3/24/2011 9:03:24 AM
Investors stepped in when the market dipped again...
Take no action.
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Stock Market Trends:
- ETF Positions indicated as Green are Long ETF positions and those indicated as Red are short positions.
- The State of the stock 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 an ETF position. If the BIAS is Bullish but the stock 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 ETF trade on "weaker" signals than you might otherwise trade on as the stock 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.
Best ETFs to buy now (current positions):
Long DIA at $117.22 (adjusted for $0.23 dividend on 03/18/11)
Long QQQQ at $54.90 (adjusted for $0.11 dividend on 03/18/11)
Long SPY at $127.45 (adjusted for $0.55 dividend on 03/18/11)
We hold no value positions at this time.
Daily Trading Action
The major index ETFs opened lower and then moved in mixed fashion during the first half hour. After that, they all moved lower for a half hour in a scary trip downward that was over in a little more than fifteen minutes but took the major indexes down around one percent. After rebounding, the stage was set for a rally the rest of the session with weakness in the final half hour that left all the major indexes with fractional gains. This left the Dow closing above both its 20-Day Moving Average (DMA) and its 50-DMA. The major indexes are quite mixed with the Dow being the relatively strongest index, followed by the S&P-500 which closed just under its 50-DMA. The NASDAQ-100 has a BEARISH BIAS. Both the S&P-500 and NASDAQ-100 are still in downtrend states but the "Buy the Dip" mantra continues to prop them up. The Semiconductor Index (SOX 426.94 +4.03) soared most of one percent and the Russell-2000 (IWM 80.95 +0.08) managed a positive close as it struggled to maintain relative strength leadership. On Wednesday, the leading indexes were leading the way higher but with the Russell-2000 struggling. The Bank Index (KBE 25.52 -0.16) posted a fractional loss and the Regional Bank Index (KRE 25.78 -0.29) lost more than one percent on the Fed's rejection of Bank of America's plan to raise its dividend. This, in turn, pressured the Finance Sector ETF (XLF 16.22 -0.04). The Bank Indexes and the Finance Sector all have a BEARISH BIAS with a downtrend state looming. Longer term Bonds (TLT 93.10 -0.12) fell fractionally after gapping up significantly at the open and then falling all session. TLT maintains a BULLISH BIAS and is in an uptrend state. NYSE trading volume was light with just 721M shares traded. NASDAQ share volume was light with just 1.637B shares.
In addition to the crude oil inventory report, there were two economic reports of interest released:
- MBA Mortgage Index for last week rose +2.7%
- New Home Sales (Feb) came in at 250K versus an expected 288K
The first report was released two and a half hours before the open while the latter report was released a half hour after the open. It should be noted that the January New Home Sales number was revised from 284K to 301K which is certainly a positive surprise but was dwarfed by the February disappointment.
The U.S. dollar rose six tenths of one percent.
Implied volatility for the S&P-500 (VIX 19.17 -1.04) fell five percent and the implied volatility for the NASDAQ-100 (VXN 21.96 -0.39) fell most of two percent.
The yield for the 10-year note was unchanged closing at 3.33. The price of the near term futures contract for a barrel of crude oil rose seventy-eight cents to close at $105.75. The U.S. government reported that crude oil inventories rose by 2.131M barrels in the last week.
Healthcare (-0.1%) and Financials (-0.3%) were the only sectors in the S&P-500 that fell on Wednesday although the Utilities sector was unchanged. The other seven economic sectors in the S&P-500 moved higher led by Materials (+1.4%) and Consumer Discretionary (+0.8%).
Market internals were mixed with advancers leading decliners 5:4 on the NYSE and by 9:8 on the NASDAQ. Down volume edged up volume on the NYSE while up volume led down volume 2:1 on the NASDAQ. The index put/call ratio rose 0.17 to close at 1.18. The equity put/call ratio rose 0.05 to close at 0.61.
Wednesday's session saw a scary dive lower in the first hour of trading that got the bears excited and the bulls nervous. The about face added insult to injury for any bulls that gave up early in the session or to any bears that added to short positions, etc.
We need to state that we are always nervous when a rally is led by the Dow as, in our memory, it has never ended well when this is the case. Still, the "Buy the Dip" crowd still controls the pulse of the market as fear is clearly at bay even as put/call ratios begin to rise from complacent levels.
With the Bank Indexes, Semiconductor Index, and NASDAQ-100 all having a BEARISH BIAS, we remain concerned over another test lower. Equities are still struggling for leadership with Financials and Tech among the weakest sectors. No longer term rally has ever taken place with these two sectors absent and this one won't be an exception. In other words, if things aren't turned around for them soon, we will be ready to short the major indexes once again.
We have also been watching recent highs in precious metals and other commodities, such as oil and copper. We don't want to jump on the band wagon looking for higher commodity prices at this time but would rather time a reversal as these commodities top and then ride short positions lower. While this may prove to be a short term trade, it should be highly profitable. If the U.S. dollar continues to move lower, commodities prices should continue to rise, which is the common wisdom which means the less crowded trade will be the counter trend moves.
We remain wary of a concerted effort by the bears that could result in a retest of the recent lows. Yesterday we used language that suggested we were changing to short positions but we didn't recommend taking any action. To be clear, we are ready to move to short positions but will make it clear that we are doing so and specific criteria that we are using to effect our trades. That will be in bold letters under "Recommendation" at the top of our alerts. At this time, we will remain long as we don't have a good signal to shift positions and the "Buy the Dip" creed continues to dominate equities. A crack in that façade will be acted on quickly and there are significant profits to be made when that happens.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.