3/25/2011 8:44:24 AM
Tech stocks led the market advance as key resistance is breached...
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Stock Market Trends:
- Positions indicated as Green are Long positions and those indicated as Red areshort 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 higher and then moved lower together for the first half hour to forty-five minutes. The S&P-500 nearly closed the opening gap while the Dow and NASDAQ-100 weren't able to get that close before all three reversed to head higher. While there was a noticeable pull-back during the lunch hour, the rest of the session was spent moving higher. If not for a pull back in the final half hour of the session, the major indexes would have closed on their highs of the session. This left all three major indexes to close above their 20-Day Moving Averages (DMAs) with the Dow and S&P-500 above their 50-DMAs but the NASDAQ-100 has yet to confront this level of resistance. All three are now in trading states with the Dow and S&P-500 having a neutral BIAS and the NASDAQ-100 reflecting a BEARISH BIAS. The Semiconductor Index (SOX 437.41 +10.47) soared two and one half of one percent! The Russell-2000 (IWM 81.51 +0.56) tacked on a fractional gain as it coasted higher and eased into a trading state and has a neutral BIAS. The Bank Index (KBE 25.60 +0.08) posted a fractional gain and the Regional Bank Index (KRE 25.74 -0.04) posted a small loss. The Finance Sector ETF (XLF 16.30 +0.08) gained a half of one percent managing a positive close but looking relatively weak due to the pressure from the bank indexes. The Bank Indexes and the Finance Sector all have a BEARISH BIAS and all three moved to downtrend states. Longer term Bonds (TLT 92.40 -0.70) posted a large fractional loss but has maintained its uptrend state and BULLISH BIAS. NYSE trading volume was light with just 865M shares traded. NASDAQ share volume was average with 1.974B shares.
There were four economic reports of interest released:
- Initial Jobless Claims for last week came in at 382K versus an expected 384K
- Continuing Jobless Claims came in at 3.721M versus an expected 3.700M
- Durable Goods Orders (Feb) came in at -0.9% versus an expected +1.1%
- Durable Orders ex-transportation (Feb) came in at -0.6% versus an expected +1.8%
All four reports were released an hour before the open. With jobless claims meeting expectations, the miss for durable goods, and in particular durable goods with volatile transportation orders excluded, was particularly of note. The latter is a proxy for business investment which showed as a decline.
The U.S. dollar fell two tenths of one percent hovering not far over its nine year low.
Implied volatility for the S&P-500 (VIX 18.00 -1.17) fell six percent as did the implied volatility for the NASDAQ-100 (VXN 20.59 -1.36).
The yield for the 10-year note rose seven basis points to close at 3.40. The price of the near term futures contract for a barrel of crude oil fell fifteen cents to close at $105.60.
All ten economic sectors in the S&P-500 moved higher led by Tech (+1.6%) and Consumer Discretionary (+1.5%).
Market internals were positive with advancers leading decliners 2:1 on the NYSE and by 9:5 on the NASDAQ. Up volume led down volume 3:1 on the NYSE and by more than 4:1 on the NASDAQ. The index put/call ratio rose 0.25 to close at 1.43. The equity put/call ratio fell 0.04 to close at 0.57.
Thursday's session saw the bears driven before the bull onslaught. While the bears were in charge from the open, they weren't able to move prices down to close the open gap before the bulls unrelenting drive higher saw some short covering. The "Buy the Dip" mantra continues.
It looks like Longer term bonds are ready to rally here, perhaps for the last time before a further collapse. Even though it appears the equities will open higher, the NASDAQ-100 still has to climb up over its 20-DMA and bulls may be getting winded as the move higher has been relentless. With the Russell-2000 moving into a trading state and with the Finance sector and, in particular, the bank indexes, in disarray, we think now is a likely time for prices to stop moving higher.
If not for the "Buy the Dip" and the lack of a specific signal to provide a queue that the move was now, we would be tempted to short the major indexes here. If the problems in the Financial sector aren't cleaned up soon, it will drag the other indexes lower and we could reverse our positions. Until we have something more definitive, we will remain long.
Of note has been the rally in commodities. We are actively looking for short trade entries for commodities to play a reversal. Since the consensus is that commodities will continue to run higher due to the weakening U.S. dollar, we would like to get a good entry to when the crowded trade begins to unwind. When we find such an entry, you will be informed.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.