8/26/2010 9:09:56 AM
European markets and Asian markets slide but bulls buy after gap down open...
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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:
Daily Trading Action
The major index ETFs opened lower and moved lower for the first half hour. After a dismal economic report was released at 10:00am EDT, the markets dropped immediately lower but then within the first minute had already bottomed and started working their way higher. This is a classic oversold bounce and traders were just waiting to take things in the opposite direction. They continued higher through most of the morning, pulled back slightly into the noon hour and traded sideways until they broke out higher again around 1:30pm. They continued moving higher through the afternoon but some selling pressure appeared in the final fifteen minutes to force a close below important resistance levels. The Russell-2000 (IWM 60.53 +0.90) lead the charge higher gaining one and one half percent on the day. The Semiconductor Index (SOX 321.50 +3.09) moved most of one percent higher on the day. The Bank Index (KBE 21.56 -0.11) continued lower but the Regional Bank Index (KRE 21.37 +0.05) edged higher. All equity indexes are in downtrend states with all equity indexes showing a BEARISH BIAS except for the Dow which is neutral. The 20+ Yr Bonds (TLT 107.41 -0.35) gave back a little after trading to new intraday highs. NYSE volume continued as average with 1.114B shares traded. NASDAQ share volume was average with 2.017B shares traded.
There were three economic reports of interest released:
- Durable Goods Orders (Jul) rose 0.3% versus an expected +3.0% rise
- Durable Orders excluding Transportation (Jul) dropped -3.8% versus an expected +0.5%
- New Home Sales (Jul) came in at 276K versus an expected 334K
The first two reports were released an hour before the open while the latter was released at 10:00am EDT.
Energy (-0.3%), Utilities (-0.3%), and Industrials (-0.2%) moved lower while the other seven economic sectors in the S&P-500 moved higher.
Implied volatility for the S&P-500 (VIX 26.70 -0.76) fell27.46 +1.80) fell most of three percent and implied volatility for the NASDAQ-100 (VXN 27.77 -0.70) fell about two and a half percent.
The yield for the 10-year note rose four basis points to close at 2.54. The price of the near term futures contract for a barrel of crude oil rose eighty-nine cents to close at $72.52.
Market internals were positive with advancers leading decliners 8:5 on the NYSE and by 7:4 on the NASDAQ. Up volume led down volume by 5:3 on the NYSE and by 7:4 on the NASDAQ. The index put/call ratio rose 0.36 to close at 1.60. The equity put/call ratio fell 0.11 to close at 0.62.
Wednesday's trading was a textbook and long-awaited oversold bounce. With the fundamentals suggesting that the economy is in worse shape than expected, the market rallied. Traders were clearly waiting for the bad news to have bearish sentiment peak before taking things the other way (that is professional traders were waiting to ambush the amateurs). The Bank Index did move lower and the Regional Bank Index only moved modestly higher while the leading indexes were all in rally mode.
The NASDAQ-100 ETF (QQQQ) actually showed a bullish engulfing candlestick which means that Tuesday's short red candle (price moved lower from the open) was engulfed by Wednesday's larger white candle (prices moved higher from the open). Of the equity indexes we regularly report on, only the Semiconductor Indexes (SOX and USD) and QQQQ showed such a bullish pattern. With longer term indicators so bearish, we anticipate that this rally won't reach the most recent highs.
We remain in cash, waiting for a high probability set-up to re-enter a trade.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.