Economic Data Finally Matters: Dave's Daily

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I mentioned last week, and even yesterday, the ISM Report for Wednesday will be bad. But I'll admit that after yesterday's terrible data encouraged bulls, I had to scratch my head. It appears now Tuesday's late day ramp higher, clearly shown in the SPY 5 minute chart yesterday, was pure manipulation and marking prices higher to support portfolios.

Window dressing is illegal and hardly ever discovered or punished. Tuesday will be no exception. Even late in the day Tuesday, the CME lowered margins for trading most stock index futures which was one helluva trap. So, at least for Wednesday the theme: "bad news is good, good news is better" is off the table, if only for today.

Yesterday's bullish move was wrapped around the Greek 60 billion euro bailout. (Greek debt was lowered again by Moody's Wednesday. They're so on top of things, eh?)

Meanwhile, the ADP Employment picture came in at 38.5K jobs added against expectations of 170K and a prior reading of 177K. The hammer was dropped by the important ISM Index at 53.5 versus estimates of 57.6 and a prior reading of 60.4. These readings combined with other recent reports reveal an economy in rapid decline.

One thing also shown in our postings over the past month has been the appearance of 203 "monthly" DeMark 9 counts from our database of 515 securities, futures and ETFs. Do these signify a top? Not necessarily since all these generally indicate is "trend exhaustion" and nothing more. We could churn sideways or possibly face a correction that could be mild or even more severe.

When DeMark counts fail it just means trends are very strong. I believe QE2 has increased the possibility of a DeMark failure as many technical indicators have also been steamrolled by QE2. And speaking of POMO, another $7.3 billion was added to the Primary Dealer network Wednesday. There's no stopping the Bernank & Co.

Below is a chart from our internal database showing the current monthly DeMark 9 now completed Tuesday in this case for DIA.

Volume was quite high comparatively on Wednesday. Some bulls were saying this was just a quiet summer shortened week. I don't think that's right. Breadth per the WSJ may have been a 10/90 day.

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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

Per ETF Digest subscriber David Hurwitz, we did have a 90% down day as shown below:

And, finally, today's results put to rest the trend since April, 2009 in which the first session of the month was a sharp up day as shown below:

 

 

So much for all the hype Tuesday for everyone to ignore the bad economic news as Wednesday put that to rest. One prominent poster at Yahoo Finance suggested it's not the data. Rather it's about the following:

 

"Today's sell-off is about two things: 1. It's a short week during the summer; a few leviathans can move markets without it "meaning" much of anything. 2. The market is in a negatively biased trading range. 1,340 is now very obviously resistance and 1,300-ish is support."

But, what do you make of the heavy volume? I found his reasoning strange but who knows what will happen next?

 

Thursday is Jobless Claims followed by Friday's big employment report.

 

The economy is weakening period. This will affect earnings negatively and that's that.

 

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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