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Choppy Trade and a Higher Dollar...

11/8/2010 9:11:16 AM

Equities ended flat to slightly higher as the dollar regained lost ground...

Buy shares of DIA to close the short position at a limit of $112.40.
Buy shares of QQQQ to close the short position at a limit of $53.05.
Buy shares of SPY to close the short position at a limit of $120.05.

Daily Trend Indications:

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:
Short DIA at $108.57
Short QQQQ at $49.66
Short SPY at $114.82

Daily Trading Action

The major index ETFs opened slightly elevated and then spent the session "tacking" by first moving slightly higher until around 11:00am then slightly lower until noon, then slightly higher for another hour, then slightly lower, etc. The final fifteen minutes saw all the major indexes really into the close leaving the NASDAQ-100 unchanged, the Dow up just slightly, and the S&P-500 logging a gain of nearly four tenths of one percent. The Semiconductor Index (SOX 392.02 +2.27) posted a fractional gain as did the Russell-2000 (IWM 73.77 +0.41). The bank indexes closed higher with the Bank Index (KBE 24.19 +0.57) gained two and one half percent and the Regional Bank Index (KRE 23.99 +0.39) gained most of two percent. Both shifted into uptrend states and have reached a level just under their respective 200-Day Moving Averages (DMAs). The 20+ Yr Bonds (TLT 97.98 -1.71) was crushed and has reached a point not far above its 200-DMA. NYSE volume was average with 1.243B shares traded. NASDAQ volume was around average with 2.022B shares traded.

There were seven economic reports of interest released:

  • Non-farm Payrolls (Oct) came in at 151K versus an expected 60K
  • Non-farm Payrolls-Private (Oct) came in at 159K versus an expected 60K
  • Unemployment (Oct) came in at 9.6% as expected
  • Hourly Earnings (Oct) rose +0.2% versus an expected +0.1% rise
  • Average Work Week (Oct) rose to 34.3 hours versus an expected 34.2 hours
  • Pending Home Sales (Sep) fell -1.8% versus an expected +2.5% rise
  • Consumer Credit (Sep) rose by +$2.1B versus an expected -$3.5B fall

The first five reports were released an hour before the open. They were better than or met expectations which usually would have resulted in a much higher open but instead just tipped the balance from a modestly lower open to one that was barely positive. Pending Home Sales was released during the noon hour and Consumer Credit came out an hour before the close.

The dollar rebounded from its three consecutive session drubbing which helped hold equities in check.

Five out of ten sectors in the S&P-500 moved higher led by Financials (+2.1%). Telecom (-0.6%), Healthcare (-0.5%), and Consumer Staples (-0.4%) moved lower on the day. Utilities and Tech were unchanged.

Implied volatility for the S&P-500 (VIX 18.26 -0.26) one and one third percent and the implied volatility for the NASDAQ-100 (VXN 18.67 -0.87) fell four and one half percent.

The yield for the 10-year note rose twelve basis points to close at 2.60. The price of the near term futures contract for a barrel of crude oil rose thirty-six cents to close at $86.85.

Market internals were positive with advancers leading decliners 7:5 on the NYSE and by 5:4 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 6:5 on the NASDAQ. The index put/call ratio rose 0.07 to close at 1.21. The equity put/call ratio fell 0.04 to close at 0.43.


Friday was a day of choppy trading as the markets have breached resistance levels but the bulls seem a little spent and the major indexes are in overbought territory. This suggests a rest or perhaps a brief pull back. We are adjusting out limit orders slightly but we remain determined to exit our short positions.

Greece held elections over the weekend but the party that is enacting austerity measures maintained power so this provides stability. The latest concern over the weekend is that Ireland may require a bailout to meet its debt obligations which has caused the Euro to weaken versus the dollar and the Yen over the weekend. This will apply upward pressure on the dollar which works to push down equities prices. While this could turn into a crisis in confidence such as we say in April of this year, we will give equity bulls their due respect and use the weakness to exit our short trades looking for the bulls to be able to maintain their upward course until proven otherwise.

We are looking for a move lower on Monday, hopefully down to but not much below the levels of our limit orders. We are still looking for the gap from Thursday's higher open to be closed.

We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.


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