Rumors, Short Squeeze or Trading Insider Information?
U.S. equity markets rallied once again after opening weaker Monday repeating previous performances. There wasn’t much news domestically. The Fed continued modest POMO actions which will grow in scope throughout the week. Stocks were quiet most of the day but got a lift on rumors that Apple (AAPL) will declare a dividend of some kind. If they do this, then the SEC should be monitoring who and what groups were front-running this piece of news.
Perhaps helped by Apple rumors U.S. equity markets continued to rally as the DJIA (DIA) set another (ho-hum) record high. The focus now turns to the S&P 500 (SPY). To match the DJIA, the index only needs to rally roughly less than 10 points, which will launch a flurry of more bullish headlines. Tech (XLK) and Financials (XLF), the heavyweight sectors in the S&P, led the way higher Monday. The dollar (UUP) was strong early in the day only to reverse course and settle slightly lower from the day’s highs. Gold (GLD) was modestly higher and marking time while commodities (DBC) were flat. Bonds (TLT) were also mostly unchanged.
The only other serious financial news Monday (away from Apple shenanigans) was from China. Chinese authorities reported Industrial Production of 9.9% and Retail Sales of 12.2%. Generally, this kind of data would thrill most countries and their investors but for China these data points are a disappointment. In parallel, investors fretted that the government will tighten further by increasing interest rates and/or raising bank reserve requirements. On top of that, add in the general mistrust of China data by investors and pundits—all said and done, things get pretty murky.
In any event, stocks in China were lower once again. We did a chart video regarding popular GXC (SPDR China ETF) just two weeks ago but today did another which can be accessed here. Last week we also featured a video regarding the popular Shanghai CSI 300 Index and detailing how one might trade the market overall.
We’ve raised our long exposure to equities from 50% to 68% in our flagship DSP Portfolio. For more conservative investors it may pay to be cautious with stocks getting overbought. But that condition can remain intact especially as the Fed’s money printer is set to “turbo”. In such an environment, it’s hard to consider shorting against this tsunami of liquidity. This is why I’ve recommended to subscribers to build a base around our suitable Lazy portfolios as the core of investing and adding selective issues to generate alpha. That said, this ultra-light volume in combination with current market conditions being overbought makes markets more accident-prone.
Volume remains in some sort of new normal level of “light” while breadth per the WSJ was mildly 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.
There isn’t much economic news scheduled until Wednesday. And, let’s not forget quadwitching is Friday which coincides with the highest POMO of the week scheduled (cough) coincidentally for that day.
Let’s see what happens.