Friday Wrap: This Market's Running on Empty

Investors continue to sell relatively good news - the opposite of previous actions. The market and investors are tired. It’s probably just that simple. With conditions still overbought on a long-term basis, some sideways to down action can be beneficial.

Intel (INTC) provided an initial lift Friday and Dell (DELL) was also strong early after positive results and comments from both firms. That was the good news, easily dismissed later as traders headed for the exits early. They left a few sentries guarding the F-10 keys on their HAL 9000s and then headed to the Hamptons or elsewhere. The custom has been to take an extended end of summer holiday week before Labor Day, but we’ll see if that’s the case in 2009.

Sure, the negative focus was on the Consumer Sentiment but, hey, they beat forecasts but not by enough. It gets silly sometimes since disappointing was the reading for August (65.7), which beat consensus estimates, but was below July’s (66). Talk about picky! Making matters even sillier are those believing positive things about the consumer to begin with! To add to the confusion, XLY (Consumer Discretionary ETF) closed higher on the day by a penny.

Volume was ultra-light, which shouldn’t surprise for a Friday on the last week of August. Breadth was interesting given the split on share A/D for the NASDAQ vs volume A/D which I would read as action favoring just the biggest names in tech.








The McClellan Summation Index is still high and overbought but rolling over slightly.



























































































































































That wraps up the last week of August with only Monday still on deck. Then, barring any unforeseen news, we’ll probably focus more on “monthly” versus weekly charts for Monday’s post. Doing so once in a while gives us some perspective you can’t gain from daily or even weekly noise.

No, I don’t like markets emotionally but we’re systematic and don’t try to second guess our basic approach and disciplines. As we approach September, you don’t need me to tell you it’s been a rough but entertaining 2009. What will happen next is anyone’s guess. Many pundits expect a serious correction with markets this extended. You hear/read a lot—“prices have outperformed reality”; “prices aren’t justified by the news” and so forth. This seems logical but Mr. Market only does what’s logical with hindsight.

Have a great weekend!

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, RSP, VTI, MDY, IWM, QQQQ, IGM, SMH, XLB, XLY, XLF, XLI, IYR, XHB, LQD, UDN, GLD, DBC, USL, DBB, XME, MOO, EFA, EEM, EWJ, EWY, EWT, EWA, EWC, EWZ, RSX, IFN and FXI.

Comments

[herbert hoover]

I've been hearing this same sh!t since April. I bought SDS at 60, 55, 50 and again at 46. Good luck if you think you can can the top. Personally, I ain't fighting teh Fed and their printing presses.

2009 Aug 29 10:01 PM

[Warm_Paw]

It must be the infusion of dollars keeping this market going, because nothing else is. The earnings are a joke with the FASB accounting changes. Major unemployment, more oil than we know what to do with and the price keeps climbing, where the banks are with toxic assets is anyone's guess,the dollar should be tanking and isn't because the rest of the world has worthless currency (they've already went this route).
Bottom line is the country has offshored the employment and without a consumer there's no way this situation is going to buy itself out through inflation. The govt has pulled out all the stops without realizing this isn't something that's going to get fixed with good old fashion brute force or throwing money at it.
Wall St. continues to manipulate to get a fire going not realizing investors are staying on the sidelines because up is down and black is white. There's no stability. There's no logic. It's become a crap shoot. That does not create confidence.
Where this ends up - nobody knows.
I agree with this article in that the market is due for a correction. The fact that none is coming just tells me that when that correction comes, it's gonna be a whopper!
For that reason I remain on the sidelines. Who wouldn't. For anyone making money in this market right now, I'm happy for you.
Know this, the S&P grudgingly rises, but when it or the DOW fall, they do so with a vengeance.
Picking up pennies in front of a steam roller.
What do you invest in?
One day they have no where to store oil and it goes to $69 - the next day someone's highjacking a ship or Opec's cutting production and we're back to $75. I've fallen off cliffs with a more gradual slope.
The dollar is what the world's watching. Once the Fed HAS to raise interest rates, it's strength is going to wipe the markets out.
As if there was ever a currency that would have the credibility of the US Dollar.

