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Heavy Losses on Heavy Volume...

6/27/2011 8:30:07 AM

With volume up, the bears ambushed the bulls...

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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 $125.90
Long SPY at $134.43
Long QQQ at $58.20

Click here to learn more about my services and for our ETF Trend Trading.

Value Portfolio:
We are long TBT at $32.50 from June 16th. (TLT closed at $32.50 on June 24th)
We sold short one contract TLT July $98 Calls at $1.19 per share on June 16th
We sold short one contract TLT Aug $98 Calls at $1.80 per share on June 16th
We sold short one contract TLT Sep $98 Calls at $2.13 per share on June 16th

(Time value on all option contracts we sold continues to erode which means we can buy them back for less than we sold them for or, if this continues, let them expire worthless and keep all the money).

Daily Trading Action

The major index ETFs opened lower following futures as they continued to sell off as equities markets readied to open. From that point, equities markets began a see-saw move downward that would continue through the day. The heaviest volume was in the final minutes into the close which allowed the major indexes to finish just above their lows. All the major indexes recorded losses, with the NASDAQ-100 and S&P-500 both closing down more than one percent. The Dow and S&P-500 are in downtrend states while the NASDAQ-100 maintained a trading state. The Semiconductor Index (SOX 392.50 -10.06) fell two and one half of one percent giving back all of Thursday's gains but managing to close above the level it opened at on Thursday. It is in a trading state but is on the cusp of committing to an uptrend state. The Russell-2000 (IWM 79.94 -0.41) logged a fractional loss and maintained a trading state. The Regional Bank Index (KRE 24.59 -0.08) posted a modest loss while the Bank Index (KBE 22.99 -0.25) lost just over one percent. The Finance Sector ETF (XLF 14.76 -0.09) posted a fraction loss. Long term bonds (TLT 96.98 -0.41) showed a fractional loss. NYSE trading volume increased to heavy with 1.750B shares traded. NASDAQ share volume was heavy with 2.784B shares traded.

There were four economic reports of interest released:

  • GDP-Third Estimate (Q1) was raised to 1.9% (from the Second Estimate of 1.8%)
  • GDP Deflator-Third Estimate (Q1) was raised to 2.0% (from the Second Estimate of 1.9%)
  • Durable Goods Orders (May) came in at +1.9%, well above the +1.5% expected
  • Durable Goods Orders (May) came in at +0.6%, below the +0.7% expected

All reports were released an hour before the open. Durable Goods for April was raised from -3.6% to -2.7%. Durables less transportation were also raised for April from -1.6% to -0.4%. This caused futures to rise but that rise collapsed as continued fears over European sovereign debt continued to weigh on the psyche of market participants. The latest rumor is that several major Italian banks are undercapitalized which has caused new fears over instability in the region.

The U.S. dollar rose six tenths of one percent after testing up to its high a week earlier.

The yield for the 10-year note fell four basis points to close at 2.87. The price of the near term futures contract for a barrel of oil traded nearly flat rising fourteen cents to close at $91.16.

Implied volatility for the S&P-500 (VIX 21.10 +1.81) rose more than nine percent and the implied volatility for the NASDAQ-100 (VXN 22.58 +1.82) rose a bit under nine percent. This left the VIX on its 400DMA and the VXN closed just above that level.

The Utilities sector (+0.2%) was the only economic sector to move higher. The other nine economic sectors in the S&P-500 moved lower led by Energy (-1.9%) and Tech (-1.8%).

Market internals were negative with decliners leading advancers 7:4 on the NYSE and by 7:5 on the NASDAQ. Down volume led up volume by more than 3:1 on the NYSE and nearly that ratio on the NASDAQ. The index put/call ratio rose +0.07 to close at 1.40. The equity put/call ratio rose +0.04 to close at 0.70.


Friday saw the market open lower as bearish sentiment grew going into the open. European sovereign debt concerns once again took center stage as investors and traders appear to be building up cash or deleveraging. It wasn't as if all risk assets were being fled as the Russell-2000 put in a strong relative performance.

We believe that equities markets and bond markets are on the brink of changing direction with equities readying for a capitulation bottom and bond markets are getting set to collapse. A major factor in this is implied volatility which appears to be topping at a lower level than it reached the week prior. The bottom will either manifest itself with a final swift move higher for implied volatility or equities will hold above recent bottoms and forge their way higher with implied volatility continuing to fall.

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


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