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Bulls Step In To Foil Bears Attempts And Session Ends With Broad Gains...

10/6/2011 9:32:00 AM

The bears attempt to take market down but leave bruised and battered.

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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:

Daily Trading Action

The major index ETFs opened mixed before dropping in unison with all three in negative territory in the first ten minutes of trading. After that, the bulls began buying which drove the indexes back into positive territory before the top of the hour and the climb continued until the first pull back around 11:00am. The bulls stepped in after a modest retreat and drove priced to modestly greater highs by noon. The bears then focused and caused a more significant drop that was still in positive territory before traders came back from lunch early and bid prices higher for a couple hours before things became choppy in late afternoon. With a half hour to go, the bulls took definitive control and the major indexes spurted higher to close very near their highs and locking in gains of one percent or more. All equity indexes have a bearish BIAS. All equity indexes are now in downtrend states. The Dow Jones Transport Index (IYT 77.64 +2.02) gained 2.7%. The Russell-2000 (IWM 65.68 +0.89) gained a bit more than one percent. The semiconductor Index (SOX 350.78 +10.55) gained +3.1%! The Regional Bank Index (KRE 20.32 +0.26) gained a bit more than one percent as did the Bank Index (KBE 17.67 +0.20) and the Finance Sector ETF (XLF 11.90 +0.17). The Regional Bank Index moved above its 20-Day Moving Average and is the only equity index we regularly report on to achieve that distinction thus far. Long term bonds (TLT 121.36 -0.88) fell fractionally. It is in an uptrend state. The BIAS of longer term bonds is BULLISH.

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

  • MBA Mortgage Index for last week fell -4.3% after having risen +9.3% the week earlier.
  • Challenger Job Cuts (Sep) rose +211.5% versus August's +47.0% rise
  • ADP Employment Change (Sep) arrive at 91K versus an expected 45K
  • ISM Services Index (Sep) came in at 53.0 versus an expected 52.8

The first three reports were released more than an hour before the open. The final report was released a half an hour after the open.

The U.S. dollar fell three tenths of one percent after opening lower and closing the gap intraday. The dollar is not necessarily done moving up which could pressure U.S. equities on Thursday.

Eight out of ten economic sectors in the S&P-500 moved higher. With Utilities unchanged and Telecom (-0.3%) moving lower, the gainers were led by Materials (+4.2%), Energy (+3.3%), Tech (+2.4%), and Industrials (+2.2%) with the other sectors moving up less than two percent each.

The yield for the 10-year note rose thirteen points to close at 1.91. The price of the near term futures contract for a barrel of crude oil fell +$4.01 to close at $79.68. The weekly U.S. government reports on crude oil inventories showed a draw down of 4.679M barrels.

Implied volatility for the S&P-500 (VIX 37.81 -3.01) fell -7.4% and the implied volatility for the NASDAQ-100 (VXN 39.12 -3.35) fell -7.9%.

Market internals were positive with advancers leading decliners 8:3 on the NYSE and by 7:3 on the NASDAQ. Up volume led down volume 5:1 on the NYSE and by 8:1 on the NASDAQ. The index put/call ratio fell -0.07 to close at 1.45. The equity put/call ratio fell -0.09 to close at 0.69.


Wednesday saw the necessary follow-through for the bulls to confirm that Tuesday's reversal from the brink of entering a bear market was for real. With that said, the bears will still wait to ambush the bulls on the way higher. It is only a matter of when, not if they will attack. We will continue to monitor the trading action of the leading indexes and the financials for an idea of when the bulish advance could fail.

The Dow and S&P-500 are at a point where they might struggle to move higher from here. The NASDAQ-100, which made the sharpest move higher on Wednesday, appears ready to continue its leap higher, at least for another two percent or so. For their part, Asian and European markets are still moving higher, triggered by the bounce in U.S. markets. With that sort of support, it is likely that all three major indexes can continue higher, at least on Thursday. We will be monitoring market action on a daily basis to determine when this rally could end.

Recall that we entered our long positions on the premise that the market would rally but with the belief that the rally could end at any number of resistance areas as the major indexes have many areas of former support that could now turn into resistance. We will stay long until we see a reversal at one of those key areas that would be a clue that this latest rally will reverse. Barring that sort of reversal, we will stay long, unless we see a sign of an imminent reversal that is outside of the context of what we have already discussed.

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


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