It’s a cliff-driven news market bringing rapid trading and increased volatility. One day Boehner says something encouraging and the next reverses course. Politicians of both parties, including the WH, have been chirping away and talking to their base. Behind closed doors maybe more serious things are being discussed. The president wants a deal before Christmas. Given his schedule (20 days in Hawaii) would mean December 21^st. In the meantime the chatter will continue and so will the volatility.

Given this unique environment of QE and ZIRP, perhaps old reliable indicators and reports lose their impact for now anyway. The respected Economic Cycle Research Index (ECRI) has been forecasting a recession coming since May 2012. And some recent statistics indicate this as true (Today’s Kansas City Fed Manufacturing Data -6 vs -1 expected) but perhaps it’s been hindered or delayed by monetary policies.

In overseas news China’s Shanghai markets have fallen to their 2009 lows, reported PEs are below 11 (the lowest since 2011) and brokers will be cutting commissions. Europe was higher on follow through bullishness from previous budget “happy talk” Wednesday. This positive result came even as German unemployment rose to 8 month high. And, Greece remains in the news as Dutch Prime Minister Rutte confirmed yesterday’s “Greece will need more help” message as valid.

In the U.S. Jobless Claims remain high (393K vs 390K expected & prior revised higher to 416 from 410K). The consistent higher revisions allow for headline making better “beats” which you see in the financial media. GDP data was reported (2.67% vs 2.8% expected & prior 2%). Within the data were more important data: a massive build in defense spending and a serious decline in consumer consumption. All this is well summarized by Consumer Metrics Institute. In other words, if you look under the hood of the data there isn’t much positive going on. But, looking under the hood isn’t the way algos and bulls roll now. After a miserable New Home Sales report the other day Pending Home Sales brightened the mood (5.2% vs 1% expected & prior .4%).  

Some current WH supporters are doing some hypocritical things. For example, Costco (COST) co-founder and Obama supporter, Jim Sinegal, is having a large special dividend payable before the fiscal cliff when a increase in the tax on dividends from 15% would be likely. Note Sinegal owns 2 million shares or $14 million gross windfall. Wynn Resorts and Tyson Foods are doing something similar.

Stocks moved about rapidly with each positive or negative comment from politicians promoting positions to their base. Depending on your stomach for volatility you can jump in or stand aside until they work it all out.

The dollar (UUP) was lower once again and gold (GLD) recovered much of the previous day’s losses. Commodities (DBC) rose as oil USO) rebounded. Bonds (TLT) were flat for the most part. Stocks were led higher once again by tech (XLK) and social media (SOCL) for example. Helping markets rally throughout the day were previous comments from former Fed Governor William Dudley suggesting QE3 could continue throughout 2013. Lastly the consensus among traders at least a short-term fiscal cliff deal will be had—increase taxes first then deal with spending (not a chance) later.

The Fed has shown but not detailed in their holdings of “other” Federal Reserve Assets a little over $200 billion. Most of this may be foreign currencies or securities from overseas. (Spanish Bonds? Who knows?)

Volume was modest and breadth per the WSJ was positive.

Follow us on Twitter and join the conversation on Facebook

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers (as seen below) to exit overbought/oversold conditions.

Among other issues the ETF Digest maintains positions in: MDY, IWM, QQQQ, UDN, GLD, DBC, DBB, DBA, USL, EFA, EEM, EWZ and FXI.

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.