With stocks down sharply throughout the day a powerful last minute short squeeze was launched after an FT story suggested EU ministers were "looking" at new plans. These plans are "under discussion" but there is "no formal decision". This was enough for an oversold market to rally sharply. One major condition which was much heralded throughout the day was major indexes were in bear market territory. Bulls are desperate to this and would likely latch on to any news that can generate a much needed "stick save".

Apple (AAPL) launched its next iPhone model which was greeted with a yawn. I'm sure it's a great product but hard pressed consumers may not have the money for another gadget when what they have now will do. In fact, after the announcement the stock slid over 5% but it rallied with HFT buy programs (bulls love them now) to close the day only slightly lower.

Everything reversed course from AMR (American Airlines) to Financials (XLF), Industrials (XLI), Emerging Markets (EEM), Europe (IEV), Bonds (TLT) and Commodities (DJP)

For now, color this a Turnaround Tuesday on steroids. The bottom line is will European players must make a real deal that sticks. None has thus far and talk is cheap.

After the close Moody's downgraded Italy's debt three notches to A2 which isn't sitting well with after hours trading. Further Moody's is preparing to downgrade seven Hungarian banks. Maybe these downgrades will stimulate a resolution from the Europeans. The FT editors will have to get busy. The CME is getting busy curiously lowering futures contracts on stock indexes by 23%--now that's the bullish bias at work.

Volume was quite high as the market rebounded from bear market levels. Breadth per the WSJ was positive.

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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

There wasn't much in the way of good news Tuesday for most of the day. Factory Orders were weak (-.2% vs prior 2.1%), Apple's new iPhone went to the "I got to have it" exhaustion category and Bernanke's testimony was uninspiring although he did hint at the Fed being willing to be the lender of last resort for banks. The big deal was the FT article which HFTs pounced on to bid stocks furiously higher in the last half hour. In the article it was suggested that France and Belgium would create a "bad bank" to house Dexia SAs to house some of the firm's toxic debt. The move was exaggerated given much oversold conditions and the threat of a bear market in the major indexes. The "stick save" there was pretty obvious.

The downgrade of Italy's debt might even be perversely stimulative in getting European leaders to put in their "fix" for the umpteenth time.

Wednesday will bring ADP data and ISM Services reports.

The markets remain broken in my opinion. They're being manipulated by HFTs, hedge funds and the Fed. You can't have these types of large daily swings and not turn-off Main Street investors.

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: SH, EUM, EFZ, SKF, EUO, SSG, 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.