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Global Markets Fall Pressuring U.S. Markets...

4/13/2011 9:00:57 AM

The global see-off caught up with U.S. markets on Tuesday but can be supportive on Wednesday...

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Stock Market Trends:

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)
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Long SPY at $127.45 (adjusted for $0.55 dividend on 03/18/11)

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Value Portfolio:
We hold no value positions at this time.


Daily Trading Action

The major index ETFs opened about one half of one percent lower and after some volatility, started to trade higher in the first fifteen minutes before rolling over into a descent that would last until 11:00am. The major indexes then tried to come back from the sell-off which put them more than one percent lower. That move higher was gradual and lasted until around 2:30pm when the bears, once again, seized control. The late day sell-off didn't move quite as low as they did in the morning but it was enough to threaten to push both the NASDAQ-100 and the S&P-500 to the brink of downtrend states. The Dow recorded the most significant loss at 0.95% but remains the healthiest of the major indexes. The S&P-500 and the NASDAQ-100 both closed below their 50-Day Moving Averages (DMAs) and the NASDAQ-100 closed just above its 20-DMA. All three major indexes retained their BULLISH BIAS. The Semiconductor Index (SOX 426.78 -9.10) fell two percent. The Russell-2000 (IWM 82.14 -1.09) 3.23 -0.75) fell -1.3% as it and the Semiconductor Index lead U.S. markets lower. This marks the fifth day the Russell-2000 has posted a red candlestick. The Regional Bank Index (KRE 26.56 -0.15) posted a loss as did the Bank Index (KBE 25.99 -0.04). The Regional Bank Index remains above all the moving averages we regularly report on. The Finance Sector ETF (XLF 16.40 -0.06) did a good job of mitigating potential losses falling less than one half of one percent on the day. Longer term Bonds (TLT 90.93 +0.97) rose more than one percent but appears to be a bounce in a downtrend at this time. It did exit its downtrend state to move into a trading state and has a BEARISH BIAS. NYSE trading volume was below average with 849M shares traded. NASDAQ share volume was below average with 1.747B shares traded.

There were four economic reports released:

  • Trade Balance (Feb) came in at -$45.8B versus an expected -$45.7B
  • Export Prices ex-Agriculture (Mar) rose 1.3%
  • Import Prices ex-oil (Mar) rose 0.6%
  • Treasury Budget (Mar) came in at -$188.2B versus an expected -$189.0B

The first three reports were released an hour before the open and the last report came out with two hours left in the session. The first and last reports were almost exactly as expected. The Export Prices and Import Prices show a steady rise in inflation.

The U.S. dollar fell two tenths of one percent to close at a new multi-year low.

Implied volatility for the S&P-500 (VIX 17.09 +0.50) rose three percent and the implied volatility for the NASDAQ-100 (VXN 19.39 +0.30) rose one and one half of one percent.

The yield for the 10-year note fell seven basis point to close at 3.50. The price of the near term futures contract for a barrel of crude oil fell $3.67 to close at $106.25.

Energy (+0.4%), Telecom (+0.3%), and Healthcare (+0.1%) moved higher while the other seven economic sectors in the S&P-500 moved lower led by Financials (-0.9%).

Market internals were mixed with decliners leading advancers nearly 3:1 on the NYSE and by just over 3:1 on the NASDAQ. Down volume led up volume 2:1 on the NYSE and by 3:1 on the NASDAQ. The index put/call ratio rose 0.39 to close at 1.84. The equity put/call ratio fell 0.02 to close at 0.60.


Commentary:

Tuesday's trading reflected foreign markets as the Japanese market closed down nearly two percent in reaction to the raining for the nuclear even level to the maximum, i.e. level 7. This caused other Asian markets also to fall which was contagious to European markets which ended down most of one percent. That effect was felt as U.S. markets opened down about one half of one percent and closed down about the same amount as European markets, i.e. just under one percent.

Pre-market action on Wednesday is likely to reflect foreign markets once again and this time, foreign markets look to have restored much of the losses seen on Tuesday. This should lead to a higher open and U.S. markets should now react more to earnings reports and guidance.

With the Russell-2000 and the Semiconductor Index continuing to lead the way lower, only the NASDAQ-100 showed relative strength today as the Dow finally gave into selling pressure. With the NASDAQ-100 and S&P-500 teetering on the brink of moving into downtrend states, Wednesday's trading must shift the dynamic toward the bulls or we will throw in the towel and reverse positions. It would be useful if the U.S. dollar and Longer-Term bonds moved jointly lower positioning U.S. equities to move higher this earnings season.

We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.

 

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