9/30/2011 9:08:46 AM
Rally off of Germany vote and better than expected economic reports, but NASDAQ falls due to AMD guidance.
Sell shares of DIA to close the long position and sell shares of DIA short to open short positions.
Sell shares of QQQ to close the long position and sell shares of QQQ short to open short positions.
Sell shares of SPY to close the long position and sell shares of SPY short to open short positions.
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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.
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Daily Trading Action
The major index ETFs opened higher and moved still higher in the first twenty minutes of trading before rolling over and moving down until just before 11:00am. A move higher lasted until noon and then began a see-saw move lower that would last until the final hour when a fierce rally saw the Dow finish 1.4% higher and the S&P-500 finish fractionally higher. The NASDAQ-100, which had been down three percent at is nadir, closed down a bit more than one percent. This still left all equity indexes we monitor below all three of the moving averages we regularly report on. The Dow Jones Transport Index (IYT 78.00 +1.55) gained two percent. The Russell-2000 (IWM 66.33 +1.13) gained +1.7%. The semiconductor Index (SOX 350.82 -4.54) fell -1.3%. The Regional Bank Index (KRE 20.03 +0.88) rose +4.6% and the Bank Index (KBE 18.25 +0.60) rose +3.4%. The Finance Sector ETF (XLF 12.24 +0.34) rose three percent. All equity indexes we monitor are in trading states and all have a bearish bias with the exception of the Semiconductor Index and the NASDAQ-100 which have a bullish bias. In contrast, the long term bonds (TLT 117.84 +0.81) added a fractional gain and is in a trading state.. The BIAS of longer term bonds is BULLISH.
There were five economic reports released:
- Initial Jobless Claims for last week came in at 391K versus an expected 419K
- Continuing Jobless Claims came in at 3.729M versus an expected 3.715M
- GDP-Final Revision (Q2) was raised to +1.3% (prior +1.0%) versus an expected +1.2%
- GDP Deflator-Final Revision (Q2) came in at +2.5% versus an expected +2.4%
- Pending Home Sales (Aug) fell -1.2% versus an expected -1.5% fall
The first four reports were released an hour before the open while the last report came out a half hour into the session.
The day had three components to it that shaped investor expectations. First, the lower house in Germany voted, with a huge majority, to approve an increase to the size of the European bailout fund. Second, economic reports were better than expected. Finally, AMD (AMD 5.31 -0.84) took down guidance for Q3, 2011. The stock was crushed losing nearly fourteen percent which took the NASDAQ composite down about 0.75% all on its own. This also affected the outlook for semiconductor companies which accounted for a sizable loss for the semiconductor index and NASDAQ-100.
The U.S. dollar fell two tenths of one percent.
Tech (-0.4%) and Consumer Discretionary (-0.9%) were the only two sectors to head lower and Materials was unchanged. The other seven economic sectors in the S&P-500 move higher led by Financials (+2.8%).
The yield for the 10-year note fell four basis points to close at 1.96. The price of the near term futures contract for a barrel of crude oil rose ninety-three cents to close at $82.14.
Implied volatility for the S&P-500 (VIX 38.84 -2.24) fell five percent while the implied volatility for the NASDAQ-100 (VXN 41.16 +0.40) rose one percent and broke above resistance. This suggests that the NASDAQ-100 is ready to make a large move.
Market internals were mixed with advancers leading decliners 2:1 on the NYSE and by 5:3 on the NASDAQ. Up volume led down volume by more than 2:1 on the NYSE while down volume led up volume 3:2 on the NASDAQ. The index put/call ratio fell - 0.51 to close at 1.50. The equity put/call ratio fell -0.02 to close at 0.81.
Thursday was another volatile day in the market with the NASDAQ-100 swinging through a range of nearly five percent on the day. If we look at the European equities markets, they didn't react with a huge move higher when Germany's lower house approved the raising the amount of the European bailout fund. Instead, investors left the European bourses little changed. Pessimism seems baked in. U.S. markets, on the other hand, rejoiced that the European fund would be increased but then found those gains withering through the day, even as U.S. banks finished up strong, due to the reduced chance of contagion from Europe. It appears that investors in Europe are pessimistic, which will likely means more downside there.
While financials appear to be strengthening, it is just a recovery from oversold conditions and they could easily reverse to make new lows here. With a mixed bag on leading indexes pointing in different directions but with the Semiconductors and NASDAQ-100 languishing, the leadership we were looking for from those two indexes is a void, or in the bearish case, is lower. We will adopt short positions as we expect a more significant move to the downside is forming here that should erupt shortly.
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