Portfolio Theory $DBC $EEM $IWN $IYR $PLW

This week's look at the 5 least correlated liquid ETFs.

After a hefty rally, commodities have resumed their fall, and DBC remains in a massive downtrend. Heed the words of famed economist and failed trader John Keynes, "the market can stay irrational longer than you can stay solvent."
Momentum in emerging market's waning, and the bounce in EEM is beginning to look like a dead cat. Perhaps the fiasco at Satyam is just a glimpse of the Madoffness abroad.
The small cap value sector suffered a failed breakout and has pulled into support. Although the IWN technically remains in an uptrend, nearly 40% of this ETF is allocated to financial service, so it's fragile and may be a short.

As mentioned here last week, real estate remains in danger as the IYR is ready to touch the lower Bollinger and retest the recent bottom. The selling this week came with increased volume, so buyers beware.

Bonds remain in a massive uptrend, and though I made some nice coin in TBT, now is not the time to be short the US Government. Though Treasuries are Ponzi up the Yangtze, nobody seems to care so long as the trend is up.

A century ago, a fellow asked the banker Pierpont, "what will the market do?" and the elder Morgan replied, "it will fluctuate." This timeless quote, along with "it will open at 9:30 and close at 4:00," underscores the absurdity of predicting the future, and the importance of adapting to the market environment.

The markets propensity to fluctuate, neatly described by the VIX, is beginning to rise and that poses a significant danger to nervous investors. Moreover, the selling on Friday was strong ~9:30 and ~4, suggestive of a broad desire to GTFO. If you're looking for a tip, take your money, put it in a MMA, go play with the kids, and come back next week.

That said, how about a gap up on Monday to make some bears shit, and then a fade to lows below Friday to demoralize the rest? Volatility is rising and the market will spoon feed excrement to those who fail to adapt. We are entering the fifth wave, assume the position.

Grrr...

Look out below!!! This market is heavy, so stay defensive or short. Feed Burner/Google Reader doesn't seem to be picking up my last post, so I'm hoping this one helps.

Ratios to Reason

There is evidence of new trends emerging in the market.

US bonds look ready to head lower relative to their foreign counterparts. Will another cycle of credit shock prevent this trend?

Although the SPX indicator remains bullish, the NASDAQ is now bearish for the first time since the end of November. This implies an environment of increased volatility with a lower percentage of stocks trading above their 50dma.

The spread between the SPX buy write and its underlying is currently bearish because it is rising. Moreover, the 10sma is beginning to flatten, so a break of recent resistance would be even more bearish.

The Yen is rising against the USD and that doesn't bode well for equities. Perhaps it will retest the recent highs before the BOJ acts again.

Treasuries are technically in a downtrend relative to gold, and that puts the dollar in jeopardy. Perhaps another round of credit crisis will bring money back to the ol' U.S. of A.

The market looks poised to break lower, but there isn't enough cause for alarm to run to the exits yet. Increasing volatility is certainly a bearish symptom, and considering the massive run up since the November lows, a move lower is quite reasonable. The numbers being released Friday are utterly meaningless, but the reaction will be critical.

On a side note, it's good to be back online with a working computer. Although the imbeciles at Office Depot raped my face and charged 100+ clams for an AC power adapter, I will have the last laugh; their awesome 14 day return policy is effectively a free rental. Now that I've bought another on Buy.com for 29.99, maybe I'll swallow the power chord and floss my intestinal tract before returning this P.O.S. adapter to the Office Despots.