Just When You Think You Have Seen It All...
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October 30, 2014

There was some serious and unique market action today inspired first by the regurgitation of a headline from Japan that the “government will cut Japan debt allocation to 35%, raise domestic stock allocation to 25%”. In other words, the government will invest directly in their domestic stock market while reducing bond debt. This headline caused algos to jump on stock indexes domestically perhaps to show that cutting QE will make no difference to continue a rally. At the same time, market quote systems broke allowing the mice to play while the cat’s away allowing for a huge jump in prices. See market notifications below:

10-30-2014 8-24-36 PM Market STatus

 

10-30-2014 8-25-20 PM NYSE

If the above wasn’t enough, let’s turn to the legitimacy of using the Dow Jones Industrial Average as a valid measure of stock market behavior and performance. The DJIA is a price weighted index making it subject to more volatile and misleading behavior when high priced stocks move sharply lower or higher. Today Visa (V), a $284 stock, rose nearly 7% accounting for nearly 7/8 of the indexes move before the market broke simultaneously to Abe’s announcement. (Note: See 16 Tons video which for many is no different that Visa or MasterCard these days.) There’s something wrong with what the index panel is doing since their additions (high priced stocks) and deletions (lower priced stocks) making a mockery of their methodology. The DJIA isn’t alone in doing this it’s also been the case with tech indexes given the high weighting (14-20%) of Apple (AAPL) computer there as well. Anyway, if there were an equal-weight of the DJIA investors might be surprised at the weaker performance as Dogs of the Dow inclusion would demonstrate.

It would seem the die is cast that bulls are determined to turn the volatile month of October green with just one day left for trading.

Jobless Claims were modestly higher (287K vs 280K expected & prior 284K). Preliminary GDP data was reported Thursday at 3.5%.

We defer to Consumer Metrics Institute analysis the summary of which is posted below.

Summary and Commentary

Frankly, this report once again sends mixed messages:

-- On the surface it strengthened the Fed's hand for completing the QE taper. An economy that is growing at 3.54% is presumably healthy enough to need very little additional help from central banking officials.

-- That said, consumers are not spending as if the economy is healthy. Consumers generated only 1.22% of that headline growth, and they are still 68.2% of the economy. The growth in real per-capita disposable income is welcomed, but increased savings absorbed a significant portion of that growth. Apparently consumers remain wary.

-- And the inventory worm has turned. It provided +1.42% of last quarter's headline number, and promptly subtracted -0.57% from this quarter's number. As we have mentioned many times, this is a line item that over the long haul has been essentially a zero sum series. If it continues to revert to a long term zero sum we could see at least another quarter of negative contribution.

-- The growth in Federal "consumption expenditures" is an annual end-of-fiscal-year ritual. These are "expenditures" that are solely designed to expend any remaining budget allocations before they vanish at the end of September. In fact, the spending is only pulled forward from the fourth quarter -- when Federal spending "growth" generally reverses. Those more cynical than us might point out that the annual specious Federal "growth" contribution is also conveniently reported just before election days.

-- The wild card in all of this is reflected in the CPI and BPP numbers: the strengthening of the dollar has created an apparent disinflationary pricing environment for some goods that is likely playing havoc with the BEA's computations for inventories, exports and imports. Imports are also certainly being impacted by the double whammy of increased domestic production and crashing oil prices. In any event, the impact of the strength of the dollar is likely masking to some extent what is happening in the underlying "real" economy.

In some regards this report contains far too much noise to be able to tease out any real signals regarding the economy. Unfortunately, that situation is unlikely to improve for some time.

Leading market sectors higher included: Dow (DIA), Small Caps (IWM), Financials (XLF), REITs (IYR), Utilities (XLU), Healthcare (XLV), Biotech (IBB), Materials (XLB), Emerging Markets (EEM), EAFE (EFA), Japan (EWJ), Hedged Japan (DXJ), India (EPI), Russia (RSX), Brazil (EWZ), Nuclear (NLR) and Coal (KOL)

Leading market sectors lower included: Gold Miners (GDX), Junior Gold Miners (GDXJ), Gold (GLD), Metals & Mining (XME), Silver (SLV), Silver Miners (SIL), Transports (IYT), Energy (XLE), Semiconductors (SMH), Crude Oil (USO), Copper (JJC), Agriculture (DBA) and Commodity Tracking (DBC).                                                                   

The top 20 market movers by percentage change in volume whether rising or falling is available daily.

