Manic Market Volatility: Dave's Daily

A Bronx cheer was given to Bernanke's speech and Obama's subsequent presentation Thursday. It doesn't help a credible terror alert was issued for NYC and DC as 9/11 is remembered. But most of the blame for selling continues to be focused on Europe where many single country markets are in official bear markets. The much watched DJIA finished its sixth straight triple digit point move. Of the past five trading sessions, four have been losers.

Most economic woes are centered in developed countries from Japan, Europe and the U.S. And the epicenter is the debt crisis. In Europe, band-aid fixes and outright BS dominates authorities struggling to deal with things. They're losing their credibility. They haven't come clean overall with the scope and immediacy of these problems. Until they do these bearish conditions will continue.

The bottom line is global markets are paying the price for micro-managed and centrally planned economies. In normal conditions, we'd just clear out the problems and rebuild from an admittedly lower point. But authorities in a politically-driven environment just can't stop themselves from interfering and making conditions worse.

With these circumstances stocks sold-off sharply, the dollar rallied as the euro fell, gold retreated modestly, oil sold-off and bonds were well bid. We're flirting with another bear market in the U.S. making for three such events in just over a decade (dot.com, Financial Crisis Part I and now Financial Crisis Part II). Nothing like this has occurred since the Great Depression.

I debated whether to post a commentary yesterday and concluded to wait for the end-of-week action. From this view at least, that was the right decision.

Volume was higher Thursday with the sell-off and was topped substantially on Friday. Breadth per the WSJ was quite negative.

According to our friend and fellow subscriber David Hurwitz we had a 90% down 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

As this is written, Egyptian rioters have broken into the Israeli Embassy in Cairo and are looting the place. This may get very interesting as the loss of order in Egypt and other MENA Middle East and North Africa countries may create chaos for a long period ahead.

Most European markets are in official bear markets. U.S. markets are following closely on their heels but not there yet. For U.S. markets whether we enter a third bear market in recent memory is still to be determined.

One thing we need is some stability so that a trend one way or the other can be determined. Currently this is impossible to determine as day-to-day volatility is much too high. From our perspective, we're just as willing to be short as long since that's our mandate. For our more active accounts we're nearly 100% in cash. Away from active accounts our Lazy portfolios are suffering while our hedged Lazy portfolios are seeing some protection.

Let's see what happens...and I mean it!

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: SH, EFZ, EUM, VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, ILF, EWA, IEV, EWC, EWJ, EWG, EWU, EWD, 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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