2009 Aug 29 10:35 PM

[huntlakeswim]

bull etf's -> cash -> bear etf's

The view is great from up here. Now, hands up and enjoy the ride down! Weee!

2009 Aug 29 11:20 PM

[BullnBear]

I’ve been pulled in to what looked like a reversal several times the last few months so I’m proceeding with caution but I’ve also observed a slow down in volume that I suppose is starting to look like a top.

I agree that we appear to be slowing down but oddly enough I just don’t seem to trust “it” for some reason.

2009 Aug 30 01:24 AM

[ron_paulite]

Keep the faith. Keeping buying those ETFs.
DOW at 5000 is coming soon ...

On Aug 29 10:01 PM herbert hoover wrote:

> I've been hearing this same sh!t since April. I bought SDS at 60,
> 55, 50 and again at 46. Good luck if you think you can can the top.
> Personally, I ain't fighting teh Fed and their printing presses.

2009 Aug 30 01:58 AM

[DerekNJND]

oh man, here we go again...bears setting themselves up to go all in on the short side and enjoy 2 good days of gains before gettin steamrolled by the next 75 point move upwards.

Your best strategy for betting on pullbacks is:

1.) buy puts on the indices
2.) buy CALLS on short ETFs
3.) short individual stocks

I wont go into reasons why every other strategy wont work, but for people still buying the SDS or the SKF, I truly feel sorry for you. If you believe the market is being propped up by whoever (PPT, GS) or just supported naturally by institutions and mutual fund mgrs who are behind, either case leads to a strong S&P since this is the vehicle these players use to achieve their goals: fund mgrs buy mainly within the indices, PPT/GS jack up the futures to move the market etc. So shorting an index or owning the SDS is just absurd at this point. Ask anyone who bought it during the IDENTICAL SCENARIOS as now back in mid-May, mid-June, and again 2 weeks ago in early August. Yea, if you can find them alive

Volume? I'm sick of hearing this as a bearish argument. The short interest just went from hundreds of billions of shares to a 90% reduction...eliminating alot of the shorts who were shorting w/o taking the proper steps to borrow shares to cover. What's happened since? volume has declined across the board. So the only volume missing is short activity and short covering.

Proof? Look at a situation that would involve obvious short covering, and see if the volume picks up to March/April levels. Look at the last time everyone piled into the short side, 2 weeks ago after the Shanghai/Chinese meltdown. Shorts piled in Monday and Tuesday, the ensuing rally especially that Friday, had volume equal to the days back in March. Why? Short covering.

So its not bearish that volume isnt always that high--the volume as not natural buying. the market can still go up w/o short covering because it wont be getting slammed down as quickly during pullbacks.

RIP volume argument.

2009 Aug 30 02:39 AM

[boisterousbob]

"I wont go into reasons why every other strategy wont work, but for people still buying the SDS or the SKF"

I can only agree with this wholeheartedly. Be a bear, be a Bull as you choose. But for GODS SAKE don't own leveraged ETF's for more than a day. Do your homework people!

2009 Aug 30 06:08 AM

[Domino412]

Regarding SDS and the "inverse" etf's...I got caught up last year buying into UYG , the pro "up" financials. I started a position at 20, kept buying in, got heavier as it went lower. Really "gunned" it when it hit around 8 thinking surely that was the bottom in financials." Wrong," it went below 3, I got out on a bounce at 3.12. Even now its below 6. It will never get to 20 again. These products are nothing but financial suicide! Stay away! I lost enough to buy a fairly nice vehicle, and Lord knows I need one now.If you want to gamble, might as well go to Vegas...and at least enjoy some pretty women on the way down.

2009 Aug 30 10:27 AM

[aarc]

The monthly charts are more telling for longer term outlook.

As far as the major indexes are concerned, the run up from March 2009 is a tad slower than the run down during the 6 months prior to March 9. Except for the Tech Sector of course which performed admirably during the initial phase of this rally.

