A REVERSAL DAY FOR MARKETS
0
May 22, 2013

5-22-2013 4-05-19 PM BOUNTY

Whenever any market experiences a daily price greater than the high of the previous period’s price and a low below the low of the previous period—you’ve got an outside day or reversal. But this ain’t your daddy’s stock market anymore my friend.

The reversal day was more significant since markets were severely extended and, in this case, complacency high. Several events occurred Wednesday to enhance this experience. First, Bernanke’s congressional testimony was critical to an early rally given his assertion to maintain QE at current levels. But, he also suggested concerns about how markets would react should QE be tapered or (gasp!) removed. Later in the day a terrorist action occurred in the UK which gave markets pause. And finally, Fed Minutes were released which noted various Fed governors wanting to halt QE in June and that certain “financial markets were becoming too buoyant”. BOOM!  Stocks reversed. Is there a “Mutiny on the QE Bounty?

As for as economic data, Existing Home Sales were released today and came in slightly higher than prior release but still narrowly missed expectations--4.97M vs. 5M expected, and prior 4.94M.

Buried within the trading was some good news from the healthcare (XLV), and by extension biotech (IBB) sectors, regarding positive results from stage 3 clinical trials for cancer treatment. The primary companies were Bristol-Myers (BMY) and Roche (RHHBY). No matter what the markets do now, these types of stories, if validated, are the innovation we need for the future. Therefore, buying opportunities should exist on corrections. Leading sectors Wednesday were in pharma which would include XLV for example.

Lagging sectors were widespread and too numerous to list but included bonds (TLT), meaning potential difficulties for a QE exit. The dollar (UUP) was stronger while gold (GLD) continued to decline after an early rally. Oil (USO) prices declined on higher inventory data. 

We’ve been selling small amounts of long positions in our active portfolio and raising stops for the balance. This is the only way to defend ourselves against any type of event that could trigger a correction of some magnitude.

Volume exploded higher on this reversal, which is typical of sell stop days after so many light volume melt-up days. Breadth per the WSJ was negative.

5-22-2013 6-17-08 PM DIARY

5-9-2013 7-00-48 PM gray ad insert 5.9.1

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Charts of the Day
  • SPY 5 MINUTE

    SPY 5 MINUTE

  • SPY DAILY

    SPY DAILY

  • .SPX WEEKLY

    .SPX WEEKLY

  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

    RUT WEEKLY

  • QQQ WEEKLY

    QQQ WEEKLY

  • XLF WEEKLY

    XLF WEEKLY

  • XLB WEEKLY

    XLB WEEKLY

  • XLI WEEKLY

    XLI WEEKLY

  • XLV WEEKLY

    XLV WEEKLY

  • IBB WEEKLY

    IBB WEEKLY

  • IYT WEEKLY

    IYT WEEKLY

  • IYR WEEKLY

    IYR WEEKLY

  • XLY WEEKLY

    XLY WEEKLY

  • XLP WEEKLY

    XLP WEEKLY

  • AMLP WEEKLY

    AMLP WEEKLY

  • TLT WEEKLY

    TLT WEEKLY

  • UUP WEEKLY

    UUP WEEKLY

  • FXE WEEKLY

    FXE WEEKLY

  • FXY WEEKLY

    FXY WEEKLY

  • GLD WEEKLY

    GLD WEEKLY

  • SLV WEEKLY

    SLV WEEKLY

  • JJC WEEKLY

    JJC WEEKLY

  • DBC WEEKLY

    DBC WEEKLY

  • XLE WEEKLY

    XLE WEEKLY

  • DBA WEEKLY

    DBA WEEKLY

  • USO WEEKLY

    USO WEEKLY

  • IEV WEEKLY

    IEV WEEKLY

  • EFA WEEKLY

    EFA WEEKLY

  • EEM WEEKLY

    EEM WEEKLY

  • EWA WEEKLY

    EWA WEEKLY

  • EWJ WEEKLY

    EWJ WEEKLY

  • EWG WEEKLY

    EWG WEEKLY

  • EWT WEEKLY

    EWT WEEKLY

  • AAXJ WEEKLY

    AAXJ WEEKLY

  • EWZ WEEKLY

    EWZ WEEKLY

  • EPI WEEKLY

    EPI WEEKLY

  • GXC WEEKLY

    GXC WEEKLY

  • NYMO

    NYMO

    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.


     

  • NYSI

    NYSI

    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.

  • VIX

    VIX

    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.

...

 

This is what can happen when markets persistently melt-up on light volume until they’re so overbought, they become accident prone. Wednesday’s mega-volume reflects how tenuous and shaky bulls are at this point in the rally/melt-up. The hint of a halt to QE from the Fed Minutes trumped Bernanke’s QEinity congressional testimony.

You can be sure all this will be walked back Thursday. After all, Jobless Claims may beat, PMI Flash Mfg Index, Home Price Index and New Home Sales could bring the bulls quickly back to the fore.

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 “trading” positions in active portfolios if any are embedded within charts: 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.

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.

 



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Market Summary
NYSE Composite Index S&P 500 Index Nasdaq Composite Index Russell 2000 Small Cap Index NYSE Composite Index S&P 500 Index Nasdaq Composite Index Russell 2000 Small Cap Index 10 Year Treasury Note Yield Gold Bugs Index Morgan Stanley High Tech 35 Index Market Chart
Commodity Quote Change Change % NY
Gold1,394.0023.301.70 % 08:14
WTI Crude Futr93.47-0.81-0.86 %12:49
Index Quotes Change Change % Local
CRB285.57-0.76-0.27 %12:59
US Dollar83.73-0.63-0.74 %12:58
Index Quotes Change Change % Local
VIX14.200.382.75 % 12:47
MSCI Value Daily MTD YTD
Brazil2705.88-0.32 %-0.30 %-0.80 %
Russia792.601.75 %4.18 % -1.85 %
India436.12-0.81 %0.08 % 1.42 %
China61.61-0.48 %1.54 % -1.98 %