Markets Take No Prisoners: Dave's Daily

Oil prices moved from $94 to $102 in 7 hours only to settle at $97.80 -- how's that for volatility? The euro spent the first half of Friday at 145 (already down 300 bps from Thursday) to close at around 143 after rumors (later denied) spread regarding Greece dropping euro. Silver and gold were all over the map again with rumors persisting of more margin calls.

U.S. stocks climbed nearly 175 points early based on the employment report showing 224K new jobs added while the unemployment rate inched up to 9%. Lost in this report were details regarding the Birth/Death Model (estimates of new businesses created or closed) or the number of part time jobs being created by the McDonald's of the world and lastly, a five vs. four week report.

HFT algos are programmed to react to headline numbers that beat expectations. The employment data was a beat and algos jumped on the news. But, remember, based on Wednesday's poor ADP jobs report and Thursday's Jobless Claims data employment report estimates were sharply lowered making Friday's news a large beat. More thoughtful types started selling the news around noon and doing so the rest of the day.

Leading U.S. stocks higher were materials (XLB) and the higher price-weighted components of the DJIA (BA, CAT, CVX, IBM, MMM and so forth).

All this volatility and conflicting news, while putting on a great show, causes Main Street to trust markets less in my opinion. This chaos in commodity markets is a major turn-off and will have negative consequences longer-term.

We've beaten the commodity story to death but we still await the juicy details from the exchanges as to the real story behind their draconian actions. Some of this may be contained in the silver Commitment of Traders report and Open Interest. Until we can analyze this properly let's wait. Further, there will be some serious trading casualties announced in the coming days so stay tuned for that.

The Fed continues to aid bulls with more QE Friday and ongoing poor economic data means there's no rush for them to stop POMO.

Trading volume was also higher today than the average over the past few months. Breadth, per the WSJ, was quite positive; but, a glance at the 5 minute SPY chart shows most volume was in selling.

 

 

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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

This clearly was a rough and volatile week overall. Commodity markets have always suffered from a poor image and this week will be seared in the brain of most investors as a reason to avoid. We were lucky to have reduced positions thus avoiding much of the damage and just giving back profits. Nevertheless, it wasn't' a profitable experience for most investors.

The sense that markets are rigged was never more in play than this week. There will be more to the story regarding the exchange's actions in deliberately causing a chaotic sell-off in silver and then everything else.

Bernanke & Co may have been involved in this as they have a vested interest in tamping down prices. Time will tell (maybe) just what the situation was causing, as some said, to "machine gun the lifeboats" when selling was already achieved. This seemed a willful act leading to more not less stability. The story is Soros was selling metals but not necessarily as we can tell shorting them.   

I don't think the selling is over yet for stocks. Friday's rally was unimpressive and featured heavy selling after the opening ramp. It's still the "sell in May and go away" market, supported by a monthly DeMark 9 count, weakening economic data globally, heavy debt issues to resolve, the impending end to QE2 and so forth. What's working in favor of the bulls? The Fed still is monetizing debt and keeping interest rates at zero.

Let's see what happens.

Disclaimer: The ETF Digest maintains active ETF trading portfolio and a wide selection of ETFs away from portfolios in an independent listing. Current positions if any are embedded within charts. Our Lazy & Hedged Lazy Portfolios maintain the follow positions: VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, 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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