ETF Market Direction Summary: 11-18-2009

This time it was different as bulls stepped out of character. In Wednesday’s trading, we had the occurrence of dollar weakness, but stock investors did not take the bait. The major U.S. equity indices were relatively unchanged with losses only ranging from -0.11% to -0.58%.

Call me paranoid or a conspiracy theorist if you so desire, but the fact that government officials have even considered quantifying happiness to measure economic growth tells me that this may not be the last time that we hear of such.

France took a serious look at this, but has decided to defer its implementation as quantifying happiness is more complex than what meets the eye and somewhat expensive too. Here is an excerpt from YahooFinance AP news with a hyperlink to the full story:

The Financial Times has reported that Mauritius, a small nation comprising a collection of islands in the Indian Ocean, is the latest of sovereign central banks to purchase gold bullion from the IMF bank, which is scheduled to sell 403.3 tons. By doing so, Mauritius has doubled its gold holdings to 3.9 tons.

While the transaction is small relative to India’s recent 200 ton purchase, this event, along with Sri Lanka’s intentions to purchase gold in the open market, could initiate a new trend amongst central banks and indicate an active shift in their preference for U.S. dollars. Disdain for the dollar should be no new news to anyone, but such developments do send strong psychological messages of continued support for gold to the market.

At the end of each trading week, Hillbent scans the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our ETF Market Trends™ Report to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

ETF Market Direction Summary: 11-12-2009

On Thursday, equities finally hit a legitimate wall of resistance and started showing signs of a double top pattern (i.e. peaks at October and November highs). Although market news and economic data were a combination of mixed results, positive catalysts had absolutely no impact on Thursday’s trading.

The credit crisis continues to have repercussions and this time it is the FDIC that is feeling the pinch. The regulatory agency is flat out busted after having spent about $28bn to cover 120 bank failures so far this year.

Ironically, Chair Bair is asking the very industry that her agency seeks to protect for a bailout of sorts by requiring prepaid insurance premiums amounting to about $45bn in fees. The new normal for capitalism seems to be all for one and one for all.+

ETF Market Direction Summary: 11-11-2009

On Wednesday, the "new 52 week high club" was no longer an exclusive category for the Dow Industrials as the S&P 500 and Nasdaq 100 indices both made new 13 month highs. This expanding participation in new highs is in order if bulls are to sustain their momentum. Prior to this development, one of my concerns has been the asymmetrical character of this rally whereby a disproportionate share of technical leadership was emanating from the Dow, the most narrow of major equity indices representing the U.S. economy.

ETF Market Direction Summary: 11-10-2009

The most important observation about Tuesday’s session is the fact that the market was very stingy in giving back any of its 2% plus gains from Monday. Without major economic data or many earnings announcements, there were no strong catalysts to drive the market in a decisive direction. Bulls earned a well deserved day of rest after having pushed up the S&P 500 for the last 6 out of 7 trading days.

Fed Presidents, who by the way have been creating an excessive amount of "dead presidents" (vernacular substitute for dollars) lately, still remain cautious on the economic recovery and more or less admit that the challenges of high unemployment, dependency of financial institutions on government stimulus life support, and weakness in commercial real estate have yet to be overcome.

Gleaned from Reuters news at Yahoo Finance is the following excerpt attributed to San Francisco Fed President, Janet Yellen:

ETF Market Direction Summary: 11-09-2009

Today I shall deviate from the usual format of the ETF Market Trends™ report and indulge in the reminiscence of the zenith of my youth some 20 years ago, which marks the fall of the Berlin Wall and a time when I was in love with a young beautiful woman from Berlin with eyes cooler than the bluest hues of any ocean and a heart warmer than the most intimate of campside fire conversations shared over a bottle of good bourbon whiskey with strangers (only a real outdoors-man will appreciate the latter comparison).

Friday’s comments will be brief due to schedule conflicts. Negative employment news had very little impact upon the major equity indices (i.e. Dow Industrials, S&P 500, and Nasdaq) which finished slightly positive while the Russell 2000 closed down by a small fraction.

Bullish events:

At the end of each trading week, Hillbent scans the equity market for potential anomalies which exhibit extremely oversold and overbought conditions. Past observations have revealed that such candidates may experience reversal corrections to the upside or downside once the market reconfirms that their fundamentals remain solidly intact or relatively poor. From a contrarian perspective, these lists may also serve as a precursor to changes in institutional sentiment and underlying fundamentals.

(The purpose of this report is not to provide specific recommendations, but instead serve as a time-saving reference tool and starting point for investment ideas as the upcoming trading week unfolds. Of course, the results generated are not always perfect and users are strongly encouraged to perform their own due diligence on these names. Note that overbought and oversold conditions are based upon proprietary algorithms and quantitative models instead of conventional technical analysis indicators. As a supplement to this report, please refer to our ETF Market Trends™ Report to determine if market direction trends support a bullish or bearish investment bias over short-term, intermediate, and long-term timeframes.)

ETF Market Direction Summary: 11-05-2009

From the opening on Thursday, major U.S. equity indexes started the day on positive momentum and continually added to their intraday gains to close above the 90th percentile of their daily trading range.The DIA, SPY, and QQQQ have ended their corrections and re-established their support levels at the 20, 50, and 200 day moving averages. The only exception is the small-cap IWM which remains in both short and intermediate downtrends. However, the IWM did manage to participate in attaining a new 5 day high along with the other major equity indices.

ETF Market Direction Summary: 11-04-2009

Wednesday’s comments will be brief. As expected, the Fed Reserve left interest rates unchanged and reiterated its policy to keep interest rates near zero. It also emphasized for the first time that rates will remain near zero if inflation expectations are stable and unemployment remains high. The market responded with volatility and ceded most of its gains and the U.S. dollar weakened as well.

ETF Market Direction Summary: 11-03-2009

Bulls took advantage of dollar weakness and bought stocks in earnest to support the S&P 500 in its 2nd consecutive day of positive performance. Initially, stocks traded lower as the U.S. dollar continued to advance, but a surge in precious metals buying sent spot gold prices to a new 52 week high and forced the greenback to retreat and settle for a small positive close in the lower end of its daily trading range. A $6.7bn purchase of 200 tonnes of gold from the IMF by India’s Reserve Bank was responsible for this explosive move.

I am always fascinated by the stream of consciousness process that takes place on a daily level as impressions of people and information upon our psyche lead to associations with past experiences. Behavioral scientists might label this as an example of our instincts at work.

• Answers.com defines instinct as: an inborn pattern of behavior that is characteristic of a species and is often a response to specific environmental stimuli.
• Merriam-Webster’s online definition is quite similar but more expanded: a largely inheritable and unalterable tendency of an organism to make a complex and specific response to environmental stimuli without involving reason.

Today, I would like to share my own instinctive impressions from reading a news report at McClatchydc.com involving Goldman Sachs’ (GS) secret bet on the collapse of the U.S. housing market. For a bit of background, here is an excerpt of the story:

Friday’s selloff in the U.S. markets was all about the sustainability of economic recovery in America. The market has been long overdue for a correction, but lest we forget that we are living in the age of the global economy and acknowledge the interdependent economic relationships that shape it, perhaps one should reconsider things from a global perspective. China’s most recent PMI (purchasing managers index) report indicates that the world’s fastest growing G-20 economy has expanded its manufacturing and exports.

Below is an article from Bloomberg’s online news which provides more details on China’s latest economic data release: