This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Randall Forsyth (Barron’s): Reflation trade shifting into reverse? October 27, 2009. Risk assets ranging from stocks to commodities to currencies seem to be faltering after being floated on a sea of liquidity.

• Doug Kass (TheStreet.com):   My “fast money” recap, October 28, 2009. I saw some emerging technical signs of market weakness that could override seasonal strength, including three failed rallies in the past week, a contracting number of new highs on the New York Stock Exchange, a breakdown in the Dow Jones Transportation Average and, generally, stocks have begun to sell off on good and bad news. … asked how vulnerable the market was over the short to intermediate term if I used the quantitative models that

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The comments regarding the Dow Jones Transportation Average were provided by Kevin Lane of Fusion IQ.

“As seen below, the Dow Jones Transportation Average (TRAN) has stalled and turned down from resistance at the 4,075 level (red lines) twice in the past few months. This inability of the transports to get above this level suggests at the very minimum the economy’s recovery path is being called into question.

“Technically the index is currently testing the lower end of its upward sloping channel (green line). While in the short run the index may find a shallow bounce from this level, the failure twice now at a key resistance level is the greater trump card.

“The burden of proof now rests on the transport bulls and the index is an underweight sector that we

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“I take the action of the stock and bond markets this week (and particularly today) very seriously. Extreme caution is advised. The primary trend of the market is bearish, and the secondary trend may now be turning down,” said Richard Russell (Dow Theory Letters) on Friday.

After equities’ seven month climb, stock markets certainly look vulnerable for a decline. Two downside reversal days - on Wednesday and Friday - would seem to indicate that stocks could commence a pullback to work off the overbought condition, allowing fundamentals to reassert themselves.

Bill King (The King Report) reported Art Cashin as saying that since June 2007 the Daily Sentiment Index (as published by Trade-Futures.com), which polls futures traders, has reported more than 90% bulls on the S&P only once. “When would you guess that time to be? July 2007? October 2007? Wrong. It was last

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A new type of ETF is becoming popular, offering alternatives to traditional sector funds in targeting different types of companies.

(Editor’s Note: The following is an excerpt from an article in the Exchange-Traded Funds Report in July. Subscribers to ETFR can read the complete piece here.)

Specialty-sector ETFs—also called “thematic” ETFs—have emerged as a major force in the ETF industry.

These ETFs run the gamut of investment possibilities, but have one thing in common: They look past traditional size and sector designations to carve out new investment areas, often driven by a single investment thesis.

Clean energy, infrastructure, nuclear power—by our count, there are now more than 40 of these unique ETFs on the market, with more than $10 billion in assets under management.

Investment manager Van Eck Global has been one of the most successful companies in carving out a foothold among specialty ETFs. Its Market Vectors Gold Miners ETF (NYSE Arca:

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A guy comes into the bar, and I figure he is a trucker because he looks like a trucker and he is wearing a greasy Peterbilt hat. So I say, “Are you a trucker?” and he answers “Yeah. What’s it to you, old man?”

So I say, “I was just wondering, because it looks like the economic slowdown has shown up in the Dow Jones Transportation Average, which has made so little money in shuffling goods hither and thither that a share of all the companies in the index earned a total of 82 cents, which is down from the $170.63 they earned at this time last year.”

He looks at me and asks, “Who cares? And what in the hell is a hither and thither?”

So I grab him by the arm and say, “Well, as a self-employed person yourself, and as any self-employed person can tell you, there have always been

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The long-awaited Dow Theory bull market signal finally arrived yesterday. This came about as a result of the Dow Jones Industrial Average and the Dow Jones Transportation Average both breaking through their previous rally peaks (registered on 12 and 11 June respectively).

The charts are shown below.

Source: StockCharts.com

Source: StockCharts.com

Although the breakouts provide confirmation of the nascent uptrends, one may question the relevance of the Averages as representative benchmarks in the modern economy. Also, most indices are quite overbought after very sharp moves over the last 12 days.

In my opinion, it could be dangerous to blindly put one’s faith only in Dow Theory and investors should at all times rather base their decisions on a combination of fundamental and technical

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Uncertainty over the global economic outlook yesterday took its toll on stock markets around the world as risk aversion favored safe-haven assets such as government bonds, the US dollar and Japanese yen.

In the US, stocks declined to their lowest levels since the end of May as investors await the start of the second-quarter earnings season.

I referred to the CBOE Volatility (VIX) Index in a post yesterday, and specifically to its use as a contrary indicator. The VIX, also known as the “fear index”, closed the day 6.4% higher.

All ten US economic sectors fell, confirming a pattern of the defensive-oriented sectors such as utilities, health-care and consumer staples outperforming the cyclical sectors like energy, materials, industrials and consumer discretionary. The chart below shows the performance of the sectors since the high of the S&P 500 Index on June 2, 2009 - a relative pattern as one

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“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

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The bankruptcy of General Motors isn’t surprising … in fact, Martin repeatedly warned Money & Markets readers — for years — that it was coming. Still, the effects of this bankruptcy will reach all corners of the U.S. economy. Common stock holders will likely get wiped out. More than 1,100 dealerships have already received notices that they will have to shut down. Another 1,500 are getting cut in the near future. That will severely impact many already-suffering local economies. Meanwhile, thousands and thousands of autoworkers are losing their jobs. GM announced nine more plant closures and is idling three more. Many Americans have had their faith in U.S. manufacturing and ingenuity shaken to the core. And as perhaps the final symbol of GM’s utter failure, yesterday the company was ...

Uncertainty over the economic implications of the swine flu outbreak weighed on sentiments in Asia as benchmarks in the region fell the most in three weeks. Moods also soured after media reports said Bank of America (NYSE:BAC) and Citigroup (NYSE:C) were told by U.S. regulators they may need to raise more capital.  Japan's Nikkei 225 Stock Average sank 232.57 points, or 2.7%, to 8,493.77 points. Hong Kong's Hang Seng Index declined 1.9%.  Fears persisted that the swine flu epidemic could hurt the prospects of a global economic recovery.  A World Health Organization report suggested it was now too late to contain the virus. 

Yesterday's marketplace was a clear picture of risk-aversion.  As worries grew that the swine flu outbreak could take the form of an epidemic, fearful investors turned to safe haven prospects like Treasuries, yen and US dollar bets, as well as defensive healthcare and utility plays.  The

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