David Gillie: This week’s report comes at a fulcrum of an over extended melt up and a hard selloff. Bernanke’s statements (Fed minutes) of not initiating a QE3 imminently, was devastating news to the bulls salivating over the prospect of “free money”. With the end-of-quarter fees made by fund managers and the monthly IRA contribution in the market on Monday, there was little hope for a catalyst to sustain this historic run up. 

Market moves like this can actually be a good thing. In essence, Bernanke pulled back the curtain to expose reality in the market. A financial Darwinism takes place and the weakest are the hardest hit. Many of these were issues getting a free ride on AAPL’s parabolic move (two indices I refer to as the S&P499 and the Nasdaq 99).

Top Performers This Week

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Natural gas has gotten pops on the “it can’t go any lower” theory, but each time, it has. It’s now in the realms of price not justifying production costs.

Treasury bubble has been the conversation, but yet, after fear strikes, there are few other alternatives to park cash in to wait out a storm. This is confirmed by gold being the first thrown off the cliff on yesterday’s Fed announcement. Speculators have taken gold out of its alternative currency, inflation hedge status and into just another fast money move.

Indonesia has been a strong player among the Emerging Markets. With a declining China so heavily weighted in the sector, individual county selection has been advised and Indonesia is among a few that have proven their strength.

New Highs

None

A case of a low tide lowers all boats. Even the defensive positions have backed off their highs. 

New Lows

 

Whereas previous tables of lows had been abundant with any inverse associated with Apple (AAPL), they’ve now come off this table. 

The already beleaguered gold miners have only gotten worse. 

Unusual Volume

Of our top volume issues, the only buying volume is in volatility and the inverses of gold and oil – all bearish positions. Gold miners are being sold with a vengeance on market orders for immediate exit.

Perhaps the most unusual ETF on the table is the mighty Dow (AID) with over triple relative volume on selling.  

Overbought

Previous tables of overbought have been limited to the top 10, but often there were 30 or more in this condition. Now we are down to a single issue, the most defensive of consumer staples. That only remains of the chart due to its extreme overbought levels at an 85 RSI.

Although the price has risen, typical of a defensive position in late rallies, the indicators have been in a falling bearish divergence. 

Oversold

Once again, this table has taken a radical shift from previous weeks. Volatility had gone into near death conditions of RSI at historic lows. Along with volatility, many inverses of the Nasdaq and tech, were at their lowest points since inception.

We now have only one remaining oversold position and there’s little expectation of reversal until the next batch of QE is issued (June?).

Trending Up

One or two days market movement doesn’t make a trend. Depending on the size of the movement, it may not even break a trend. Even with a hard blow to the Nasdaq and tech, the longer trend is still in tact (so far). As mentioned before, individual country selection is prudent in the emerging markets sector. We see that Malaysia and Singapore are holding up even against other global volatility.

The Euro short position has been one of the most obvious position throughout the Greek debacle. It now appears that Spain and Portugal are joining the circus. 

Trending Down

Commodity indices have taken it on the chin on a rising dollar. Oil holdings have helped, but the whole Ag sector is in poor condition. Interest rates creeping up have caused the bond markets to lose favor.  A “relief” in the Euro after the Greek bond default was short-lived as the fallout sunk in and even larger European economies in jeopardy are on the horizon.

In summary, the overly exuberant market is pivoting. Dip buyers still come in with disbelief that highly dependable daily miracles form the media and Fed will still prevail. Holders hammered by selling wait hopefully for a price rise to catch a sell target. Pivots like this are a highly choreographed dance of the bulls and bears. Usually the most likely to collapse is the one who’s been on the dance floor the longest. In this case the bulls, who haven’t missed a dance in over three months.

Written By David Gillie For The ETF Digest  

ETF Digest writes a subscription newsletter focused on technical analysis of exchange-traded funds.  ETF Digest was founded in 2001 and was among the very first to see the  need for a publication that provided individual investors with  information and advice on ETF investing. Even if you’re not a fan of  chart analysis, ETF Digest provides insight and commentary into which global markets are “working” and why.

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