Earnings Season Begins

 |  Includes: DBC, GLD, IYZ, TLT, USO, UUP, XLF
by: David Fry

Stocks put in back to back session losses as Alcoa (NYSE:AA) reported adjusted earnings of 6 cents, which matched expectations. That may not be good enough for bulls, who always look for a beat. Wednesday will tell how markets react to this and other earnings results.

For now, it seems nerves are running a little higher given the previous week's stock market ramp. Let's not forget the important driver for now of stock prices -- the Fed's Open Market activities which are priming the pump.

The dollar (NYSEARCA:UUP) was strong, but so too was gold (NYSEARCA:GLD), which shows the normal relationship broken, for now anyway. Commodities (NYSEARCA:DBC) were mostly higher, with oil (NYSEARCA:USO) weighting substantial. Bonds (NYSEARCA:TLT) were stronger as stocks weakened. Stocks were led lower by various bank components in the financial sector (NYSEARCA:XLF) and telecom (NYSEARCA:IYZ).

Consumer Credit expanded at a 7% annual clip, with most of the gains from autos, and especially the developing student loan bubble.

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We'll be keeping this commentary short, since Wednesday will probably be more informative regarding market direction.

Volume was once again ultra-light, and breadth per the WSJ was negative once again.

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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.

Concluding Remarks

There are plenty of nerves to go around. Two down days of light volume selling is perhaps healthy, allowing for better follow-on gains shortly. That's just a possibility, obviously, and there are plenty of obstacles ahead, but bulls made a statement last week. It's up to them to support their own enthusiasm.

Let's see what happens.

Disclaimer: The ETF Digest maintains an 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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.