Yuan-Tanamera: Dave's Daily - TheStreet

Yuan-Tanamera: Dave's Daily

China announces a currency policy shift and later tries to reel it back.
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YUAN-TANAMERA

I cultivate a white rose
In July as in January
For the sincere friend
Who gives me his honest hand.

Yuantanamera, guajira Yuantanamera

So we have fun with words even if they don't make immediate sense. Yet, aren't we as the lyric intones searching for an "honest hand"?

It's also funny and bizarre how this day evolved. China announces a currency policy shift and later tries to reel it back but, alas; it's too late as computer buy programs were already halfway down the tracks. Those programs couldn't be stopped until late in the day when more sober views started to prevail as programmers "read the news more thoroughly" and made some HAL modifications.

Naturally, all this action today took place on light volume while breadth turned 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.

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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 Major U.S. Markets

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SPY:

I've heard plenty of pundits trying to explain away light volume as just the summer blahs. It's too early for that frankly.

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MDY & IWM:

Both Mid and Small Caps showed weakness as they're more economically sensitive. The actions in China can lead to more exports but of what, bonds???

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QQQQ:

Tech fell harder than other large sectors early leading the way lower.

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

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XLF:

Financials didn't do much today and Meredith Whitney chimed-in by calling the major banks "Zombie Banks"

in this interview at CNBC

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XLI:

So maybe we'll export heavy equipment to China or maybe the Japanese and Koreans will have the inside track.

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XLB:

Stronger with perceived demand for raw materials in China since the sense is they have confidence in their economy and purchasing power.

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XLY:

The consumer sector is probably the strangest sector and most subject to a decline should the economy falter. But, few believe this and neither does the tape.

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IYR:

All we can see right now is a trading range and, if as some suggest, interest rates rise this would be a negative for REITs naturally.

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IEF, TLT & TIP:

Bonds were down early as thoughts turned to a stronger yuan being a negative for U.S. interest rates. But, that sentiment didn't prevail in the end Monday. TIPs are in their own world of nonbelievers that no inflation exists or will in the future.

Continue to Currency & Commodity Markets

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$USD/DXY & FXE:

The dollar was flat early on Monday but recovered late on more worries over European debt. It reminds me of the initial housing bubble state of disbelief.

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GLD:

Gold reacted negatively to the yuan news and is reasonably summarized by

Kitco

here. From a chart view we're just back to support. From a technical/mechanical view it's also options expiration week for gold so don't be surprised by more options games like last month.

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DBC:

Energy prices were up strongly early on the Chinese news and thoughts of increased demand. Prices faded into the close like everything else.

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$WTIC/CRUDE OIL:

It's getting boring to point out a "trading range" in many markets but that's where we are currently.

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XLE:

Energy markets are a mess overall. UNG failed to hit on all cylinders despite the rally last week. Evidently investors were hoping for some recognition from the administration that natural gas should be supported and used. That never happened.

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DBB & JJC:

There was lots of enthusiasm early Monday for copper in particular but most of the enthusiasm waned toward the close of trading.

Continue to Overseas & Emerging Markets

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EFA:

Like everything else Monday, up early only to fade late.

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EEM:

The enthusiasm for EM's was stronger and more durable Monday.

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EWY:

Many believe a stronger yuan would hurt Korea but that isn't the case when viewing EWY.

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EWA & EPP:

Yes, EPP is mostly comprised of Australia but it also has exposure to other countries including Indonesia and Singapore. This accounts for some outperformance.

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EWM:

Should Chinese demand for raw materials and foodstuff expand

,

Malaysia is well-positioned to benefit.

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IDX & EWT

: Van Eck's Indonesia ETF would also benefit from increased demand from China as would Taiwan naturally even though it's more tech related.

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EWZ:

Brazil is there for China expansion which seemed the story of the day Monday.

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INP:

The India economy is expanding rapidly once again.

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FXI:

China leads the way Monday and we'll probably be repeating this for many years to come and will have to come to grips with it.

Continue to Concluding Remarks

Monday was a strange day. First came China's statement which was later altered to slow enthusiasm and it did. It didn't help that Fitch downgraded BNP Praibas's debt rating AA- from AAA which just reminded everyone that European risks are still with us.

If China growth remains in focus positively then growth oriented investors will need to increase their holding to sectors in the greater China region. Of this, there can be little question.

Tuesday is home sales data and then things should freeze-up some until the Fed's Wednesday announcement.

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: TIP, CNY, GLD and DGP.

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.