Not to take anything away from Cisco (CSCO) earnings which beat by a penny both on earnings and revenue, but the thrust of Thursday's rally came mostly on the heels of talk from on high. Former Fed governor Plosser stated via the WSJ that Bernanke's recent comments indicate QE3 is likely but he is against it. Also, Angela Merkel revived talk that the euro must be saved as she and the ECB were committed to do. Of course, her comments don't mean some current eurozone members like Greece will remain. China was also cited as a stimulus for a rally Thursday as investors expect the government to cut bank reserve requirements.
Basically it's all about "expectations and talk" but nothing beyond this. The euro situation will continue its wax on/wax off conditions; bulls will expect more QE; and, China will stimulate.
Let's remember earnings aren't that great overall, guidance has been modest to weak overall, GDP is declining but bulls are looking ahead to more money printing. After all today's economic news was not supportive with the Philly Fed (-7.1 vs -5 expected); Jobless Claims were weak (366K vs 366K and as more fall off the rolls); and, Housing Starts and Permits were mixed. In fact as per the latter it was the fourth worst reading on housing starts since 2009 and 2010.
The dollar (UUP) weakened on Merkel's comments and gold (GLD) rallied; bonds (IEF) and (TLT) continued to see higher yields as investors rotate to stocks; and, with the dollar weaker commodities (DBC) and (USO) were stronger.
Volume has slumped to levels not seen since 2006 which makes it very easy for algos and HFTs to push markets in any direction. Breadth per the WSJ was positive.
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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.
Friday we'll note Consumer Sentiment and Leading Indicators. The former has a large stock market component making it more suspect than Consumer Confidence data overall.
The only positive is the tape. Is there anything else?
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