10/7/2011 9:11:05 AM
The bulls did their job by having the major indexes close where the bears must attack.
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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 $107.72
Long QQQ at $52.07
Long SPY at $112.34
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Daily Trading Action
The major index ETFs opened mixed and dipped in the first half hour then took off to the upside in a see-saw pattern closing at the highs, and importantly, at the resistance of their 20-Day Moving Average (DMA) as well as along a downward sloping resistance line which has defined the limit the bulls can force prices up to in the short term. This left the major indexes with gains of 1.7% - 1.8%. Volume for the major index ETFs was light. All equity indexes we regularly monitor are now in trading states as are longer term bonds. The Dow Jones Transport Index (IYT 79.23 +1.59) rose two percent. The Russell-2000 (IWM 67.14 +1.46) gained a bit more than two percent. The semiconductor Index (SOX 355.17 +4.39) gained 1.25%. The Regional Bank Index (KRE 20.95 +0.63) gained +3.1% as did the Finance Sector ETF (XLF 12.27 +0.37). The Bank Index (KBE 18.46 +0.79) gained a whopping +4.5%. Long term bonds (TLT 121.36 -0.88) fell fractionally. It is in an trading state. The BIAS of longer term bonds is BULLISH.
There were two economic reports released:
- Initial Jobless Claims for last week came in at 401K versus an expected 402K
- Continuing Jobless Claim came in at 3.700M versus an expected 3.725K
The reports were released an hour before the open.
The U.S. dollar fell six tenths of one percent after opening higher.
All ten economic sectors in the S&P-500 moved higher led by Financials (+3.2%).
The yield for the 10-year note rose eight points to close at 1.99. The price of the near term futures contract for a barrel of crude oil fell +$2.81 to close at $82.59.
Implied volatility for the S&P-500 (VIX 36.27 -1.54) fell four percent and the implied volatility for the NASDAQ-100 (VXN 37.32 -1.80) fell most of five percent.
Market internals were positive with advancers leading decliners 9:1 on both the NYSE and the NASDAQ. Up volume led down 9:1 on both the NYSE and the NASDAQ. The index put/call ratio rose +0.31 to close at 1.76. The equity put/call ratio was unchanged at 0.69.
Thursday saw the bears and bulls locked in battle with light trading volumes for the major index ETFs. The point where price stopped moving upward is the key resistance area where the bears must take control or the momentum will shift to the bulls.
All equity indexes shifted into trading states. Also, all equity indexes are at or just above key moving averages. For the major indexes, this is the 20-Day Moving Average (DMA). For the semiconductors, this is the 50-DMA. For longer term bonds, they have pulled back to their 50-DMA.
The backdrop is simply this. The bulls have to push really hard right now on heavy volume to shift U.S. equity markets to their advantage. If the bears can contain price action here, they can regain their advantage. Make no mistake, this is where the big money will be put to work and the outcome of this is likely to shift the markets back into a year-end rally or into a more protracted bear market. This will truly be eventful, we have ring-side seats, and we will maintain our long positions until it is obvious the bears won't give up. Stay tuned for any updates as we monitor the markets.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.