This week's resumption of the primary downtrends led to a third straight day of losses yesterday. Unlike the previous day, in which stocks trended lower throughout the entire session, the major indices rallied throughout the morning. Nevertheless, the bears asserted their authority in the afternoon, reversing the early gains. The Nasdaq Composite lost 1.3%, the S&P 500 0.8%, and the Dow Jones Industrial Average 0.5%. The small-cap Russell 2000 and S&P Midcap 400 indexes were lower by 1.3% and 1.2% respectively. All the main stock market indexes again closed at their lows of the day.
Total volume in the NYSE receded 8%, while volume in the Nasdaq declined 3% below the previous day's level. Still, lower turnover is of little comfort during the "slow bleeds" that typically occur in bear markets. Market internals showed persistent selling, but were not near extreme levels that could potentially indicate a near-term market bottom. Declining volume in the NYSE outpaced advancing volume by just over 2 to 1. The Nasdaq ratio was negative by more than 3 to 1.
In yesterday's commentary, we discussed the benefits of considering ETFs with little or no correlation to the direction of the U.S. stock market. The DB Commodity Index (DBC) was an example of an ETF that is ignoring the recent bearishness in the broad equities markets. Another non-correlated family of ETFs to consider is the CurrencyShares, which are designed to mirror the exchange rates of various global currencies compared to the U.S. dollar. With the dollar showing such weakness in recent years, many of these ETFs have already realized strong upward moves and may be ready for near to intermediate-term pullbacks. Regardless, other currencies are only now showing bullish chart patterns. One such example is the CurrencyShares Japanese Yen (FXY):
Over the past three weeks, FXY has been consolidating in a tight range, near its high. With the 20-day exponential moving average rising up to provide support from below, one could soon expect to see an upward thrust to a new all-time high. Conversely, the CurrencyShares Euro Trust (FXE) may be poised for a correction from its recent strength. Though one could still classify its recent pattern as bullish consolidation on the weekly chart, it's equally possible to make the argument that FXE has formed a "triple top" formation on its daily chart. It also gapped below support of its 50-day moving average two days ago, further augmenting the possibility of a steeper price correction. The daily chart of FXE is shown below:
Regardless of whether the dollar continues to weaken or rebounds in the near future, the CurrencyShares family of ETFs provide a host of trading opportunities with little correlation to the U.S. equities markets. For a complete list of the available CurrencyShares ETFs, download the free Morpheus ETF Roundup and see the "specialty ETFs" section. Note that another completely updated version of the ETF Roundup is already in the works.
As for the broad market, not much has changed on a technical level. Tuesday's break of the hourly uptrend lines put additional pressure on the major indices yesterday, causing stocks to retrace more of their gains from the near-term bounce off the January 23 lows. As the main stock market indexes remain firmly in long-term downtrends, this should not be surprising. Both the S&P 500 and Dow Jones Industrial Average are likely to test their closing lows from January very soon. The Nasdaq stealthily already set a new 52-week closing low yesterday. With every industry sector suffering in this sell-off, there are really no safe places to hide in the stock market. If you missed the short-term bounce a few weeks ago, this is not the time to be a hero by trying to catch another market bottom. The logical choices for capital preservation are simple: wait patiently in cash, trade only in non-correlated ETFs, or conservatively sell short the market. After sellin g our position in the UltraShort Dow 30 ProShares (DXD) for a 3-point gain yesterday, we are again "flat and happy."