7/5/2011 12:19:07 AM
Note: Markets are closed on Monday, July 4th in observance of Independence Day.
Stocks go up five consecutive sessions to record their best weekly gain in the last two years...
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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
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. (TBT closed at $34.63 on June 30th)
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 $93.63 so the contracts we sold are more than four dollars out of the money with price potentially reversing higher. 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 price stays below $98.00, let them expire worthless and keep all the money).
Daily Trading Action
The major index ETFs opened higher and, after testing lower into negative territory for the first ten minutes, began to move higher. That move turned vertical at 10:00am on positive economic reports. The move continued more gradually through the session with the major indexes finishing up 1.4% - 1.5% on the day just off their session highs. The S&P-500 and NASDAQ-100 broke above a downtrend line that had acted as resistance since the May 2 highs. The Dow had broken through its respective line on Thursday. The Semiconductor Index (SOX 419.11 +8.76) rose more than two percent to lead equity indexes higher. It closed just under its upper Bollinger Band and below its 50-Day Moving Average (DMA) but above its 200-DMA for the first time since June 9th. The Russell-2000 (IWM 84.09 +1.29) rose 1.5% to keep pace with the major indexes. The Regional Bank Index (KRE 25.86 +0.41) added more than 1.5% and sits above all moving averages re regularly monitor. The Bank Index (KBE 24.44 +0.45) rose most of two percent to close back above its 50-DMA and on its 400-DMA. It is less than two percent below its 200-DMA. The Finance Sector ETF (XLF 15.63 +0.28) rose most of two percent to close just under its 200-DMA. All equity indexes we regularly monitor are now in trading states and all have a BEARISH BIAS but are positioned to potentially reverse that this month. Long term bonds (TLT 93.63 -0.47) to continue to break down. TLT is in a downtrend state but has a BULLISH BIAS. Due to pre-holiday trading, NYSE trading volume was light with 721M shares traded. NASDAQ share volume was light with 1.605B shares traded.
There were three economic reports of interest released:
- UniversityofMichigan Consumer Sentiment (Jun) came in at 61.1 versus an expected 54.0
- ISM Index (Jun) came in at 55.3 versus an expected 51.1
- Construction Spending (May) fell -0.6% versus an expected flat reading
All three reports came out within a half hour of the open.
The U.S. dollar fell one tenth of one percent.
The yield for the 10-year note rose four basis points to close at 3.20. The price of the near term futures contract for a barrel of oil fell forty-eight cents to close at $94.94.
Implied volatility for the S&P-500 (VIX 15.87 -0.65) fell four ten percent and the implied volatility for the NASDAQ-100 (VXN 17.37 -0.49) fell nearly three percent. This left the VIX and the VXN closing at their lowest levels since the end of May and the VIX touched its May 31 intraday low. Any move lower will signal a further move lower in volatility which generally corresponds to a move higher for equities.
All ten economic sectors in the S&P-500 moved higher led by Consumer Discretionary (+2.0%) with only Materials (+0.9%) and Consumer Staples (+0.8%) rising less than 1.0%.
Market internals were positive with advancers leading decliners nearly 5:1 on the NYSE and by 3:1 on the NASDAQ. Up volume led down volume 10:1 on the NYSE and by 8:1 on the NASDAQ. The index put/call ratio fell -0.13 to close at 1.09. The equity put/call ratio rose +0.02 to close at 0.56.
Commentary:
Friday was the first day of July and the bulls were running. We will have to be careful on Tuesday as implied volatility (VIX) tested its recent intraday low of May 31st. A reflexive bounce could occur with a corresponding pull-back for equities. The dollar is also signaling a potential bounce which could adversely affect equities.
We will remain with our current positions until we see that the market will indeed reverse itself. U.S. markets are closed on Monday, July 4th in observance of Independence Day so the next session will be on Tuesday, July 5th. I hope you enjoy your holiday weekend.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
