Stocks finally took a break from ten successive daily new highs. The
S&P 500, just shy of its all time record high (1565), couldn’t clear that
hurdle Friday. Gaining sectors included newly monetized EWJ (iShares
MSCI Japan ETF) and, despite the horror show, where J.P. Morgan (JPM)
execs testified about their botched “whale trade”losses, financials (XLF)
managed to rise.
This week the Fed completed its second round of bank stress tests with
14 of 18 passing. Both JPM and GS were given only “conditional” passing
grades; I guess the two will need to earn some extra credits. Declining
sectors included emerging markets primarily (EEM), China (GXC) and
Brazil (EWZ) for example.
The rally has become QE-centric as the U.S., eurozone, and Japan can
print money while others don’t or can’t.
Economic data Friday included: a weakening Empire State Mfg Index
(9.24 vs 10 exp & prior 10.4); a sharply lower Consumer Sentiment report
(71.8 vs 77.5 exp & prior 77.6); higher Industrial Production (0.7% vs .5%
exp & prior -.01%); a much higher CPI (0.7% vs 0.5% exp & prior 0.0%);
and, a "tame" Core CPI, a laughable measurement, (0.2% vs 0.2% exp &
prior 0.2%).
Meanwhile, Hedge Fund operator SAC Capital Advisors must pay a fine
$600 million for insider trading involving several stocks. No “perp walks”
have yet been spotted. It's the largest fine of its kind and will keep the U.S.
government operating for a few hours.
Wanting to be part of the action, former Fed Chairman Greenspan stated
Friday there was no “irrational exuberance” in stock prices since things are
different now than when he made that comment in 1996.
Right, there wasn’t any QE or ZIRP then. As far as QE is concerned, the Fed
launched their largest POMO [17]of the week, the largest on Friday, conveniently
coinciding with quadwitching. Coincidence?
The dollar (UUP) was weaker as investors were nervous ahead of the FOMC
Meeting Wednesday and due to a poor Consumer Sentiment report. Also, the
EU was meeting and discussing all the woes facing the region, while in the
background, the ECB was printing euros. Gold (GLD) inched higher with the
weaker dollar. Commodities overall (DBC) were higher led mostly by heavy
energy weightings, while base metals (JJC) were weaker. Bonds (TLT) were
stronger despite a mixed to poor auction results. This was also due to the poor
Consumer Sentiment report and a short squeeze.
In today's video we profiled the iShares MSCI Australia ETF [18](EWA). It’s amazing
the country posted 71K new Thursday when only 10K was expected. Things are going
well Down Under.
Volume Friday, typically high on an expiration event, was light to modest.
Breadth per the WSJ was negative.
You can follow our pithy comments on twitter [19] and become a fan of ETF Digest on facebook [20].
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.
Closing Comments
A little selling Friday aided by some quadwitching shenanigans which is a mechanical event which
should be ignored. The economic data on the week was mixed. The weak Consumer Sentiment was
likely driven down by gas prices which is a common reaction.
Happy St Patrick’s Day and play nice.
Let’s see what happens.