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SP Changes Outlook to Negative for U.S. Sovereign Debt...

4/19/2011 9:11:47 AM

U.S. Treasury department accuses S&P of playing politics...

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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.

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Value Portfolio:
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Daily Trading Action

The major index ETFs opened significantly lower and then began a race lower. Action was similar for the Dow and S&P-500 which both bottomed around 11:00am. Strangely, the NASDAQ-100, which sold off more than two percent intraday, reached its bottom shortly after 10:00am. While the morning drop was quite sharp and scary, the rise that continued through the day after the indexes bottomed was a slow grind that left the Dow and S&P-500 around where they opened but with the NASDAQ-100 closing higher than its open. The S&P-500 had run down to touch its lower Bollinger Band (BB) while the Dow made a similar move but didn't quite reach that market. The NASDAQ-100 sliced through its lower BB before making an abrupt reversal and closed higher than it had opened leaving behind a hammer candlestick. A hammer candlestick can signal a bottom. While the Dow and S&P-500 have retained their BULLISH BIAS, the NASDAQ-100 now has a neutral BIAS. All three have warned of a potential move to a BEARISH BIAS. All three moved into downtrend states. All three closed below their 20-Day Moving Averages (DMAs) and while the Dow was able to close even with its 50-DMA, the others closed below their respective 50-DMAs. The Semiconductor Index (SOX 423.44 -7.79) fell -1.8% and the Russell-2000 (IWM 82.13 -1.38) fell -1.6%. The Regional Bank Index (KRE 26.07 -0.39) fell 1.5% and the Bank Index (KBE 25.10 -0.30) fell 1.2%. The Finance Sector ETF (XLF 15.92 -0.22) fell nearly 1.5% and reached within three cents of retesting its March low intraday. The Bank Index and the Finance Sector ETF are in downtrend states and both bank indexes and the Finance Sector ETFs are below their 20-DMAs and 50-DMAs. Longer term Bonds (TLT 92.88 +0.21) rose modestly. It remains in a trading state and has a BEARISH BIAS but that could change in the coming week. NYSE trading volume was above average with 1.042B shares traded. NASDAQ share volume was below average with 1.7B shares traded.

There was a single economic report released:

  • NAHB Housing Market Index (Apr) came in at 16 versus an expected 17

The report was released an half hour after the open.

The overshadowing news was twofold. There were renewed concerns over potential defaults of PIIGS countries sovereign debt. The Finns elected a nationalist party to a bit less than twenty percent of the seats in their legislature which could veto further European bailouts.

The other issue was a shot across the bow of the Obama administration and the elected members of Congress. Standard and Poors maintained the rating on U.S. debt as AAA. However, they noted the U.S. is in a weaker position financially than its peers with AAA ratings and they believe there is a possibility that the U.S. government will fail to get the deficit under control and they provided a negative outlook for such debt. That means that if the U.S. government fails to act by 2013 to get its financial house in order, it will likely lose its AAA credit rating. The Treasury department immediately accused Standard and Poors of playing politics. Such is the arrogance of our elected officials.

The U.S. dollar rose nearly one percent as the Euro was rocked over concerns over potential defaults on sovereign debt of member states.

Implied volatility for the S&P-500 (VIX 16.96 +1.64) rose nearly eleven percent and the implied volatility for the NASDAQ-100 (VXN 18.47 +0.99) rose nearly six percent.

The yield for the 10-year note fell nine basis points to close at 3.40. The price of the near term futures contract for a barrel of crude oil rose $1.55 to close at $109.66.

All ten economic sectors in the S&P-500 closed lower led by Energy (-1.5%) and Financials (-1.4%) and trailed by Consumer Staples (-0.7%) and Tech (-0.7%).

Market internals were negative with decliners leading advancers 4:1 on both the NYSE and the NASDAQ. Down volume led up volume 13:2 on the NYSE and by 4:1 on the NASDAQ. The index put/call ratio fell 0.17 to close at 1.17. The equity put/call ratio was unchanged at 0.62.


Monday's trading saw a huge rebound from intraday lows seen in the morning. Will it be enough to break the downtrend states the major indexes have moved into? That remains uncertain but the safer trade at this time is to bet on another test lower. With the said, Asian Markets closed more than one percent lower while European bourses were higher by about one half of one percent. This suggests that U.S. markets will open modestly higher.

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


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