Monday started well for stocks continuing a rally from the previous three trading days. A good outlook from FedEx and better than expected New Home Sales data got bulls pumped-up. (Previously, all economic data was ignored.) The only fly in the ointment today was ultra-light volume and short-term overbought conditions.

Market participants want stocks to rise since they have little investment alternative other than low-yielding fixed income sectors. If you're a portfolio manager it's just that simple. Further, we head in to the end of July with enough good performance to send DJIA to positive return for 2010. So, with outflows from equity mutual funds continuing end of the month window dressing and volume light TPTB want to provide Main Street more encouragement. Yeah, that's pretty cynical.

SPY: The volume is still rolling in as this is written with an extra 30M shares in the last 20 minutes to make things look more respectable. But weekly charts haven't turned the corner for me yet and I'm forced to pay up to play when and if they do.

Continue to Major U.S. Markets

MDY & IWM: Another light volume melt-up as everything is going the same way and past tendencies repeat.

QQQQ: Tech isn't exactly leading the way but it's been more consistent on the upside.

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

SMH, AAPL & S: It was a productive day in tech land but many of the old favorites seemed to be marking time with the exception of Sprint.

IBB & BIIB: The deal with biotech has always been potential rather than current earnings. With earnings news overall quiet perhaps the rally is spreading out to some previous underperformers.

XLF: Nothing very interesting in financial sector Monday but it's in the buy program basket so...

XLI: There have been good earnings reports throughout the industrial sector from F, IR, MMM and BA on deck.

XLV: Having a better week so far as rally spreads out a little further into defensive sector.

XLB: Waiting for DuPont earnings next on tap.

XLY & XRT: XLY is more oriented to constituents we might not ordinarily believe as belonging in the sector like F, MCD, DIS, KO and so forth. Whereas, XRT is mostly chain stores which we would consider more appropriate. Either way is seems retail is expecting positive things from shoppers soon. Why? I don't know.

IYR: I have no respect for this sector fundamentality but the tape says I should wise-up.

FDX & IYT & $BDI: FedEx offered good guidance going forward and you can't argue with that. Norfolk Southern is up this week as well. The Baltic Dry is caught between an increased supply of ships and stagnant demand from Asia.

IEF & TLT: Stocks up, bonds down. End of story.

Continue to Currency & Commodity Markets

$USD/DXY, FXE, ULE & FXY: Uncle Buck is heading south for now with stops probably just above 130.


GLD: Gold is declining despite rising euro as the appetite for risk increases. And those devilish eurozone bank stress tests? Pure comedy!

DBC: A very quiet day in commodity land.

$WTIC/CRUDE OIL & XLE: Oil remains in a trading range while energy stocks battle higher in a market that's hard to peg always.

DBB: Some believe there's a revival in demand for base metals coming from China.

XME: Not much to report although the sector continues to rise.

DBA: Ag products were quiet on Monday.

MOO: Ag stocks continue to press resistance.

Continue to Overseas & Emerging Markets

EFA: The markets loved those stress tests even though they were not considered legit by most honest folks.

EEM: You can't get much closer without testing previous highs.

EWY: I'd say there isn't much concern about N.Korean bluster.

EWA: Moving higher with raw materials like it usually does.

EWC: It's all about natural resources.

TUR: Turkey is the great consumer story in the Middle East.

EWZ: Brazil didn't race higher Monday which is rather surprising but there may be some news unfamiliar to me as of this writing.

RSX: It seems like yesterday it was about to fall apart and now we're cruising to a breakout.

EPI: A very quiet time in India this day but the market in general has been more stable than others.

FXI: Many Asian markets are rallying such as Singapore, South Korea, The Philippines, Malaysia, Indonesia and so forth. This is where the real strength has been.

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

On light volume, markets have melted-up to serious overbought levels. This is a market controlled by HFTs, trading desks and a handful of hedge funds. It doesn't take much money in these conditions to push it. Further we're at the end of the month and can expect some window-dressing. Seasonally, markets tend to rally at this time in concert with "summer rallies" and earnings news.

It's funny how markets chose to rally with New Home Sales data when all previous negative economic news has been consistently ignored.

We'll enter on the long side when systems tell us to jump in. For now, we're watching for the most part.

Tuesday, more earnings will be on tap and the focus will be on DD and X to name two. Meanwhile the Case-Shiller 20 city Index will tell us something more about real estate conditions while Consumer Confidence needs to go north.

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, UDN, ULE and TUR.


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