12/15/2010 9:01:25 AM
The Hindenburg Omen, last seen in August makes another appearance...
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 higher with the Dow at resistance. Buying interest in the Dow was immediate as it began to move steadily higher but the S&P-500 and NASDAQ-100 traded in choppy fashion and were lower until a bit more than twenty minutes into the session the major indexes lifted in unison. Some weakness was seen in late morning but it disappeared and there was a move steadily higher until mid-afternoon. At 2:15pm, in conjunction with the release of the FOMC statement, the bulls mounted one last foray which lasted only minutes and then the selling began with the S&P-500 and NASDAQ-100 moving into negative territory and only a flurry on buying in the final minutes enabled a positive close. Semiconductors were weak all day long while the Russell-2000 generally mimicked the NASDAQ-100. The Dow did manage to post a gain of nearly one half of one percent having cleared its overhead resistance and posting a new closing high no seen for twenty-six months. The Russell-2000 (IWM 77.31 -0.04) and the Semiconductor Index (SOX 410.67 -2.53) posted fractional losses for the second day in a row with the Semiconductor index abandoning its uptrend state to move into a trading state. The Bank Index (KBE 24.81 -0.39) sold off more than one percent and also moved into a trading state while the Regional Bank Index (KRE 25.18 +0.07) posted a fractional gain. The 20+ Yr Bonds (TLT 92.14 -1.36) fell one and a half percent. NYSE volume was very light with 674M shares traded. NASDAQ volume was light with 1.515B shares traded.
There were five economic reports of interest released:
- PPI (Nov) rose +0.8% versus an expected +0.5%
- Core PPI (Nov) rose +0.3% versus an expected +0.2%
- Retail Sales (Nov) rose +1.2% versus an expected +0.6%
- Retail Sales excluding autos (Nov) rose +0.8% versus an expected +0.5%
- Business Inventories (Oct) rose +0.7% versus an expected +1.1% rise
The first four reports were released an hour before the open while the last report came out a half hour into the session.
The big event of the day, however, was the release of the Fed Open Market Committee (FOMC) statement. Essentially, there was no change. No change in interest rates, no change in wording for key statements, no change in the slow economy, and no change in unemployment. In fact, the Fed continues to fret over high unemployment and seems to be using that as a justification to continue quantitative easing. Still, there was a "sell the news" effect where the market sold off when it received the expected result.
The U.S. dollar rallied +0.3% beginning at the release of the FOMC statement.
Implied volatility for the S&P-500 (VIX 17.61 +0.06) closed somewhat flat while the implied volatility for the NASDAQ-100 (VXN 18.14 +0.14) fell rose most of one percent.
The yield for the 10-year note rose seventeen basis points to close at 3.45. The price of the near term futures contract for a barrel of crude oil fell thirty-seven cents to close at $88.28.
Market internals were mixed with decliners leading advancers 5:4 on the NYSE while advancers edged decliners on the NASDAQ. Down volume led up volume 8:5 on the NYSE and by 5:4 on the NASDAQ. The index put/call ratio added 0.46 to close at 1.45. The equity put/call ratio rose 0.06 to close at 0.51. Professional traders are taking out insurance here.
Tuesday's trading saw the reappearance of the Hindenburg Omen. The "Omen" last made an appearance on August 12th. It doesn't really show up that often so when it does show up it is worth paying attention to. We have found that confirmation of a reappearance of the Omen is required within a couple of weeks to be statistically meaningful. The statistics are quite meaningful in that the appearance of a confirmed Omen often leads to a large move lower for the major indexes. Large is at least ten to twenty percent. We don't want to be a fear monger and the last appearance of the Omen led to discussions of it on CNBC. One thing to note is that the securities traded on the stock exchanges are no longer all stocks. With the addition of ETFs, ETNs, and other types of securities, the usefulness of indicators such as the Hindenburg Omen require filtering out the extraneous securities, something we have not yet been able to fully develop. We will continue to monitor the action in this light and will keep our subscribers informed of any trading decision we take because of it.
We do note that these moves higher for the major indexes continue to be made on weakening volume. While the move higher can continue still, the base that the move is built on is growing narrower, from a volume perspective. We continue to monitor action of implied volatility and will be using ETNs for futures contracts for implied volatility as trading vehicles going forward. We did note that the index put/call ratio shot higher on Tuesday as professionals elected to add insurance.
The Dow broke through resistance and made a new high and it led the S&P-500 and NASDAQ-100 to positive closes. The Russell-2000 and Semiconductor Index didn't get the memo though and posted losses as did the Bank Index. The cross-currents are worth watching and the Semiconductors and Bank Indexes moved into trading states, which could translate to a cessation in the rampant move higher. We remain in cash as we wait for confirmed topping action.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.