Investors couldn't find any "real" news to drive prices higher Tuesday so off to the rumor mill they went. Therein, they found a nugget that the Fed may eliminate interest paid on bank reserves held which should, theoretically, stimulate lending. It's a precursor to what's being referred to generally as "QE2" (Quantitative Easing Part 2). In a nutshell, let's remember Ben Bernanke didn't earn his "Helicopter Ben" reputation for idleness. Further, TPTB are primarily fee driven enterprises which don't prosper in bear markets. It's an unacceptable possibility so markets "must" rally to defend this beast.

After opening down sharply on Tuesday stocks magically reversed course as this "Ben-based" rumor gained traction and shorts were squeezed. GS, which led with disappointing revenue and earnings, staged the strongest reversal of the day because "it must" and who's gonna mess with Da Boyz?

The duel between earnings and economic data was a wash Tuesday as both were losers. Earnings brought us poor reports from GS, IBM and TXN while economic data continued to show poor results with Housing Starts missing estimates. But, man! We forgot about rumors and the necessity to rally.

Volume was stronger today on a rally which in itself is unusual while breadth was positive.

Continue to Major U.S. Markets

SPY: This sector was helped by a rise in materials, energy and financials strangely enough.

MDY & IWM: Further down the menu the volatility remains greater in both directions.

 

XLK & QQQQ: Recent earnings from tech companies like TXN and IBM have been disappointing. But, AAPL blew away estimates after the close Tuesday. Given the 20% AAPL weighting the QQQQs should excel.

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

SMH, IBM, AAPL & TXN: Yeah, Apple hits a home run and given its weighting in the QQQQs, they're up sharply in afterhours trading.  Apple's up over 3% which is no big thing for it.

 

 

XLF: The action in financials centered squarely on GS and not much else. Why the reversal on crummy news? They've got the power!

 

 

XLB: Star performer today with base metals rising and shorts being squeezed.

XLY & XRT: There is little news fundamentally or otherwise to account for this move higher beyond program trading.

 

IYT & $BDI: Transports just along for the ride is about the only thing I can say.

 

 

IEF & TLT:  Bonds fall back some with stock market rise.

Continue to Currency & Commodity Markets

$USD/DXY, FXE & FXY: Bank of Japan intervenes to support dollar/yen while the euro backs away at 130.

 

GLD: Gold came right off support like a champ. Now, can it maintain this range for awhile?

 

DBC: Energy lifts DBC Tuesday but we're still in a long protracted trading range.

 

$WTIC/CRUDE OIL: I'd put up XLE but it has a wild data point error which throws it off enough to make it unrecognizable.

 

DBB: What accounts for the rise? A return of demand from China? It's really hard to say.

 

XME: Metals and mining stocks had a great Tuesday along with materials.

 

DBA: Down with profit-taking and flat dollar.

 

Continue to Overseas & Emerging Markets

EFA: A rally Tuesday with everything else.

 

EEM: Really a hard market to read in the trading range for now.

 

EWY: Korean stocks rallied well this week along with China stocks in Shanghai.

 

EWA: Australia living off exports north to the greater China region. China suggests an ease of tightening and commodities rally.

 

 

EWC: Following commodities and the same comment applies to all such commodity export dependent countries.

 

EWZ: Now we see Brazil rally with other commodity centric markets.

 

RSX: Russia is just another commodity dependent economy.

 

EPI: India markets are just in their own world now levitating at high levels.

 

FXI: China supposed discussing withdrawing tightening for the (ahem) non-bubble in real estate.

 

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 Concluding Remarks

You have to hand it to the bulls Tuesday. They showed up because they really had to. After all, the system is built on recurring fees and bear markets aren't fee friendly. A rumor of another Fed move was about all it took to get folks pumped-up since bullishness didn't come from earnings or economic data. Add to this the omnipresent "punchbowl" (cheap money) and that makes alternative investments like "cash" unattractive. Therefore, finding reasons to get long is paramount along with fee protection.

AAPL hit a home run with earnings news yet the stock remains in a high altitude trading range. Other earnings news weren't pleasant as YHOO prices fell 6.50% after its report this evening.

Plenty of more earnings are on the way Wednesday but there isn't much economic news until Thursday when there will be plenty to deal with. In the meantime the battle rages.

Let's see what happens. You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook.

 

Disclaimer: Among other issues the ETF Digest maintains positions in: GLD, ULE and UDN.

 

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 .