Stocks Rattled by One-Two Punch: Dave's Daily

Everything was going along just fine for markets even absorbing Tunisia and Egypt well. But then the contagion continued to Libya, Bahrain, Yemen, Kuwait and so forth. This pushed energy prices higher. Further, even though these MENA Middle East and North Africa events may ease, you can rest assured they'll resurface and overhang markets for awhile.

The next punch was delivered by Japan's earthquake, tsunami and nuclear reactor issues. Japan, being the world's third largest economy, may be in trouble for some unknown period. There will be massive infrastructure spending down the road (emphasis added) which should provide strong demand for building materials (lumber, base metals and so forth). For now, the economy will get a heavy dose of cash from Japan's central bank and this will require enormous debt sales driving yields higher theoretically.

Since Japan is a large exporter of stuff to the world, prices for finished products may rise causing more inflation.

Commodity prices remained mixed with softs and base metals weak while energy, gold and rice were higher overall. Bonds rallied while the dollar fell.

The Fed is busy is POMO activities oblivious to external conditions. Here's their schedule for March and April.

Stocks were sold with some late day buying lifting major averages off their lows.

Volume continues to rise on selling but with an afternoon "stick save" much of this was positive. Breadth per the WSJ was once again negative.

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

We could get great economic data the rest of the week but let's face it; the twin perils of MENA and Japan are dominant. This should make most economic data "old news" even if it's good. This is an "event driven" market now and will respond positively or negatively to this factor. No mortal can say how they will work out.

I've had quite a few technical problems posting this and therefore it's shorter than usual. Maybe that's better anyway.

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: EFZ, EFU, EUM, DBB, EEV, VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, TBF, ILF, EWA, IEV, EWC, EWJ, EWG, EWU, BWD, GXG, THD, AFK, BRAQ, CHIQ, 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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