Wednesday Outlook: Commodities, Global Markets

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What kind of a regulator permits new products to market, allowing innocent investors to buy them and then pulls the rug out from under them. That’s precisely what Commissar Gensler and his cronies at the CFTC are doing. Oh, it’s very popular to rein in wild speculators in the energy market, isn’t it? But why hurt innocent investors? Is that your job? Didn’t you think this through Commissar?

Today DB/PowerShares announced the full redemption of DXO (the Leveraged Long Oil ETF). Was this necessary now? I don’t know. Could they have achieved similar results in the swap market for their shareholders? I don’t know as I’d have to pore through the prospectus to better understand their options. The bottom line is the CFTC is breaking something to the detriment of investors without good cause, beyond politics. It’s complete BS.



















































The new regulatory wrecking ball club members were busy today. Eliminating DXO from the scene was Gensler’s feat for the day while his colleague Mary Schapiro at FINRA issued new margin rules for leveraged ETFs from ProShares and Direxion, for example. Writing about this was the Street.com’s Don Dion who doesn’t seem to really “get it” when it comes to the impact of rule changes. How many retail investors trade or invest in leveraged ETFs on margin? From a common sense view, very few. This rule change primarily affects institutional investors, especially hedge funds, and the issuers (business is diminished) where margin activity would be more prevalent. It’s the ongoing saga of regulatory agencies doing more harm than good, frankly to score some cheap nanny PR points.

Today was a crummy day for bulls. The selling of good news continues which began the previous week. The month of September starts with heavy selling begun evidently by a handful of well-endowed hedge funds and well publicized by the media. There’s a method to their madness. Perhaps Schapiro and Gensler should investigate them as opposed to going after all the low hanging fruit.

I’m no different than anyone else, miffed at markets because, like many of you, I sensed this coming. But, if you’re a systematic and disciplined investor, you can’t go by transient feelings since they can’t ever be documented.

Tomorrow’s another day. Let’s see if GS and MS can pick up the challenge from the hedge funds, not that they really care one way or another, or if dip buyers will pounce on short-term oversold conditions.

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

Comments

[thechaser:]

Thank you again David for your analysis and thoughts.

I've been sitting nearly 100k shares short not to mention some 200 contracts, so I spell relief "p-u-l-l-l-b-a-c-k".

No pun intended, but in "short", all you have to do is believe.

You know why it is going down. You know the action. Watch the morning BS on the SPY futures. If we get up with a 3 mln share volume by 0730, then you know it's an up day where we'll get the polish off probably Labor Day Friday, followed by a bottom next week and then we are off to the relative races again AHEAD of Q3 earnings.

Why should 95% tank today when it was a ridiculous panic selloff anyway last year and earlier this one. I agree with all the posts that there are problems but on a nominal basis, we are guaranteed a return to the '70's awaiting an inflated 2020 4500 S&P (kinda like 120=1982 to 1200=1999).

So, let's wait for as you call 'em, "da boyz", to work a little magic and then go-go all the way to 1125 by early Nov. Have ourselves a Turkey Day sell-off, pop the puppy back up for Navidad and look out below come late Feb 10.

Sep 02 02:35 AM

[SeeTheLight:]

Although there is a high inverse correlation between Gold and the USD (for the obvious reason that Gold is most commonly quoted in the dollar), if we see a significant pullback here you could see both rise in a "flight to safety" as the goldbugs go to their preferred bunker and the institutional investors search for safety by buying treasuries.

Personally I believe a pullback is inevitable, already China is turning down the stimulus spigot (in the form of credit tightening) and its only a matter of time before the US is forced to dial back its own largesse. Anyone that believes that the stimulus has been successful in jump starting the economy is likely blinding themselves to the fact that nothing really has been repaired, and once the punch bowl is removed the economic engine will likely sputter and died.

But the question is when. You mentioned that we are seeing a reversal in behavior as good news is being sold off. We are seeing another battle between the momentum bulls and the fundamentalist bears. The bulls could win another battle here, but the war will inevitably favor the bears in my opinion, since all this stimulus has accomplish is a redistribution of wealth, not any ongoing growth.

Personally I am being very careful in any equity longs I have remaining, with moderate positions in UUP and in CEF (Gold / Silver), which represent good risk/reward to me. The rest remains in cash in the expectation of a return to deflation or low inflation for the next 12-18 months. I'm also considering moving a bit into TLT but its risk / reward is less compelling to me than the other two.

Good Luck all

Sep 02 04:15 AM

[lower98th:]

Your charts and comments are the best information out there. Accurate, thoughtful, relevant. Thanks.

Sep 02 06:38 AM

[marketman54:]

The charts tell the story and the fundamentals will all catch up.

The government filled the banks with cash, the insurance companies, the auto makers, gave GE guarantees..........all of the balloons are ready to pop!

-Unemployment up
-Foreclosures up
-Delinquent mortgage payments up
-Consumer spending down
-Credit card defaults up
-Auto loan defaults up
-National Debt up

Clear picture on what is happening on MAIN STREET vs. the fantasy world of Wall Street - UP

Will the financials survive and will a big fall in the market keep the little guy from ever coming back again because of all the BS that pushed the market up!

Sep 02 07:37 AM

[Dr. O:]

>>Today was a crummy day for bulls. The selling of good news continues which began the previous week. The month of September starts with heavy selling begun evidently by a handful of well-endowed hedge funds and well publicized by the media. There’s a method to their madness.<<

Let's think. A 6 month low volume 50% rally off the bear market lows since March. September, historically the worst month for stocks, begins as if on cue with a high volume sell-off in spite of "good news" slicing through purported support levels of SPX 1010 and 1000.

A garden variety 10% "correction" down to 920 or so would seem reasonable in the absence of further negative catalysts such as bank failures or negative political/economic developments.

Sep 02 07:39 AM

[jeffgoldnyc:]

To further credit of one of my favorites, Paul Tudor Jones, he has been a bearish for a period longer than suggested in this article. I have seen in various printed articles that he has referred to the recent market surge as a bear market rally. He did not just "jump" on the bear side yesterday.

Sep 02 08:26 AM

[Stockpickin...:]

your charts are ALWAYS awesome! Thanks for the time and the insight!

Sep 02 08:54 AM

[robert.b.fe...:]

Great job as always David. I have Head Waters (HW) in the buy basket @ $3. As usual keep your traveling stops tight and your reserve currency in gold.

Sep 02 09:29 AM

[NikB:]

you can fool all of the people some of the time, some of the people all of the time but you cant fool ALL OF THE PEOPLE ALL OF THE TIME, i hope re-elected fed governors understand that a debt deflation spiral does not just stop unwinding in a year..this is 28 yrs of leverage it wont disappear overnight.. enjoy the rally in the meantime!

Sep 02 09:37 AM

[NC Investor:]

I would like to add my thanks for your superb charts and interesting comments.

Sep 02 10:22 AM

[corey mendel:]

Same here Dave. Thanks for the charts.

Sep 02 11:09 AM

[MarvinMBA:]

Failure of this Analysis to include Precious Metals is going to leave out the coming Bull Market in Gold and Silver...this should be included because it will become a big part of the market going forward..GLG and SLV are worth a few comments...Marvin MBA

Sep 02 06:25 PM

[IMHO:]

Take a flying leap.


On Sep 02 09:28 PM dragonpaw wrote:

> yadda, yadda , yadda, Dave for whom are you pimping?!!

Sep 03 11:03 PM

[pchris:]

Pinhead.


On Sep 02 09:28 PM dragonpaw wrote:

> yadda, yadda , yadda, Dave for whom are you pimping?!!

Sep 03 11:12 PM