11/11/2010 9:20:46 AM
The bears run the market down but can't drive it all the way down to support and the bulls reverse things and take equities to a higher close...
Recommendation:
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:
Short DIA at $108.57
Short QQQQ at $49.66
Short SPY at $114.82
Daily Trading Action
The major index ETFs opened mixed and then dove lower until 10:00am then hung out bouncing around that level until shortly after 10:30am, after the bears were unable to force the market lower, the bulls took over and drove prices higher until around 2:00pm. From there, there was a general drift lower but buying in the final fifteen minutes allowed all the major indexes to finish with gains. The Semiconductor Index (SOX 387.34 +0.02) was flat but the Russell-2000 (IWM 73.54 +1.19) soared from 2:00pm into the close and posted a one and one half of one percent gain! The bank indexes closed lower retreating from their 200-Day Moving Averages (DMAs) with the Bank Index (KBE 24.02 +0.39) gained most of two percent and the Regional Bank Index (KRE 24.00 +0.51) locked in gains of over two percent on the day. The 20+ Yr Bonds (TLT 96.38 +0.13) held their ground posting a Harami Cross pattern which often means a braking of the downtrend but is still in a downtrend state below its 200-Day Moving Average (DMA). NYSE volume was average with 1.121B shares traded. NASDAQ volume was average with 2.004B shares traded.
In addition to the weekly crude oil inventory report, there were seven economic reports of interest released:
- MBA Mortgage Applications (11/2) rose +5.8%
- Initial Jobless Claims for last week came in at 435K versus an expected 450K
- Continuing Jobless Claims came in at 4.301M versus an expected 4.350M
- Trade Balance (Sep) came in at -$44.0B versus an expected -$44.8B
- Export Prices excluding agriculture (Oct) rose 0.7%
- Import Prices excluding oil (Oct) rose 0.3%
- Treasury Budget (Oct) came in at -$140.4B versus an expected -$140.0B
The first report was released 2.5 hours before the open while the others, except for treasury budget, were released an hour before the open. The last report was released at 2:00pm.
The U.S. dollar posted a 0.3% gain on Tuesday even after failing to break above resistance. It had climbed as much as +0.9% intraday and looks set to make another attempt to reach resistance on Thursday.
Financials (+1.4%) led the way higher while four of ten sectors in the S&P-500 moved lower on the day. Utilities (-0.6%), Consumer Staples (-0.3%), Industrials (-0.2%), and Telecom (-0.1%) moved lower while Healthcare was unchanged.
Implied volatility for the S&P-500 (VIX 18.47 -0.61) dropped more than three percent while the implied volatility for the NASDAQ-100 (VXN 19.46 +0.47) rose more than two percent.
The yield for the 10-year note fell three basis points to close at 2.57. The price of the near term futures contract for a barrel of crude oil rose $1.09 to close at $87.81. The U.S. government's weekly crude oil inventory report showed a draw down of -3.27M barrels.
Market internals were positive with advancers leading decliners 8:5 on the NYSE and by 2:1 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose 0.25 to close at 1.09. The equity put/call ratio fell 0.08 to close at 0.49. We have rarely seen this level of complacency which sets the markets up to move lower as market participants have little downside protection in place.
Commentary:
Wednesday was all about a fake out break down in the early going trying to lure in the bears with a turnaround above key levels with a higher close to please the bulls. Volume was average for the second session in a row, which should be different than volume expected for Thursday's session. The fixed income markets and the Federal government will be closed in observance of Veteran's Day. We owe a lot to our veterans to whom we owe our continued freedom.
We are still looking for a move lower to the levels we have been listing since last week and perhaps lower. In fact, all the major indexes and the Russell-2000 moved out of uptrend states and into trading states which suggests this rally could be in trouble. We are going to remove our instructions to close the short trades to give the bears one last chance to get something moving to the downside. Since complacency has grown so much with the idea that we are certain to have an end of year rally, we are going to see if the popular wisdom can be challenged and some real fear put into the bulls.
Cisco (CSCO $24.49 +1.02) met their expected earnings target but disappointed on revenue guidance and is currently trading lower in double digits, which is pressuring Tech and the major indexes. It is possible that some real downside action could get started as maintaining margins on withering revenues isn't enough to sustain the current drive higher for equity prices. If not for QE2, we wouldn't see the current rise and perhaps this will be enough for bulls to take pause.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
