Stock Market Thrill Ride Continues: Dave's Daily

The EU completed its summit (sort of) but put off until November the plan's details. From what we've seen thus far the plan is insufficient in scope, but there are hints China and/or Brazil will add some funds. The latter is yet to be determined but, the mere idea of this, caused stocks to rally once more. If you Googled any euro zone rescue issue you'd find many different "drop dead" dates over the past two years. This is just another moment to buy time in my opinion.

The volatility just won't go away and it's getting off-putting to conventional investors who don't like it. This is just one reason why equity fund redemptions continue to remain high leaving the market to hedge funds, trading desks and HFTs.

Economic data was positive with Durable Goods Orders beating expectations (1.7% ex-transportation vs -.8 expected) on inventory build while New Home Sales increased 5.7%. However, median home prices fell from $210K to $204K. Earnings news saw positive results from Boeing (BA) rallying the stock 5% but negative results from Ford (F) causing the stock to drop nearly 5%. The Nasdaq and tech sector gained but still was an underperformer as an ongoing build of negative reports from Netflix (NFLX), Amazon (AMZN), Green Mountain Coffee (GMCR) and Research in Motion (RIMM) continued to weigh on the sector. 

As stated, stocks rallied off the euro zone news which is hardly a done deal yet. Despite that deal gold continued to rally sharply. Some attributed the rise to Indian weddings. While it's the season there for this, and there's a large population, this could hardly account for this much bullish action. Let's just guess that all this bailout activity is presumed inflationary ultimately. Bonds fell and the dollar was flat. Commodities overall were mixed as base metals rose but oil fell on an inventory build.

Volume was slightly higher than Tuesday and 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

A new "plan" has been released after the summit in the euro zone but, as with most issues like this, the devils in the details. We won't know the details until November so bulls have more time to have some fun. This is my take anyway but there's tremendous pressure on portfolio managers to turn a poor year overall around. They'll spin and take whatever it is they can get. Bullish conditions may be even more important to the advertising dependent financial media where those that advertise are those with financial soap to sell. When times are bad traffic dries-up and so too advertising.

One thing is clear; investors continue to pull money out of the stock market at least as measured by equity mutual funds. This is evidenced by ICI (Investment Company Institute) data showing we've now reached $100 billion in equity fund redemptions in 2011. This matches the entire year of 2009. Also, since 2010, over $200 billion has been withdrawn including 2011. With cash balances at funds around 3.4% there isn't much firepower from them to push stocks higher. That's why we can safely assert the action is driven by hedge funds, trading desks and HFTs.

Thursday Jobless Claims are once again upon us, GDP data and Pending Home Sales. Further earnings reports will be released which will include companies like Bristol Myers, Cardinal Health, Dow Chemical, Proctor and Gamble and Exxon Mobil.

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, 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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