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Markets Down, Volume Up...

5/5/2011 9:07:57 AM

The slide begins to accelerate on higher volume...

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 mixed and began moving lower from the open. That move would last until late in the lunch hour when the bulls took control and drove the major indexes higher until the bears took over again around 2:30pm. The move into the close was lower but not dramatically so. Still, potency of the afternoon bullish rally that was seen on Tuesday was absent on Wednesday and the major indexes all logged losses. This left both the S&P-500 and the NASDAQ-100 in trading states. The Semiconductor Index (SOX 439.70 +0.27) closed fairly flat on the session as value investors "bought the dip". This left the Semiconductor Index closing even with its 20- and 50-Day Moving Averages (DMAs). The Russell-2000 (IWM 83.21 -1.09) logged a 1.3% loss on the session indicating that the risk trade is still off. Both of these indexes are in trading states. The Regional Bank Index (KRE 26.41 -0.19) posted a fractional loss as did the Bank Index (KBE 25.55 -0.20). The Finance Sector ETF (XLF 16.24 -0.12) also posted a loss. Longer term Bonds (TLT 94.59 +0.42) posted another fractional gain as it continues to break out toward its 200-DMA, now at $98.48. NYSE trading volume was above average with 1.091B shares traded. NASDAQ share volume was above average with 2.220B shares traded.

In addition to the crude oil inventory report, there were four economic reports released:

  • MBA Mortgage Index for last week rose +4%
  • Challenger Job Cuts (Apr) came in at -5.0% versus the prior month's -38.6%
  • ADP Employment Change (Apr) came in at 179K versus an expected 200K
  • ISM Services (Apr) came in at 52.8 versus an expected 57.4

The first three reports were released from one and one quarter to two and a half hours before the open. The final report was released a half hour into the session.

The U.S. dollar closed flat. The dollar continues to attempt to hammer out a bottom here with price all but unchanged for the last week.

Implied volatility for the S&P-500 (VIX 17.08 +0.38) rose two percent and the implied volatility for the NASDAQ-100 (VXN 18.59 -0.03) was flat.

The yield for the 10-year note fell four basis points to close at 3.22. The price of the near term futures contract for a barrel of crude oil fell $1.81 (-1.6%) to close at $109.24. The U.S. government released the weekly crude oil inventory report which showed a build of 3.421M barrels of oil since last week.

All ten economic sectors in the S&P-500 moved lower led by Materials (-1.7%), Energy (-1.6%), and Industrials (-1.4%).

Market internals were negative with decliners leading advancers 5:2 on both the NYSE and the NASDAQ. Down volume led up volume nearly 3:1 on the NYSE and by nearly 3:2 on the NASDAQ. The index put/call ratio rose 0.13 to close at 1.43. The equity put/call ratio rose 0.09 to close at 0.72.


Wednesday's punctuated what we saw on Tuesday with traders fleeing small caps but value investors stepped in to "buy the dip" on semiconductors. We think it is likely that these buyers were premature in buying the dip as semiconductors are trading even with key moving averages that will likely get broken in trading on Thursday. That should ensure another leg lower for semiconductors as well as other equity indexes. Financials logged losses of nearly one percent on the session so there is little support for the major indexes. The NASDAQ-100 showed relative strength versus the Dow and S&P-500 but that is probably more due to the fact that it had been moving down while the Dow and S&P-500 had largely failed to acknowledge that the tide was going out.

We expect that trading on Thursday can finally break the backs of the bulls as the game of musical chairs inspired by the Fed's liquidity spigot is coming to an end. It is now time to rush for the exits lest one not have a chair as the Fed begins to withdraw liquidity.

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


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