Scary Markets: Dave's Daily

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Bulls felt things were going to be just fine until the old euro zone bugaboo put the fear of God into them...again. Current equity markets are featuring not just high volatility but hyper-volatility. It's really hard to put a few good days together without getting your head handed to you.

U.S. markets were first slammed by miserable Consumer Confidence data (39.8 versus 45.4 previously and 46 expected) while Housing Price data was basically unchanged, meaning not good. The knockout punch came from an ongoing poor situation in Europe combined with mixed messages as to whether anything credible will get done by Wednesday's self-imposed deadline. Worries exist that"too big to fail" Italy might just collapse from the sheer magnitude of austerity demands combined with political infighting. With European sovereigns enormously indebted and European banks massively under-capitalized all solutions thus far haven't satisfied anyone.

Earnings have been decent but DJIA heavyweight MMM disappointed as did Cummins (CMI) and Netflix (NFLX) was a disaster. United Parcel (UPS) had a good report and most others with reports were just okay.

BREAKING: As this is being written Amazon (AMZN) posted a 73% decline in earnings attributed to rising expenses on higher revenues. Needless to say the stock is sharply lower falling nearly 14% initially in late trading.

Precious metals closed sharply higher along with oil as investors sought refuge there and in bonds. The dollar did little on the day overall.

I noted yesterday that the McClellan Oscillator ($NYMO) was over 90. Usually a reading over 60 reliably indicates short-term overbought conditions so the set-up for a stock market decline was at hand.

Volume was higher on this Turnaround Tuesday than with recent periods and breadth was quite negative.

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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

Earnings are good but not great are all you can assert so far, plus there have been some serious disappointments here and there. Economic news remains poor period. Given the euro zone tension and backdrop the sell-off is understandable given the lack of specifics.

The last bit of news from the euro zone as of this writing comes from FT here.

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: QQQ, IWM, SPY, FDN, EFZ, EUM, SH, 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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