6/29/2011 8:42:53 AM
20-Day Moving Average is surmounted...
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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
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We are long TBT at $32.50 from June 16th. (TBT closed at $33.91 on June 28th)
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
(TLT closed at $95.65 so the contracts we sold are more than two dollars out of the money with price projected to move lower. 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 higher and after moving lower for the opening minutes, began to head higher. That move would continue almost unabated until around 2:40pm when the bears tried to hijack the upswing. The move lower lasted less than an hour. The bulls came out swinging in the final half hour of the session with volume heating up markedly as the major indexes were pushed ever higher into the close and the major indexes closed at their highs of the day. That left all three major indexes to close above their 20-Day Moving Averages (DMAs). The Semiconductor Index (SOX 400.52 +5.25) gained more than one percent to close back above 400. The Russell-2000 (IWM 81.81 +1.25) tacked on a 1.5% gain to continue to lead equity indexes higher. The Regional Bank Index (KRE 25.01 +0.13) added a fractional gain as did the Bank Index (KBE 23.36 +0.04). The Finance Sector ETF (XLF 14.98 +0.07) was able to close on its 20-DMA and looks set to break out higher. All equity indexes we regularly monitor are now in trading states. Long term bonds (TLT 94.88 -0.77) fell nearly one percent. This left it below its 20-, 50-, and 200-DMAs. TLT entered a downtrend state. NYSE trading volume was light with 803M shares traded. NASDAQ share volume was light with 1.682B shares traded.
There were two economic reports of interest released:
- Case-Shiller 20-City Index (Apr) came in at -3.96 versus an expected 03.9%
- Consumer Confidence (Jun) came in at 58.5 versus an expected 60.8
The first report was released a half hour before the open while the latter report was released a half hour after the open. March's Case-Shiller 20-City Index was revised down from -3.61% to -3.77%. The May Consumer Confidence number was revised up from 60.8 to 61.7.
The U.S. dollar shed another four tenths of one percent on a rise for the Euro. The rise in the Euro continues amid growing optimism that Greece's parliament will achieve a yes vote to adopt the austerity measures necessary to meet requirements for an IMF/ECB bailout package.
The yield for the 10-year note rose more than eleven basis points to close at 3.045. The price of the near term futures contract for a barrel of oil rose $2.28 to close at $92.89.
Implied volatility for the S&P-500 (VIX 19.17 -1.39) fell seven percent and the implied volatility for the NASDAQ-100 (VXN 20.71 -1.25) fell six percent. This left the VIX and the VXN closing above their respective 200-DMAs and well below their 400-Day Moving Average (DMA). The close was also at an important support level where another dip lower will break that support and "the top" for implied volatility could be confirmed.
Energy (+2.7%), Consumer Discretionary (+1.9%), Materials (+1.8%), Industrials (+1.5%), Healthcare (+1.5%), and Tech (+1.3%), all gained more than one percent as all ten economic sectors in the S&P-500 moved higher.
Market internals were positive with advancers leading decliners nearly 4:1 on the NYSE and by nearly 3:1 on the NASDAQ. Up volume led down volume 4:1 on the NYSE and by nearly 6:1 on the NASDAQ. The index put/call ratio rose +0.18 to close at 1.21. The equity put/call ratio fell -0.05 to close at 0.58.
Tuesday saw the market open higher and the bears were caught off-balance nearly the entire session. While the advance was broad with all ten economic sectors involved, volume was again a bit light. Confidence seems to be growing that Greece's parliament will pass the austerity measures needed to receive IMF/ECB funding to avoid a default of its sovereign debt.
If not for the lack of significant volume, I would suggest that this is starting to take on the look of panicked short covering as well as piles of cash being put to work. Without the volume commitment, however, we must remain cautious as fund managers conduct some window dressing to their current holdings which is acting to boost equity indexes. A fly in the ointment continues to be financial stocks. Financial indexes continue below their 200-DMAs. Tuesday's trading saw relative underperformance by financials. If this really is to get legs, financials need to come to the party.
As we have reminded our readers, we have been keeping our eyes on implied volatility and longer term bond prices. With the VIX and VXN sitting just above their 200-DMAs, the stage is set for implied volatility to confirm a top, but we aren't there yet. The 20+ year bond ETF (TLT) made a another move lower, this time back below its 200-DMA. This caused TLT to enter a downtrend state. With capital leaving bonds, some of it is likely to flow into equities with a corresponding lift for equities expected.
The major indexes broke above the 20-DMAs which is giving the edge to the bulls to move things higher into the end of the month. While we are optimistic into the end of June, earnings season is just around the corner with July 12th kicking things off. Stock prices could stall going into that important period. We will maintain our long positions for now.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.