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Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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Tops are Built on Hope, Which is Fading...

5/4/2011 8:42:41 AM

Risk trades are being exited...

Take no aciton.

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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:
We hold no value positions at this time.

Daily Trading Action

The major index ETFs opened lower and moved lower at the open but reversed to move higher into the top of the hour. From there, it was a see-saw first down then up such that by later morning, the Dow had surpassed its early morning highs, the S&P-500 double-topped with its early morning highs, and the NASDAQ-100 formed a lower high. That set-up the late morning and early afternoon slide to the lows of the day, which happened with about an hour left in the session. The bulls seized control at that point and caused the Dow to finish flat, and with fractional losses to the NASDAQ-100 and the S&P-500. This shook the NASDAQ-100 out of its uptrend state. The Semiconductor Index (SOX 439.43 -5.63) posted a one and a quarter percent loss as did the Russell-2000 (IWM 84.30 -1.08). Both of these indexes moved into trading states. The Regional Bank Index (KRE 26.60 +0.11) posted a fractional gain as did the Bank Index (KBE 25.75 +0.21). The Finance Sector ETF (XLF 16.38 +0.07) also posted a gain. Longer term Bonds (TLT 94.17 +0.28) posted another fractional gain. NYSE trading volume was average with 1.004B shares traded. NASDAQ share volume was above average with 2.225B shares traded.

There was a single economic report released:

  • Factory Orders (Mar) rose +3.0% versus an expected 1.8% rise

The report was released a half hour after the open. February's Factory Orders report was revised higher from +0.1% to +0.7%.

The U.S. dollar closed flat. The dollar continues to attempt to hammer out a bottom here.

Implied volatility for the S&P-500 (VIX 16.70 +0.71) rose four percent and the implied volatility for the NASDAQ-100 (VXN 18.62 +0.49) 13 +1.59) rose nearly three percent.

The yield for the 10-year note fell three basis points to close at 3.26. The price of the near term futures contract for a barrel of crude oil fell $2.47 (-2.1%) to close at $111.05.

Telecom (+1.5%), Utilities (+0.7%), Financials (+0.4%), and Consumer Staples (+0.3%) moved higher. The other six of ten economic sectors in the S&P-500 moved lower led by Energy (-2.4%) and Materials (-1.0%).

Market internals were negative with decliners leading advancers 2:1 on the NYSE and by 7:3 on the NASDAQ. Down volume led up volume 4:3 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio fell 0.08 to close at 1.30. The equity put/call ratio rose 0.12 to close at 0.63.


Tuesday's trading made it clear that market participants were less interested in the risk trades, such as semiconductors and small caps, which are represented in the Russell-2000. With defensive sectors composing much of the upside, risk is being taken off the table. The fly in the ointment for this bearish argument is that the bank indexes and the Finance sector ETF moved higher after a weaker open.

We note that the leading indexes are leading lower. Bonds are attempting to break higher but the longer term bond ETF (TLT) put in a "hanging man" candlestick, which could represent trouble for bond bulls going forward.

Overnight, The Peoples Bank of China (PBoC) stated it was taking measures to further curb liquidity from capital inflows. The will take whatever measures necessary, such as continuing to raise reserve requirements or changing interest rates. This, of course, serves to mop up excess liquidity and shrinks the money supply. While this is in direct contrast to the Fed's action, the liquidity rally may be in jeopardy.

Trading on Wednesday will determine whether the markets will break down here. Tops are built on hope and we could yet see another rally attempt. If so, we will get another shot at purchasing put options less expensively than they are currently trading for. We continue to be patient here.

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


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