Count the number of weeks of the last leg down from January to March (I counted 9 weeks of sustained selloffs with a pullback). The succeeding 9 weeks after March 9 was not able to surmount the preceding 9 weeks in time. That is a poor recovery performance and not indicative of strenght that usually is needed in order to restore faith and confidence among traders and investors - except for the tech sector, which garnered lots of praise and confidence among traders and investors up to now.

That is the bad part of the equation that persisted up to the 25th week of this rally.

In most cases -- a successful recovery against such massive meltdown requires a rally that should perform faster than the preceding event. Despite most everybody getting a case of vertigo; the "recovery" rally by INDU, SPX, and RUT were simply a tad slower or simply too slow to be able to sow the seeds of confidence. It can still be called a bear rally rather than a recovery rally.

The existence of too much doubts among many market participants as to the strenght and longevity of this initial rally makes it vulnerable to a massive pullback or a capitulation sell-off.

There are bigger hurdles ahead on the monthly charts, specially the Sept and Oct 2008 panic selling that will have to be addressed either by a show of force or by trepidation among bulls OR nothing at all with a grim September coming into the fast lane.

It is rather looking like a DO or DIE situation from here on.

Still, the bulls have a small edge against the bears with the "surprise" rally of the last two weeks. If the remaining traders and investors grab the bull by the horns in September, we might end up breaking the major Spx 1055 resistance in 2 to 3 weeks time. And most probably be in the vicinity of 1070 to 1127 by November of this year.

After that another major correction similar to that of June to July will be needed to sustain the rally -- assuming the rally from March lows did not produce a running correction 2nd wave on the weekly charts in which case we might end up well above 1145 before the end of the year for a 3rd wave rally.

I am long since Feb/March; And I will be cheerleading the bulls on their efforts. That does'nt mean not expecting what the bears can possibly do. They can still do a lot of damage in a very short period of time until faith and confidence among traders, investors, and the general public had been restored.

1145 on the monthly chart for SnP500 is the line in the sand; significantly break that within this year and more than 80% probability this rally can be sustained in the years ahead.

2009 Aug 30 10:48 AM

[LKofEnglish]

not all government spending is going to an unproductive purpose (i.e. interest on the debt) though we are fast approacing that point. there's still a war going on which leaves open the possibility of default. if i were the republican in charge and inheriting this greatest of fiscal disasters in american history i would have a hard time seeing any other option that would appeal to me. still, never underestimate the issue of "price discovery" turning into "wealth discovery" to act as a deterrence on the markets. they've already sandbagged uncle sam to tune of trillions. why shouldn't they try and blow up the now created even bigger bank? uncle sam is already discussing "stimulus 2." how does "bailout 2" sound to everyone? sounds GREAT to me.

2009 Aug 30 11:19 AM

[Genesis]

Haha! That's just range trading. Welcome to the crude oil market!

"One day they have no where to store oil and it goes to $69 - the next day someone's highjacking a ship or Opec's cutting production and we're back to $75. I've fallen off cliffs with a more gradual slope."

2009 Aug 30 11:41 AM

[AuGod!]

It seems simple enough to me. I am out of the market but remain an interested spectator and note some investors watching a “falling knife” vis value who think this or that stock with a plummeting share price is a good buy. Well maybe, but it is also a strong indication that that the stock is in trouble and that increasing a position is very very risky. If such a decision is proven correct, then one gets a bargain but how sound a method is this to select stocks? That is why I like to keep abreast of the different valuation models analysed/discussed at S.A. not just a narrow focus on price, which is rife with dangers. Pretty obvious I would think yet with a dramatic twist in this "Through The Looking Glass" investing environment.

2009 Aug 30 01:51 PM

[dracula99]

Did you see FAS go from 40 to 80 this last month. Despite the decay FAS is safer than FAZ, because FAS exists (ed) at record lows. The market was obviously going to go up. FAZ is for losers!! I made 100k on FAS alone in one month. Its risky, but unless you truly believe that a DOW of 9500 is the ceiling forever then you could hold FAS for more than one day. Unless we crash in october and we enter a post-apocalyptic world!

