ETF Midweek Peek: Exit Stage Left

by: David Fry

Markets were dominated by the Facebook IPO (NASDAQ:FB) hype this week, an event that can only be compared to Geraldo Rivera's opening of Al Capone's vault. That's all I'll say about that.

Economic news has been light, leaving a data vacuum for emotionalism to run rampant. The G8 meeting produced silence. Bank of Japan announced "No change" last night. Today's eurozone powwow has already produced a "No decision expected" headline. With no actual news to report, media outlets are left to a rumor battle. Half the rumors are that Greece will leave the EU, the other half that Germany will self-destruct, if necessary, to save Greece.

Back at the farm in the U.S., all the Fed's printers and all the Fed's men are only slowing Humpty Dumpty's fall. The dollar is at critical high resistance of 82. We've only seen the dollar above this level in the 2008 crash and the 2010 sell-off. One sentiment indicator I look at is the ultra high dividend stocks. These tend to be the very last positions sold in a sell off. It appeared the whales sold these positions last Thursday.

This tells us two things:

1. The biggest selling has likely already occurred.

2. There is little hope a sustained rally in the near term.

Markets must rally on extreme oversold conditions. At the close on Friday, we were extremely oversold. The media had the weekend to don their pleated skirts and pompoms for cheering on the oversold rally on Monday, which ran out of gas by midday Tuesday.

Asia and European markets experienced heavy selling overnight and the U.S. futures have been in a slow, steady decline since the close yesterday. All eyes will be on the S&P 1290-1300 level for support and the dollar 82 resistance today.

Let's get to the tables:

Click to enlarge all images.

Top Performers This Week

The blistered gold miners hit our top performer table this week this week on currency fears in Europe and extreme oversold conditions. Gold has been a mystery. Mostly, it has followed the equities market, which is unusual as its primary function being a hedge against dollar decline. It is currently retesting support. A bounce off support could give the miners some follow-through in their rally.

Options expiration on Friday gave the VIX a rare pop, which was crushed again in Monday's rally. Even so, the VIX is holding the 20 level considered the threshold of fear.

The other usual suspects of small caps, financials and emerging market mega bears are "positions of interest" at the first sign of fear. The JPMorgan debacle exacerbated investors loathing of the banks.

New Highs:

Wild moves at the end of last week and the beginning of this week, wiped the tables of new highs and new lows.

New Lows:

Unusual Volume

Volume as of midday today is heavy against Europe. Short positions are also moving in against the mighty Dow. Homebuilders are experiencing the classic "pump 'n dump."

Bag holders abound -- or as (NYSE:GS) likes to call them, "Muppets."


Crude oil was the last commodity to give up the ghost. The bear raid on oil was unusually strong and focused. The short position on the euro has been overbought forever. As I've said before, God help us if there's a short squeeze created on the euro. Virtually impossible, but short covering would be massive.

With gold having been choppy and unreliable, U.S. Treasuries are the best house in a bad neighborhood for investors looking for safety. The 10-year note ETF (NYSEARCA:TLT) has broken above resistance and for a position of safety, remaining overbought for an extended period is common.


Almost the entire table relates to crude oil. Brazil, heavily dependent on oil exports is hard hit along with its sugar exports at a low and their own internal currency struggles.

Usually, seriously oversold positions are candidates for short-term pops. However, the behemoth economy of China is contracting and that is bad news for crude oil. What's strangely absent from this table are the extreme "risk-on" positions as traders hold out for one or two day pops in these on media blitzes.

Trending Up

A peculiar table indeed. Our up trending positions are almost all at a loss this week. But even this is valuable information. These are the final holdouts to break trend.

Consumer staples and other defensive positions are no surprise. However, if even these are getting sold off, this tells us investors are exiting the market rather than moving to defensive positions.

As mentioned earlier, even the dividend producing positions considered long-term holding have declined. Selling in these positions indicates that investors anticipate being able to buy at a higher yield and lower price. A very negative sign for equities.

Trending Down

On the other side of the coin, the beaten-down gold miners have not broken the long down trend despite the recent pop to top performer this week. Having positions both on the "down trending" and "top performer" tables indicates a potential trend reversal. Short covering in gold could result in another pop. The Nasdaq was severely wounded by heavy selling in (NASDAQ:AAPL) and the disaster couldn't have come at a worse time for the Q's. The rising dollar has weighed heavily on the commodities sector for months. Unfortunately, declining commodity prices haven't been reflected at the grocery store.

In summary, our data from the tables this week is indicating there is a significant exit building in the market. Lazy bulls haven't gotten the miracle "saves" they become accustomed to. In fact, the 2:15 Algo Express has been hitting the down lever crushing hopeful midday rallies on the European markets' close.

General consensus is that most of southern Europe has re-entered recession territory. China's shrinking economy has turned their attention inward and cheap bailouts are getting tighter. The U.S. "moderate growth" has stalled. Although the U.S. market hasn't rolled over into bear market territory, it's teetering at the threshold. Largely, panic is avoided by the hopeful QE crowd. As unpopular as it is, another round of QE is looking more and more likely. Before an "official" move is done by the Fed, it will be likely they'll run up a few rumor flags to see how the market reacts. An election year puts enormous pressure on pumping the market.

"Rip your face off rallies" are not uncommon in a declining market. It is easy to trick traders with hype and headlines for a one- or two-day pop. Significant market moves are a media bonanza for the talking heads. "Bottom calling" will be one line of Sneetches. Doom and gloom will be the other line of Sneetches. Best advice I have for you: Turn off your TV and watch longer-term charts (weekly) for the real market information.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About this article:

Problem with this article? Please tell us. Disagree with this article? .