11/26/2010 8:54:30 AM
Note: U.S. equities markets are closed on Thanksgiving (Thursday Novemember 25th) but will be open for an abbreviated session on Friday.
The bulls took charge and enjoyed made up for Tuesday's losses and then some in a light volume trading session...
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:
Daily Trading Action
The major index ETFs opened markedly higher and moved higher after the open for the first half hour. On the release of a negative economic report, the Dow and S&P-500 dipped for fifteen minutes while the NASDAQ-100 barely wavered. When the bears were unable to break the major indexes below support, they took off to the upside into 10:30pm which saw most of the gains accomplished for the day. The markets continued to move modestly higher into 1:30pm when they began to move modestly lower for about a half hour before the NASDAQ-100 was able to move mostly sideways into the close while Dow and S&P-500 were able to resume their modest climb higher. The Semiconductor Index (SOX 398.71 +10.44) soared two and a half percent higher. The Russell-2000 (IWM 73.73 +1.62) gained two and a quarter percent. The bank indexes moved lower with the Bank Index (KBE 22.35 +0.25) gained a bit more than one percent while the Regional Bank Index (KRE 23.06 +0.33) gained nearly one a half percent. The 20+ Yr Bonds (TLT 95.74 -1.74) lost 1.8%. NYSE volume was a quite light with 827M shares traded. NASDAQ volume was light with 1.624B shares traded.
In addition to the release of the weekly crude oil inventory report, there were eleven economic reports of interest released:
- MBA Mortgage Applications (for last week) increased by +2.1%
- Personal Income (Oct) rose +0.5% versus an expected +0.4%
- Personal Spending (Oct) rose +0.4% versus an expected +0.6%
- PCE Prices - Core (Oct) were flat (+0.0%) versus an expected rise of +0.1%
- Durable Goods Orders (Oct) fell -3.3% versus an expected fall of -0.3%
- Durable Orders excluding transportation (Oct) fell -2.7% versus an expected rise of +0.4%
- Initial Jobless Claims for last week came in at 407K versus an expected 442K
- Continuing Jobless Claims came in at 4.182M versus an expected 4.280M
- UofMich Consumer Sentiment (Nov) came in at 71.6 versus an expected 69.3
- New Homes Sales (Oct) came in at 283K versus an expected 314K
- FHFA Home Price Index (Q3) showed a declined of -1.6% quarter-over-quarter
The first eight reports were released an hour or more before the open. The other three were released twenty-five to thirty minutes after the open.
The U.S. dollar (+0.1%) followed up its move higher after it broke resistance in Tuesday's session.
All ten economic sectors of the S&P-500 moved higher led by Industrials (+2.1%). Retailers (+2.6%) were especially strong heading into the official start of the holiday shopping season and have been relative strength leaders for three consecutive sessions.
Implied volatility for the S&P-500 (VIX 19.56 -1.07) fell five percent while the implied volatility for the NASDAQ-100 (VXN 20.85 -0.92) fell four percent.
The yield for the 10-year note rose fifteen basis points to close at 2.91. The price of the near term futures contract for a barrel of crude oil soared higher by $2.61 to close at $83.86. The weekly U.S. Government report showed an increase of 1.1M barrels.
Market internals were positive with advancers leading decliners 4:1 on the NYSE and by nearly 4:1 on the NASDAQ. Up volume led up volume 8:1 on the NYSE and by 10:1 on the NASDAQ. The index put/call ratio rose 0.61 to close at 1.90. The equity put/call ratio fell 0.21 to close at 0.52.
Wednesday's trading volume decreased to a predictable light volume on the eve of the Thanksgiving holiday. When there is light volume trade, the conviction behind the trade is suspect. Since Wednesday's trade essentially erased losses from Tuesday (and added a modest gain on top of that) but was accomplished on lighter volume, it suggest that distribution continues. This is borne out on a daily basis with the money flow still exiting equities since the slide began on November 9th.
Worries were put aside about China's tightening to reign in inflation, the PIIGS strain on European stability, and any of a number of concerns, such as terrorist attacks, a North Korean escalation, or the Fed's QE2 policies. We would suggest that there is another test coming to the downside, which may finally set the equities markets up for a run higher into the end of the year. We expect the gaps (windows) from Wednesday's gap up open to be filled before equities will resume their run higher.
Given the U.S. dollars breakout action, we would like to maintain our cash position until we see the windows closed and the dollar breakout stalled. We will then most likely enter long positions to see if the bulls will have the conviction to run equities higher. Until then, sit in cash and keep your powder dry.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.