9/15/2010 9:09:18 AM
The June 21st highs are halting an advance of the major indexes...
Take no action.
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:
Long at DIA $102.80
Long QQQQ at $44.76
Daily Trading Action
The major index ETFs opened lower and after testing higher in the opening minutes decided to test lower in the first fifteen minutes. When the bears weren't successful at closing the gap formed from Monday's higher open, the bulls took over and moved the markets higher, regaining positive territory in mid/late morning trading and continuing higher from there. The zenith was hit around noon EDT as the major indexes all ran into horizontal resistance from recent highs. The bears took over from that point and the bulls let things run there course until shortly before 2:00pm when they again took over to send the market higher but the bears stepped in before price could quite reach the intraday high set around noon. That was in the final half hour of the day and the bears caused a sell-off for the remaining minutes that saw the Dow and S&-500 settle in negative territory while the NASDAQ-100 added about one half of one percent on the day. All the major indexes and the Russell-2000 (IWM 64.99 -0.28) cling to levels above the 200-Day Moving Average (DMA) but don't have much ground to lose before that level would be breached. The Semiconductor Index (SOX 332.76 +5.59) gained most of two percent on the day as it has encouraged a short covering rally for the last couple of days. The Bank Index (KBE 23.56 -0.27) slipped more than one percent and the Regional Bank Index (KRE 22.65 -0.42) lost nearly two percent on the day falling back below its 50-DMA. The 20+ Yr Bonds (TLT 103.81 +0.98) gained most of one percent as the Fed's open market operations saw strong buying. NYSE volume was below average 913M shares traded. NASDAQ volume was above average with 2.050B shares traded.
There were three economic reports of interest released:
- Retail Sales (Aug) rose 0.4% versus an expected +0.3% rise
- Retail Sales (Aug) rose 0.6% versus an expected +0.3% rise
- Business Inventories (Jul) rose 1.0% versus an expected +0.7% rise
The first two reports were released an hour before the open. The last report was released at 10:00pm powering the uptrend that began about fifteen minutes prior to its release.
The day was all about the major indexes hitting recent highs and retreating from those horizontal resistance levels. For the Dow, it was the June 21 high. For the S&P-500, it was that same high which was the level of the double top formed in August. For the NASDAQ-100, it was the same June 21 high. Breaking through that high is the most important level for bullish traders right now. For bears, it is the opposite case.
Half of the ten economic sectors in the S&P-500 posted gains led by Tech (+0.5%) and included Healthcare (+0.4%), Telecom (+0.1%), Consumer Staples (_0.1%), and Consumer Discretionary (+0.1%). Financials (-1.0%) declined leading Industrials (-0.3%), Energy (-0.3%), Utilities (-0.2%), and Materials (0.1%).
Implied volatility for the S&P-500 (VIX 21.56 +0.35) rose modestly while implied volatility for the NASDAQ-100 (VXN 21.63 -0.69) fell another three percent.
The yield for the 10-year note fell twenty-three basis points to close at 2.666. The price of the near term futures contract for a barrel of crude oil fell thirty-nine cents to close at $76.80.
Market internals were mixed with decliners leading advancers 20:17 on the NYSE and by 4:4 on the NASDAQ. Down volume led up volume by 5:4 on the NYSE while up volume led down volume by 10% on the NASDAQ. The index put/call ratio rose 0.10 to close at 1.33. The equity put/call ratio rose 0.09 to close at 0.61.
Tuesday's trading was really about the bullish assault on horizontal resistance. The bears turned back the initial assault with the Dow, S&P-500, Russell-2000, Bank Index, and Regional Bank Index finishing lower. The NASDAQ-100 and Semiconductors finished higher. So what gives? The market is in dangerous territory where there is much uncertainty. Neither bulls nor bears are dominating thinking at this time. So, this would be a great time to be hedged if you have long positions on. While we expected a pull back to the 200-DMAs, we weren't expecting it to occur until the markets had moved a bit higher.
In taking a look at the major indexes, all are poised to shift into a trading state, joining the Russell-2000 there.
We will give a slight edge to the bulls because of the potential for the Russell-2000 to hang in there and lead the next assault higher. We aren't so conceited as to think that the market cares what we think, and will change our opinion if we see something that we believe will lead to a larger move lower. Since the semiconductor index has rallied (short covering induced and value investors the most likely source of the bullish move), it may also help to turn the tide in favor of the bulls.
Volume is increasing and with it a more determined market may come about. We will hold onto our long positions to see if there will be a clear victor and won't add puts to cover them just yet. We are ready to abandon long positions if we see a more serious change occur.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.