Trading desks and hedge funds may just keep driving equity prices lower until the Bernanke led Fed responds with the QE3 they want. It seems another round may work temporarily to resuscitate the patient but it also just may flop, a la Facebook (FB). Or, can you go to the well three times and expect the same results? Further buying longer dated Treasury bonds now at these levels may cause the Fed to lose money on them down the road. But, "down the road" seems to be the modus operandi for politicians and officialdom these days. There's an election to be won, elected jobs to hold, the power that comes with it, not to mention the goodwill (money) that accrues to whichever power base wins. Yes, it's easy to be cynical about this.
The Bernank may give us a hint of what's to come with his congressional testimony Thursday. The lights are burning bright late into the night at 33 Liberty.
Economic news continues to be awful. Chinese non-manufacturing data sank to 55.2 from 56.1. The Tokyo stock market is at a 28 year low. Eurozone Investor Confidence (Sentix) fell to -28.9 matching the lows from 2009. The NY Mfg ISM data collapsed to 49.9 versus 61.2 previous and Factory Orders fell to -.6% with the prior revised lower to -1.1%.
Despite all of the bad data markets were able to maintain their composure and close mostly unchanged on Monday. The dollar was slightly lower as a short-squeeze occurred in the euro on little news. Leading markets higher throughout the day was tech while bonds took a break and financials remained weak. Commodity markets were able to turn things around late and close mildly positive.
Volume continues to run higher and breadth per the WSJ remained mixed to negative.
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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.
The ISM Non-Mfg Index will be released tomorrow. More importantly a cavalcade of Fed governors (Bullard, Fisher and Evans) will be on the campaign trail jawboning investors. This is primarily going to be the week of the Fed as Bernanke gives testimony on Thursday. In the meantime his messengers are the warm-up act.