The Non-Stop Buy Program Express
Bulls remain in control of the tape even if there are only a few of them. There is better economic data in the U.S. as the Employment Report indicates (236K vs 171K expected & prior 151K) while the headline unemployment rate dropped (7.7% vs &.7.8% expected & prior 7.9%). The latter is the headline number HFT & algo traders jump on and “away we go!” Jackie Gleason would shout. Inside the numbers there is less cheerful data but “da boyz” running the programs never pay attention to these like: “4.8 million unemployed greater than 27 weeks and only 63.5% of the workforce engaged in work”. The latter numbers haven’t changed much.
One thing is true; people want to do better with their lives and for their families no matter the gauntlets government puts in front of them. After all it’s been five years of gloom and doom for job seekers, GDP growth, housing disasters, food stamps, money printing and government debt. It’s a litany of sorrowful data yet people, at least most of them, persist in their quest for a better life.
After five years of Fed manipulation of financial markets, there has been growth in equity markets. Why? Because there is no other alternative for most investors away from the stock market. The Fed has things rigged this way even as they brag publicly about achieving their mandate: higher employment and protecting the purchasing power of the dollar. To both goals they still have scored an “F”.
But the action of “the tape” is the only thing this publication should be dwelling on even though the underbelly of what’s taking place is objectionable. Because the bullish nature of the tape owes to it liquidity from QE at some point this will stop. So, you have to keep one eye on the exit since the end will be a train wreck. In the meantime, The ETF Digest continues to offer well-constructed Lazy portfolios to follow the bullish tape until the music stops.
Beyond that basic lazy approach there are still good trading opportunities that can add alpha we’ve used in our flagship trading portfolio—Dave’s Special Portfolio.
These opportunities include those areas of the world like Southeast Asia. There countries like Indonesia, The Philippines, Thailand, Australia and even Vietnam have offered great trading opportunities for our subscribers. These countries are growing, not because of central bank engineering, but because of good demographics (young population), vast natural resources and governments that have stepped out of the way letting markets work naturally. Friday we offered a brief video profile of Indonesia via IDX (Market Vectors Indonesia ETF).
The dollar (UUP) reversed course Friday rallying on perceived good employment data. At the same time gold (GLD) drifted between small losses and gains. Commodities (DBC) saw another up day which was unique given the steady stream of previous lower prices helped primarily by heavy energy (USO) weighting. The bigger losses were being felt in bond markets where (TLT) especially was hit hard causing yields to rise. Should bonds continue to see price drops and higher yields then this may slow equity price increases.
Stocks continued to rally as investors now target the previous 2007 high for the S&P 500 Index (1565.15) but fell just 10 pts, or one buy program shy. Leading the price-weighted DJIA (DIA) higher once again were the highest priced shares (IBM, MMM, CAT, MCD, HD, and DIS for example). Stocks higher in the DJIA were also able to drive Consumer Discretionary (XLY) higher. Also much higher after a two-day rest were Transports (IYT) while Small Caps (IWM) and Financials (XLF) continued to offer gains.
As stocks rallied the VIX (Volatility Index) fell to new lows (12.55 as shown on chart below) reflecting extreme complacency among investors given the Fed has their backs.
Volume once again remains light while breadth per the WSJ was quite positive.
Continue to U.S. Sector, Stocks & Bond ETFs
Continue to Currency & Commodity Market ETFs
Continue to Overseas Sectors & ETFs
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
Okay, we set new records and markets stimulated primarily by Fed-speak (Bernanke & Yellen) shattered records even on the lightest of volume. And, just when good employment data was reported the Bernank stated QE would continue apace. When will it become unnecessary?
Can you believe it’s already Quadwitching this coming Friday for the first quarter of 2013? Time flies.
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