End of Month Window-Dressing: Dave's Daily

GDP data was worse than expected but bulls bought the lower gap open and ran with a better Chicago PMI and stable U of Michigan gauge of Consumer Sentiment. Markets overall closed little changed after being down nearly 150 points. Let's remember, it's the end of month window-dressing time and stocks "must rise". Twelve consecutive weeks of stock mutual fund redemptions per ICI and even State Street reporting equity outflows from ETFs shows us who's in charge here--trading desks, HFTs and a smattering of hedge funds.

Of perhaps great significance are ongoing low interest rates making the alternative to stock buying unacceptable. So, the punchbowl remains spiked for traders.

On the other hand, the 10-year U.S. bond yield at 2.90% is a sign of recession not strong growth. This is the scarier interpretation.

Let's not be naïve; July 30 th was pure manipulation. There's no denying the tape that's for sure. But most charts still show markets churning along in trading ranges despite a great July which followed a crummy June.

Real market movers this week have been commodity markets with grains, base metals, gold and some energy sectors leading the way. Much of this is weak dollar related while it could also mean sign of future growth.

In the meantime, Friday volume remained light while breadth was slightly positive.

SPY: There is little to add to a rather dull finish to the managed month of July. We're still in a range and despite the excellent month of July it was once again achieved with little volume.

MDY & IWM: I'm sorry to report the condition is "trading range monotony".

 

QQQQ & XLK: A tale of two tech sectors, one with a 20% weight in Apple, the other with half that. XLK may better reflect the overall condition of tech this week.

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

XLF, KBE & C: The government wants to sell and their underwriters are doing their best to push it higher.

 

 

XLI: The good news is Obama is in campaign mode touting the success of the government bailouts of the auto companies. The bad news is Obama is touting the success of government bailouts.

 

XLV & IBB: Healthcare remains in the trading range while Biotech has come down from earlier rally.

XLB: Sure it's the same chart with the same annotation since nothing's changed literally. But it's quite discouraging materials are in a funk since associated commodity markets are on a tear. Perhaps after the large rally the previous week we're just taking a break.

XLY & XRT: Consumer Sentiment this week was just okay and so was the performance of related sectors. Frankly, I don't see any reason for a rise, especially in XRT.

 

 

IYR: Here's another sector where I don't see the need for much excitement especially based on the reports we posted yesterday. But, the quest for yield is at panic levels.

 

IYT & $BDI: I still think we're just digesting last week's big gains all around.

IEF, TLT & TIP: There's a lot of mixed messages overall. Earnings have come in well overall but economic data is beneath poor. Commodity markets are rising indicating stronger demand but much of this may be attributed to the dollar's weakness. At the same time there is alleged to be little inflation yet TIPs scream "no".

 

Continue to Currency & Commodity Markets

$USD/DXY, UDN, FXE & FXY: The decline in the dollar is one reason commodity markets are rising overall.

 

GLD: Now that the shenanigans in the options pits and expiration are over gold is able to climb once again.

 

DBC: It's within this sector where most of this week's action was taking place. Nevertheless, we're still trapped in a range but perhaps not for long.

 

$WTIC/CRUDE OIL & XLE: Energy stocks are going nowhere slow but it may be just digesting the big gains from the previous week.


 

DBB & JJC: Base metals are on a strong run higher abetted by a weak dollar and demand presumably from China.

 

XME: Why hasn't the rise in base metals translated into more gains for XME or XLB for that matter is hard to know. The only conclusion could be markets are consolidating from the previous week.

 

DBA & JJG: The word here remains "drought" in Europe and Russia impacting grain markets. The weak dollar helps U.S. prices. Markets are now quickly short-term overbought. Weather markets are the most dangerous to trade and caution is advised. My fundamental source says the rally is unjustified based on ample grain carryover stocks. But the tape is the tape right?

 

Continue to Overseas & Emerging Markets

EFA: Volume expands for a rising week but we're struggling at fresh support. European markets have had a good run from the crisis days of May and June. From a Fibo standpoint we've only comeback roughly 50% of the down move and that may be all we get for now.

EEM: EM's, like other markets, digesting last week's big moves.

 

EWJ: Profit-taking this week as we tagged resistance.

 

EWY: I suppose there's something really creative to say but words fail me.

 

EWA: Still at resistance as commodity prices will dictate future moves here.

 

EWC: Commodity prices drive markets higher.

 

EWZ: Commodities higher, Brazil higher--simple as that.

 

RSX: It seems clear many markets are digesting last week's large gains.

 

EPI: Given all the hoopla surrounding other markets, India has been relatively stable in spite of unexpected increases in domestic interest rates.

 

FXI: You'd be right to point out this is the same chart as yesterday and it is. That's just the reality of conditions currently.

 

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. Despite light volume and heavy redemptions, stocks are being re-accumulated.

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

There's always confusion for investors. It may be markets just needed to digest the previous week's large gains and so we drifted. Fund managers, despite redemptions, want to protect their new found positions so they buy dips. Dip buying has been ubiquitous over the past year given ultra-low interest rates and the poor competitive alternatives those offer. Perma-bulls know they always need to buy and will rationalize it (spin-it) to suit their goals.

The message from bond markets is one of recession and not growth. For bulls, this means an extended period of low interest rates justifies stock buying--"don't fight the fed" and etc. Additionally, there's a yield buying panic in bond markets and high yield sectors.

The message from economic data is also recession or the more polite "double-dip" term.

The message from earnings is many companies are doing well while Main Street isn't.

I'm just a technician or, a technician with an attitude. If we must invest, we will.

August will start with the remnants of earnings reports, the import ISM report on Monday and the all-important unemployment report on Friday. It should be interesting as usual.

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 and ULE.

 

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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