Don't Fight the Fed: Dave's Daily

To be sure, companies like Apple and Intel are doing well overall. But some companies are doing well due to ongoing Fed financial support like banks and some auto companies. QE policies are designed to prop stock markets higher, and with volume light, the job is made easier. Therefore, when worse than expected economic data is released (Jobless Claims, Consumer Confidence, Retail Sales, CPI, Chinese tightening and etc) investors toss that information aside aided by more POMO. More maddening to more thoughtful people are the lies being bandied about particularly with inflation data. Food and energy prices are much higher and eliminating them from the data due to imagined "volatility" is beyond mere spin.

When I was a young college student, my statistics professor gave to each student a book: " How to Lie with Statistics." I think it must remain required reading for BLS, Treasury and Fed officials among others. Let's remember, the government has a huge entitlement liability geared to inflation statistics. They're conflicted.

Nevertheless, the bottom line seems quite apparent--don't fight the Fed. To fade their POMO activities is a waste of time especially with ongoing light volume. The Fed has stated it wants higher stock prices and gloated over its success. To them this means better 401Ks will make investors feel better about things as they claw back to even. Then those investors will start spending money, joblessness and housing markets will improve and the economy will grow.

The Fed is just repeating what's worked for them before--another bubble.

So barring some unusual unknown event the bull market will continue until June, with only minor speed-bumps, when the current round of QE ends.

Gold prices were hit hard today and some good comments regarding this come from Jesse's Café Americain and Chris

Volume remains very light while breadth was quite positive 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

In a normal market environment with many DeMark 9s, high RSIs, VIX complacency and so forth, I'd say watch out. But the Fed is in full POMO mode and with volume light, trading desks know exactly what they're supposed to do. They will ignore most bad news and cherry-pick the good they like and buy since they're awash with Fed money. The banks have been saved by you and me. They're important to the economy no doubt about it but Moral Hazard issues have been tossed aside. Even Geithner, flush with his own importance, is talking about the next possibilities of future government intervention in markets. This isn't a good sign for what should be free markets which are now micromanaged globally.

But to make money now, it seems you shouldn't fight the tape but go with it. This makes technical analysis more of a challenge than ever.

Our Lazy and Lazy Hedged Portfolios have been doing just great since September. It must be the way to go at least until June or the "sell in May and go away" maxim.

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: VT, MGV, VGT, VWO, VNQ, IAU, DJCI, IEV, EWA, EWY, ILF, FXI, EWJ, EWG, EWU, BWX, GXG, BND, BSV, THD, AFK, BRAQ, CHIQ, TUR, PLND, IDX, VNM, and SCIF.


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 .


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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