside from early holiday closes. Breadth was positive.

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SPY:

Yeah, just not much action to speak of. It's easy for bulls to push markets around with this level of activity. And, wouldn't you like to know who was trading and why during the last 5 minutes? Some believe it's ETF squaring up, others think it's the HFTs closing up for the day. I wonder if the SEC knows or even cares.

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MDY & IWM:

I'd say we're into the neckline and by week's end may have to drop this entire H&S top idea.

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QQQQ:

All things tech, with the exception of HPQ are doing just fine.

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

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AAPL, HPQ & IBM

: Apple's secured some high durability alloy and lost their chief engineer who paid a price for the antennae design. Mr. Hurd you might wish to play a round or two with Tiger Woods. Money, power and celebrity has a price.

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SMH & INTC

: Not much action within semis at this point but the week is young.

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IGN & CSCO:

What fun! We get Cisco earnings on Wednesday along with the Fed! Volume should pick up for that right?

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C & XLF:

Financials are enjoying the steep yield curve since they can borrow at zero and invest for all of 4% long. It doesn't sound like much unless you're leveraged and dealing in billions.

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XLV:

It only seems the bigger names are getting better play but there's really high correlation among all sectors. It's troubling, but it's the punchbowl effect.

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DOW & XLB:

Materials sector is doing just fine and threatening another leg higher.

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XLY:

XLY, unlike its sister XRT is heavily loaded with an odd assortment of non retail names like Disney, Coke, Time Warner and McDonalds.

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IYR & XHB:

For REITs it's all about yield and let's hope it holds for those involved. Homebuilders are a different story and most feedback I'm getting is quite negative.

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IEF, TLT & TIP:

An amazing disconnect between stocks and bonds since one should be down while the other up. Historically weird.

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LQD:

Corporate bonds are much in focus and in demand. They yield little and there's a panic to buy them. It's a dangerous situation to my thinking. The government is really screwing up normal market relationships and it might end badly. For stocks, this is where sideline money is parked. Yes, corporations are loaded with cash, but they're selling bonds and buying their stock. This is not a good situation for economic and investment growth since it's just financial engineering.

Continue to Currency & Commodity Markets

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$USD/DXY, UDN, FXE & FXY:

Investors are squaring up ahead of the Fed.

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GLD:

Gold will do battle with central banks and deflationists. In the meantime we sit in the range.

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DBC:

It's pretty infuriating to read in Bloomberg/Business Week and MarketWatch columnists with very negative things to say about commodity ETFs. There's a lot to know about commodities and one thing remains true, you must trade them! This is the thing these dolt reporters didn't cover.

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$WTIC/CRUDE OIL & XLE:

Along for the ride with most everything else.

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DBB & JJC:

Base metals took the day off.

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XME & FCX:  

Miners like Freeport McMoran are responding to better demand from Asia it would appear.

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DBA & JJG:  

The wheat crisis in Russia has folks in the U.S. and elsewhere pretty worked up. Now we'll have to see how much extra wheat will be planted in the U.S. for example to make-up for the shortage.

Continue to Overseas & Emerging Markets

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EFA, EWG & EWU:

So, European problems are over and we can forget they ever happened.

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EEM:

EM's are doing better than most markets but one has to remember some of the markets within aren't really "emerging" anymore.

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EZA:

South Africa is rich in natural resources and demographically the population is young making for good consumer opportunities if they get any disposable income.

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EWA:

Raw materials like coal and iron ore are leading the way.

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EWZ & BRF:

Brazilian markets are slowly rallying higher but losing some momentum while small-caps outperform.

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EPI:

Indian markets continue to move higher inch by inch, day by day.

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FXI:

China markets are doing well despite the mixed opinions and news from the country. Manufacturing slows and worries over the housing bubble continue. But most have shrugged this off for now.

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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

Okay, another ultra-light volume melt-up today. I really find this light volume disturbing but understand bullish traders hold the tape in their hands while others are scrambling to safety in bonds.

We wait for Bernanke & Co. to tell us of their future plans. We may not post tomorrow while this type of action continues.

It's really easy to believe we're being sucked-in when buying in this environment, but that's the way things are.

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: LQD, GLD, DGP, DBC, FXE, DBA, EWG, EWU, EEM, EWZ, BRF, EPI and 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.