8/3/2010 8:52:54 AM
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Daily Trend Indications:
- Positions indicated as Green are Long positions and those indicated as Red are short positions.
- The State of the Market is used to determine how you should trade. A trending market can ignore support and resistance levels and maintain its direction longer than most traders think it will.
- The BIAS is used to determine how aggressive or defensive you should be with a position. If the BIAS is Bullish but the market is in a Trading state, you might enter a short trade to take advantage of a reversal off of resistance. The BIAS tells you to exit that trade on "weaker" signals than you might otherwise trade on as the market is predisposed to move in the direction of BIAS.
- At Risk is generally neutral represented by "-". When it is "Bullish" or "Bearish" it warns of a potential change in the BIAS.
- The Moving Averages are noted as they are important signposts used by the Chartists community in determining the relative health of the markets.
Current ETF positions are:
DIA: Long at $105.26
QQQQ: Long at $46.44
SPY: Long at $111.56
Daily Trading Action
The major index ETFs opened more than one percent higher and after a trouble fifteen minutes at the open when selling dominated the action, the markets began to rise. Market participants increased buying pressure at 10:00am when a pair of economic reports helped the markets to rise another half a percent in fifteen minutes. After that, the direction was higher through the rest of the session with a noted minor pull back during the lunch hour and then some selling in the final fifteen minutes to have the major indexes close a bit off their intraday highs. The S&P-500 was able to finally close above its 200-Day Moving Average (DMA), something it hadn't done since late June. The Russell-2000 (IWM 66.15 +1.13) had an exaggerated open and closed at about the same level recording most of a two percent gain. The Semiconductor Index (SOX 354.94 +6.13) gained 1.8% and looks set to move into a trading state (from a downtrend state) as soon as Tuesday. The Bank Index (KBE 24.91 +0.72) gained three percent and the Regional Bank Index (KRE 24.24 +0.47) gained two percent. The 20+ Yr Bonds (TLT 98.75 -1.73) eased most of two percent, moving inversely to equities. NYSE volume was light with just 1.036B shares traded on the NYSE. NASDAQ share volume was also light with just 1.995B shares traded.
There were two economic reports of interest released:
- Construction Spending (Jun) rose 0.1% versus an expected fall of -0.8%
- ISM Index (Jul) came in at 55.5 versus an expected 54.2
Both reports came out a half hour into the session and both were better than expected helping to fuel a continued rally. May Construction Spending was revised downward from -0.2% to -1.0%
The European bourses were higher by two to three percent as PMI readings were strong across the continent and strong income growth in European financials attracted investors. BNP Paribas looked strong and HSBC (HBC 53.76 +2.68) led the charge higher on an earnings beat.
The Shanghai Composite, on the other hand, rose only about one percent on a weaker PMI reading. While China's economy has been helping to lead the global economic recovery, there are concerns that the Chinese government will have to continue to take steps to slow the pace to ease inflation concerns.
Implied volatility for the S&P-500 (VIX 22.01 -1.49) fell 6.3% to close below the 200-DMA for the first time since early May. The implied volatility for the NASDAQ-100 (VXN 23.48 -1.04) fell 4.2% and also closed under its 200-DMA for the first time since early May.
The yield for the 10-year note rose five basis points to close at 2.96. The price of the near term futures contract for a barrel of crude oil gained $2.39 to close at $81.34.
Market internals were positive with advancers leading decliners 5:1 on the NYSE and by 5:2 on the NASDAQ. Up volume led down volume 13:1 on the NYSE and by 4:1 on the NASDAQ. The index put/call ratio rose 0.54 to close at 1.62. The equity put/call ratio fell six basis points to close at 0.57.
Monday's trading action was on light volume. Otherwise, there were a lot of bears caught by surprise. Summer trading volumes are normally low but it is hard to get too excited yet about the continued rally on relatively light volumes. Money flow has been out of the major index ETFs for a week now while funds have seen $40B in assets being pulled over the last three months.
The major indexes and the Semiconductor Index maintain a BULLISH BIAS while the Russell-2000 and the bank indexes maintain a BEARISH BIAS. Certainly there are some conflicting signs as to which way equities will go, but that makes it harder for traders to commit and presents us with a better trading scenario, assuming we are correctly positioned at this time, since those traders will eventually commit to drive our trades further along in the desired direction. We continue to be patient as the market sorts out short term pressure from long term bullish sentiment.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.