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Volume was slightly higher with volatility around market order break and breadth per the WSJ was positive but Money Flow was deceptively negative.

10-30-2014 8-34-27 Diary

Charts of the Day
  • SPY 5 MINUTE

    SPY  5  MINUTE

  • SPX WEEKLY

    SPX WEEKLY

  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

    RUT WEEKLY

  • NDX WEEKLY

    NDX WEEKLY

  • XLB WEEKLY

    XLB WEEKLY

  • XLE WEEKLY

    XLE WEEKLY

  • XLF WEEKLY

    XLF WEEKLY

  • XLI WEEKLY

    XLI WEEKLY

  • XLU WEEKLY

    XLU WEEKLY

  • XLP WEEKLY

    XLP WEEKLY

  • XLY WEEKLY

    XLY WEEKLY

  • IYT WEEKLY

    IYT  WEEKLY

  • IYR WEEKLY

    IYR WEEKLY

  • XLV WEEKLY

    XLV WEEKLY

  • IBB WEEKLY

    IBB WEEKLY

  • TLT WEEKLY

    TLT WEEKLY

  • UUP WEEKLY

    UUP WEEKLY

  • FXE WEEKLY

    FXE WEEKLY

  • FXB WEEKLY

    FXB WEEKLY

  • FXY WEEKLY

    FXY WEEKLY

  • GLD WEEKLY

    GLD WEEKLY

  • GDX WEEKLY

    GDX WEEKLY

  • SLV WEEKLY

    SLV WEEKLY

  • JJC WEEKLY

    JJC WEEKLY

  • USO WEEKLY

    USO WEEKLY

  • DBA WEEKLY

    DBA WEEKLY

  • DBC WEEKLY

    DBC WEEKLY

  • EFA WEEKLY

    EFA WEEKLY

  • VGK WEEKLY

    VGK WEEKLY

  • EEM WEEKLY

    EEM WEEKLY

  • EWC WEEKLY

    EWC WEEKLY

  • DXJ WEEKLY

    DXJ WEEKLY

  • EWY WEEKLY

    EWY WEEKLY

  • TUR WEEKLY

    TUR WEEKLY

  • NYMO DAILY

    NYMO  DAILY

    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 DAILY

    NYSI DAILY

    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 WEEKLY

    VIX WEEKLY

    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 Summary

It was a remarkable day of trading that revealed markets are accident prone and the DJIA isn’t true reflection of investment conditions. What is true is that Visa and MasterCard are the new “Company Store” that Tennessee Ernie Ford sang about 50 years ago. If he were alive today, he wouldn’t comprehend what we’ve done with ourselves. Indeed many people owe their souls to their plastic not to mention Student Loans. Further, American taxpayers don’t really comprehend a $17 trillion national debt some will have to pay eventually.

Let’s see what happens.

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Dave Fry is founder and publisher of ETF Digest and has been covering U.S. and global ETFs since 2001.

He is the author of "Create Your own ETF Hedge Fund: A Do-It-Yourself Strategy for Private Wealth Management" published by Wiley Finance and "The Best ETFs: U.S. Equities, A Companion Guide to Building Your ETF Portfolio"



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Disclaimer: The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell only any security. Market sectors and related ETF's 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 annotation's 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

 

ETF Digest

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
Gold1,173.90-25.90-2.16 %10/31
WTI Crude Futr80.63-0.49-0.60 %16:59
Index Quotes Change Change % Local
CRB271.96-0.75-0.28 %17:08
US Dollar87.040.790.92 % 16:59
Index Quotes Change Change % Local
VIX14.03-0.49-3.37 %16:14
MSCI Value Daily MTD YTD
Brazil2125.3963.75 %-2.07 %-4.18 %
Russia603.9343.59 %-1.18 %-23.25 %
India508.4370.85 %1.56 % 24.83 %
China63.426-0.51 %2.85 % 0.51 %