Markets Close January With Gains: Dave's Daily

There wasn't much follow-though selling given little evidence of contagion from other Arab countries in the region -- Libya and Algeria in particular. Further the Suez Canal is operating normally even though some shippers (Maersk) have put things on hold temporarily. Even Syria's Assad said it was time for reform so he must be nervous if only superficially.

Stocks rallied Monday on light volume (60% of Friday's action) with energy (XOM & Egypt), commodities and financials leading the way higher. Intel spooked tech only briefly with a faulty chip advisory causing a reduced earnings forecast.

Meanwhile the Chicago PMI came in above estimates although within the data were strong signs of inflation from higher materials prices ("steel prices are going crazy" so said on respondent). Personal Spending and Savings beat estimates and the Fed's favorite inflation measure, the PCE (Personal Consumption Expenditure "Core") came in unchanged. This is the misleading data that confuses since commodity prices are soaring.

The determined printers at the Fed launched another POMO round today which injected liquidity greasing trading desks.

As indicated, volume was light and breadth 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

It was a great month for stocks continuing the rally that began early September and was only briefly interrupted in November. The cause for the ongoing rally is ultra-low interest rates allowing companies to borrow at historically low rates of interest and with the proceeds buy shares back. Fewer shares outstanding improve earnings per share views. Add to this POMO activities of the Fed and trading desks take that money and chase risk.

Friday's Egypt led decline on heavy volume caused stops to be hit as investors didn't want to hold assets over the weekend. Once investors felt contagion was contained and the Suez Canal still open many felt it was safe to return to business as usual--buying any dips.

January was the best month for stocks (DJIA) since 1997. The so-called January barometer argues, as goes January so goes the year. This was definitely not the case in 2010 as January was down.

Rising commodity prices and prices paid by manufacturers (PMI) will work their way into inflation data eventually despite the best efforts of the Fed to deceive the public.

Tuesday is more data like ISM Index, Auto Sales and Construction Spending. Earnings will continue led by PFE and UPS to name two.

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: BZQ, FXP, EDZ, XLF, VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, TBF, ILF, EWA, EWC, EWJ, EWG, EWU, BWD, GXG, THD, AFK, BRAQ, CHIIQ, TUR, & VNM

 

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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