2009 Aug 30 02:38 PM

[Douglas T]

Certainly enjoyed your comments Warm_Paw and your sense of humor regarding current market activity was refreshing as well. Excellent post.....www.mutualfundwealth.com/


On Aug 29 10:35 PM Warm_Paw wrote:

> It must be the infusion of dollars keeping this market going, because
> nothing else is. The earnings are a joke with the FASB accounting
> changes. Major unemployment, more oil than we know what to do with
> and the price keeps climbing, where the banks are with toxic assets
> is anyone's guess,the dollar should be tanking and isn't because
> the rest of the world has worthless currency (they've already went
> this route).
> Bottom line is the country has offshored the employment and without
> a consumer there's no way this situation is going to buy itself out
> through inflation. The govt has pulled out all the stops without
> realizing this isn't something that's going to get fixed with good
> old fashion brute force or throwing money at it.
> Wall St. continues to manipulate to get a fire going not realizing
> investors are staying on the sidelines because up is down and black
> is white. There's no stability. There's no logic. It's become a crap
> shoot. That does not create confidence.
> Where this ends up - nobody knows.
> I agree with this article in that the market is due for a correction.
> The fact that none is coming just tells me that when that correction
> comes, it's gonna be a whopper!
> For that reason I remain on the sidelines. Who wouldn't. For anyone
> making money in this market right now, I'm happy for you.
> Know this, the S&P grudgingly rises, but when it or the DOW fall,
> they do so with a vengeance.
> Picking up pennies in front of a steam roller.
> What do you invest in?
> One day they have no where to store oil and it goes to $69 - the
> next day someone's highjacking a ship or Opec's cutting production
> and we're back to $75. I've fallen off cliffs with a more gradual
> slope.
> The dollar is what the world's watching. Once the Fed HAS to raise
> interest rates, it's strength is going to wipe the markets out.<br/>As
> if there was ever a currency that would have the credibility of the
> US Dollar.

2009 Aug 30 03:25 PM

[sboardemc]

david fry follows no one, he is only followed...

2009 Aug 30 04:25 PM

[Wizler]

iphones in China could be good for AAPL! And their chip supplier.

2009 Aug 30 04:36 PM

[marketman54]

When the fed runs out of cash to burn on the market, interest rates, bailing out industry after industry and the tax paying public wants something back for their dollars pledged, we will see all hell break loose on mainstreet as wallstreet reels once again on the lack of fundamentals that have inflated the markets.

All the items that created the crash are worse today than they were one year ago! It won't take long for a big correction.

We are destined for failure when our government creates balloon after balloon in the financial, insurance, and auto markets.

2009 Aug 30 08:02 PM

[FB5000]

seriously. not enough charts.

we need more charts and cowbell.

2009 Aug 30 10:27 PM

[ari5000]

you can't short the markets... it's really that simple.


Look: If there is a massive correction and the Ponzi economics of the U.S. fails -- we're all dead. The dollar will be worthless. Gold bugs will be happy but so what? It'll be chaos. People will kill you in your sleep and take your gold coins. Best bet is to take some new quality prescription drugs and join the AIG party -- forget reality. The Fed has - and they won't stop. Did someone really say "when the Fed runs out of cash to burn"... lol

It's called a printing press...

2009 Aug 31 12:30 AM

[marketman54]

I hear what your saying but at some point they have to stop the presses, don't they!

If not, then gold, treasury shorts, commodities and every short ETF known to man will make me a printing press type of guy!


On Aug 31 12:30 AM ari5000 wrote:

> you can't short the markets... it's really that simple.
>
>
> Look: If there is a massive correction and the Ponzi economics of
> the U.S. fails -- we're all dead. The dollar will be worthless. Gold
> bugs will be happy but so what? It'll be chaos. People will kill
> you in your sleep and take your gold coins. Best bet is to take some
> new quality prescription drugs and join the AIG party -- forget reality.
> The Fed has - and they won't stop. Did someone really say "when the
> Fed runs out of cash to burn"... lol
>
> It's called a printing press...

2009 Aug 31 07:44 AM