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Reality seems to be setting in and it’s not pretty.Photobucket Officialdom seems to have worn out their options although I expect some abrupt foreign exchange intervention soon. With hindsight it may have been better to have let Bear Stearns (NYSE:BSC) fail and a few other firms along with them. After all, a major house cleaning seems in order anyway rather than wasting tax-payer money and destroying the Fed’s balance sheet in the process of 'saving things'. It may seem harsh, but that may have been the best medicine--no bailouts, no moral hazard.

Volume continues to build while breadth is horrible.

click to enlarge

I’ll point this out again as I did when it occurred. DeMark weekly sequential indicators [noted on QQQQ chart below] flashed a '9' on May 19th for the 20th open @ $49.45. The following week, virtually every other major market sector that had been rallying also displayed these '9s'. When this happens the odds strongly favor one of two things: either the existing trend will take a break and move sideways or reverse course. When many markets sport this reading, it means a more powerful signal generally. These markets included, but weren’t limited to: MDY, IWM, IYT, SLX, EFA, EEM, ILF, EWZ, RSX and so forth. Why don’t I post them? They’re for subscribers frankly.

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Source: Thursday Outlook: Financial Drag