Rumors of QE3 Spark Rally: Dave's Daily

More than $25 billion in POMO was added to markets over the last week. Cash at Primary Dealers was piling up. As markets were becoming short-term oversold it was time to deploy it and seek alpha (buy stocks). There wasn't any seriously positive news to spark a rally unless you believe high energy prices are good for consumers. But, some permabulls got the rumor going that more QE is coming since economic data has been terrible. Completing a string of poor reports, Durable Goods Orders (-3.5% vs -2% expected and +4.4% previously) let bulls know there won't be any interest rate hikes any time soon. Further given all these reports, next week's ISM Index should be quite poor.

The only shred of good news was Boeing ( BA) stated they'll be on schedule to deliver the often delayed 787 Dreamliner in the 3 rd quarter. This allowed other price heavy weights to charge higher for the price-weighted Dow Jones Industrial Average along with Exxon Mobil ( XOM), Caterpillar ( CAT) and United Technologies ( UTX) and a few others. This pushed XLI (SPDR Industrial Sector ETF) higher.

Bulls quickly sold more defensive sectors (XLP and XLV) as the risk switch was again flipped to "on".

You'd think higher energy prices would discourage consumer (XLY, SPDR Consumer Discretionary ETF) and retail (XRT, SPDR Retail ETF) sectors but no, they rallied higher. But, upon closer inspection investors should view and would be surprised by the top component weightings for each of these indexes. XLY's top weights include: MCD, DIS, AMZN, CMCSA, HD & F.  XRT's top weights include: BKS, GME, ANF & SFLY. None of these are what you might expect.

Once again volume on rally days was ultra-light while breadth per the WSJ was positive reducing some short-term overbought conditions.

You can follow our pithy comments on twitter and join the conversation with me on facebook.

 

Continue to U.S. Sector, Stocks & Bond ETFs

Continue to Currency & Commodity Market ETFs

Continue to Overseas Sectors & 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

Sometimes I feel alone in my comments about POMO driving stock prices higher. The Credit Suisse stock analyst is more in my camp while the Morgan Stanley analyst looks for the bullish spin in this video

All things considered this was a pretty weak stock market day. A late day rumor of an extension of QE beyond June put markets sharply higher only to see a reversal into the close.

For most investors who don't look under the hood of many ETFs to see the linked index components both XLY and XRT will surprise. Most investors would probably expect the XRT to reflect name brand stores like Best Buy, Target, JC Penny, Macy's and even Amazon. Barnes & Noble, Gamestop and Shutterfly wouldn't necessarily comprise the top weightings expected. So it pays to do your due diligence.

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.

More from ETFs

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

What Bad Weather? Kohl's Shares Spike as Same-Store Sales Jump

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Listen: Here's What You Need To Know About ETFs Today (Hint: They're on Fire!)

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Bitcoin Today: Bears Rear Their Heads as Prices Continue Downward Spiral

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

Cannabis Stocks Are Screaming Sells After Seeing This Deal: Doug Kass Insider

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?

60 Seconds: What's the Difference Between an ETF and a Mutual Fund?