A Sudden Change in Season: Dave's Daily

The last few weeks of 2010 commodity prices rallied sharply but, like many sectors, all on light volume. Cynically, (who me?) one might suggest a sucker's trap was laid for fresh buyers as bearish insiders were ready to skin them. For example, base metals (copper in particular, just featured here Monday), precious metals, energy and even grains were bid up to favorable end-of-year mark ups. Tuesday bear raids occurred throughout the commodity sector taking out late buyers as stops were hit across the board.

What were they thinking?

It's a new season and year. It makes sense, so the pundits say, with economic data improving it's time to switch to stocks and away from hard money sectors. If so, this would also mean a rising dollar which is nominally bearish for most commodity markets.

But, won't an improving economy create more demand for "stuff?" Sure, but maybe not right away. After all, this has been a "here and now" market and this isn't the first "bear raid" we've had in commodity markets over the past year.

Were there any clues to this happening? Yes, DeMark 9 counts got us out of copper Monday morning and the declining Baltic Dry Index may have indicated commercial commodity buyers were sated with supplies.

The afternoon release of Fed minutes was uneventful although they tried "really, really" hard to explain rising bond yields in the face of QE. It was a fun read.

Stocks faltered throughout Tuesday trying to digest Monday's big light volume gains. In the end stocks closed mixed, bonds flat and the dollar higher.

Volume was once again light while breadth was negative overall per the WSJ.

Continue to U.S. Sectors, Stocks & Bonds

Continue to Currency & Commodity Markets

Continue to Overseas Markets & ETFs

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

It isn't unusual to see reversals in major trends at the start of a new year. These do come out of the blue and rationalizations for them don't seem very compelling. It's a major reason why trading during light volume holiday periods is so hazardous especially if you don't move to the sidelines before the year ends. This change in season or reversal in commodity markets may not be durable and just someone's contemporary idea to explain it or start something new. As to the latter, it's not unlike a group in a stadium starting "the wave" only to see it fail.

Predictions can seem silly at times. Well regarding pundit Lazlo Birinyi pointed out Monday that the first trading day of the year is up 47% of the time. Is this a relevant or statistically significant observation? But Lazlo topped it today by forecasting the S&P 500 would hit 2854.00 on precisely September 4, 2013. Now that takes some guts!

There's more economic data for Wednesday including: ISM Services, ADP Employment Data and Energy Inventories.

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: SPY, MDY, IWM, QQQQ, XLF, XLI, TBF, DBC, USL, DBB, DBA, XME, EFA, VWO, EWJ, EWA, EWY, EWT, EWZ & 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 .


This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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.

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