Jobless Claims surprised (350K vs 375K expected & prior claim revised higher to 376K) which was a refreshing change. But, the week was interrupted by July 4th Holiday which as an important occasion may have more than a one day effect. Then there were the massive and lingering power outages on much of the mid-Atlantic region. So next week's data should be more revealing. Overseas markets were much lower on a hangover from Fed Minutes which didn't offer bulls what they wanted. In fact, the end of quarter "eurozone is fixed" rally has been undone. In China and with GDP now at 7.7% (low by their standards) from 8.1% things look grim. In fact, Chinese leadership is more concerned with balancing more easing against an ongoing housing bubble-good luck with that.
Another U.S. Treasury bond auction for the 30-year bond yielded 2.58% (TLT comparable) which is a stunning number given the duration risk investors must assume. Remember, there are large pension plans and other institutions that have a set allocation to bonds. Insurance companies generally must buy these maturities to meet actuarial tables and so forth. But you as a retail investor or financial advisor don't have to participate. You might do as well or better, sans the duration risk, with an insured CD. As a side note, while this happy little auction occurred the U.S. budget deficit passed $900 billion as of June; but, we don't want to talk about that do we? Imagine if interest rates were higher on our bonds how quickly we would collapse as a nation; but, again, we don't want to talk about that either.
The DJIA was lifted higher at mid-day after William Ackman announced he had been accumulating a large stake in Procter & Gamble (PG). That caused the stock to rally at one point over 4% lifting the price-weighted index and the defensive Consumer Staples ETF (XLP). (Naturally, algos and HFTs have any DJIA heavyweight programmed as trigger to rock and roll.) Not so lucky in the sector was a (gulp!) 50% decline in SuperValu (SVU) shares which are also a weight (not too heavily now) in Consumer Staples. Nevertheless, the DJIA is what Main Street seems obsessed with generally and a day like today can be misleading.
Meanwhile the Midwest drought continues to destroy crops causing grains and other agricultural products to gain in price once again. These products continued to rise despite another small rally in the dollar (UUP) as the eurozone remains "unfixed". Base metals like copper and precious metals like gold continued to slump. Energy continued to advance modestly as the U.S. adds a greater presence to prevent any disruption in the Straits of Hormuz. This is part of the cost of having no coherent or effective energy policy in the U.S. since the mid 1970s - lots of folks to blame there, eh?
Stock markets are about supply and demand like most others and despite the growth of assets in ETFs (mostly bonds lately) the money-flow to mutual funds continues to be negative. Below is a chart from Zero Hedge reflecting several years of negativity. So with redemption rates obviously higher, fund managers have little in the way of cash for fresh investments. When they sit down each morning they're given a number of fresh cash demands from overnight redemption requests. Ultimately this is bearish naturally.
With markets deeply in the red early the Ackman announcement was all bulls needed to get things reversed to the upside. Basically we're just marking time before more earnings and data are released to either support bulls or bears. We'll start to see some important reports from financial and banks beginning. JP Morgan (JPM) is on tap for Friday morning. This report will be much watched (not to mention manipulated…snicker) regarding recent trading losses, Libor involvement if any and their outlook. It should be a market mover.
One of the most interesting stories of the day came late when a report from the Federal Reserve Bank of NY suggested that without Fed help the stock market would be 50% lower. This then is self-explanatory.
Stocks closed Thursday's session lower but well off their lows. Volume was lower by recent periods and breadth per the WSJ was 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.
JP Morgan is on tap for Friday and its report could move markets. Further is PPI which shouldn't be very interesting while Consumer Sentiment is also due. Frankly I'm not a big fan of the Michigan Confidence Index as a valid measure but others feel differently. I bow to the tape.
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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.