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Lack of Follow-Through on Gap-Up Open...

4/25/2011 9:09:45 AM

Major indexes gap up and struggle to hold opening gains...

Recommendation:
At the open, Sell shares of DIA, QQQ, and SPY to close the long positions.
At the open, Sell shares of DIA, QQQQ, and SPY short to open a short position.

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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 $124.63
Long SPY at $133.79
Long QQQ at $58.34

Click here to learn more about my services and for our best ETF portfolios.

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


Daily Trading Action

The major index ETFs opened higher then immediately sold off. In fact, the price of entry moved up sharply in the final seconds before the open before the selling began in earnest. That selling would be completed within about an hour of the open and the major indexes would struggle to move higher through the session with the Dow and S&P-500 closing slightly higher than their opens, while the NASDAQ-100 fell short of that goal. This left all three major indexes in trading states with BULLISH BIASes. The Dow posted a new closing high at 12505.99. The S&P-500 approached its mid-February high and the NASDAQ-100 closed at its March high and is on its upper Bollinger Band, a bit more than one percent below its mid-February high. The Semiconductor Index (SOX 443.20 -0.22) closed relatively flat. The Russell-2000 (IWM 84.45 +0.62) closed up three quarters of one percent. The Regional Bank Index (KRE 26.02 +0.13) and the Bank Index (KBE 25.09 +0.10) both posted fractional gains as did the Finance Sector ETF (XLF 16.10 +0.09). Both bank indexes and the finance sector ETF are in downtrend states and the bank index and Finance Sector ETF have a Bearish BIAS. All are below their 20-DMAs and 50-DMAs. Longer term Bonds (TLT 92.60 -0.08) posted a fractional loss. It remains in a trading state but has a BULLISH BIAS. NYSE trading volume was light with 813M shares traded. NASDAQ share volume was above average with 1.856B shares traded.

There were five economic reports released:

  • Initial Jobless Claims for last week came in at 403K versus an expected 390K
  • Continuing Jobless Claims came in at 3.695M versus an expected 3.650M
  • Philadelphia Fed Index (Apr) came in at 18.5, well below the 33.0 expected
  • Leading Economic Indicators (Mar) rose +0.4% versus an expected +0.2% rise
  • FHFA Housing Price Index (Feb) came in at -1.6% versus January's -1.0%

The first two reports were released an hour before the open. The other three reports were released a half hour into the session. The last report's January reading was revised downward from -0.3% to -1.0%.

The U.S. dollar fell four tenths of one percent to a new two year low.

Implied volatility for the S&P-500 (VIX 14.69 -0.38) fell two and one half of one percent and the implied volatility for the NASDAQ-100 (VXN 15.85 -0.64) fell four percent.

The yield for the 10-year note was unchanged at 3.40. The price of the near term futures contract for a barrel of crude oil rose eight-four cents close at $112.29.

All ten economic sectors of the S&P-500 moved higher led by Tech's tremendous +2.4% surge.

Market internals were positive with advancers leading decliners nearly 2:1 on the NYSE and by 3:2 on the NASDAQ. Up volume led down volume 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio rose 0.26 to close at 1.36 1.62. The equity put/call ratio rose 0.11 to close at 0.63.


Commentary:

Thursday's trading saw an expected lightening in trading volume. It also brought about reversal signals for the NASDAQ-100 and the Dow. We are going to shift to short positions for all the major indexes as we anticipated a bit of a move lower beginning on Monday. While we would prefer a large gap up open to enter these positions, we will enter at the open and take whatever the market provides for our entries.

Note: While we don't know how long the anticipated downward move will last, we did get the set-up we have been looking for and there is a high probability for a reversal here.

move up into the average range versus the light volumes we have been growing used to. With a BULLISH BIAS for the major indexes, we will have to be ready to reverse our short positions if the downward move is completed early.

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

 

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