Markets Start to Calm Down: Dave's Daily

Is this a sign of a return to more normal market conditions after so much volatility? It may just be a pause in the action. With the exception of tech sectors, Thursday was an uninspiring day. Financials remain the Achilles Heel of this market since there's never been a durable market rally without financials being a participant. That said, we do live in unique times but you can't ignore the ongoing drag from this sector. We saw a poor earnings report from JP Morgan (JPM) Thursday with more disappointments from banks on the way.

If you've been following these postings then you're aware of how short-term overbought the NYMO (McClellan Oscillator) as of Wednesday. It's no surprise then to see markets see some profit-taking at the very least Thursday.

The euro zone's EFSF looks like it's proceeding apace but the drama surrounding this is far from over. Stay tuned for the next act.

Jobless Claims were as expected overall as we continue to cruise along the bottom. Bloomberg's Consumer Comfort Index parallels views of unemployment, Jobless Claims and home sales. 

 

Meanwhile, all is well in the tech sector as Google (GOOG) just reported sizable earnings and revenue gains with much of it based on the success of Google + which now has 40M participants.

Overall stocks were mixed, bonds and the dollar higher while gold and commodities varied.

Volume was quite light based on recent comparisons and breadth per the WSJ was also mixed.

 

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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

Tech remains strong while financials remain weak. This should continue as more tech companies report (IBM on Monday) and bank earnings continue.

The weekly outflow of money from equity mutual funds continues at 23 out of 24 weeks. That brings the total to $106 billion per the ICI (Investment Company Institute) over this period. This makes us wonder what the catalyst would be to bring retail back into the market.

On deck Friday is Retail Sales which should be a market mover one way or another. The current consensus per Bloomberg is .8% and .4% ex-autos with prior results .0% and .1% respectively. So, most are estimating a big surge in sales most likely due to some back to school shopping.

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, UUP, 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 .

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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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