10/14/2011 9:01:09 AM

Tech rallies while Financials flounder...

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Daily Trading Action

The major index ETFs opened lower and then were immediately mixed with the Dow and S&P-500 taking off to the downside and the NASDAQ-100 moving higher. They all aligned around 10:30 until 11:00am when they moved lower in unison as the Dow and S&P-500 put in intraday lows just after 11:00am. The NASDAQ-100 retested its early morning lows and bounced just before it reached those level confirming a bullish trade that would remain the rest of the session. All three major indexes headed up in unison in choppy trading that migrated higher until a sell-off in the final hour dropped all three noticeably but the bulls regained composure and bought in the final half hour all the way into the close to leave the Dow and S&P-500 with modest losses and the NASDAQ-100 with a gain of nearly one percent. The Dow Jones Transport Index (IYT 82.20 -0.55) posted a fractional loss. The Russell-2000 (IWM 69.76 -0.06) marched in place. The semiconductor Index (SOX 376.60 +7.42) added a two percent gain. The Bank Index (KBE 18.78 -0.56) fell nearly three percent and the Regional Bank Index (KRE 21.35 -0.46) fell two percent. The Finance Sector ETF (XLF 12.45 -0.30) fell more than two percent. Long term bonds (TLT 115.63 +1.14) tacked on a one percent gain. It is in a trading state. The BIAS of all equity indexes we regularly monitor is BEARISH but all have warned of a potential move to a BULLISH BIAS. The BIAS of longer term bonds is BULLISH but has warned of a potential move to a BEARISH BIAS. NYSE volume came in light with 898M shares traded. NASDAQ volume was also light with 1.450B shares traded.

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

• Initial Jobless Claims for last week declined to 404K versus an expected 406K
• Continuing Jobless Claims came in at 3.670M versus an expected 3.700M
• Trade Balance (Aug) came in at -$45.6B versus an expected -$46.1B

All three reports were released an hour before the open. The focus for traders was more about earnings season and the overhang of worries over European debt.

Financials dove lower as market participants sold off JP Morgan Chase (JPM 31.60 -1.60) and other large banks. JPM reported earnings before the open and exceeded analysts expectations but did so by posting a gain betting against its own debt. This sent shock waves through the banking sector and financial services as well. Countering this is bullish optimism about potential for Tech earnings. While Financials (-2.4%) led the way lower as seven out of ten economic sectors in the S&P-500 closed lower, Tech (+1.0%) rallied along with Telecom (+0.6%). Utilities were unchanged.

The U.S. dollar fell almost imperceptibly. It closed just above its 200-DMA.

The yield for the 10-year note fell six basis points to close at 2.17. The price of the near term futures contract for a barrel of crude oil fell -$1.34 to close at $84.23. The weekly U.S. government report on crude oil inventories showed a gain of 1.344M barrels.

Implied volatility for the S&P-500 (VIX 30.70 -0.56) fell nearly two percent. The implied volatility for the NASDAQ-100 (VXN 30.30 -2.04) fell six percent. Implied volatility is at the low end of its range since early August. It is likely to bounce here before breaking out of its trading range.

Market internals were mixed with advancers leading decliners 3:2 on the NYSE and by a sliver on the NASDAQ. Down volume led up volume nearly 2:1 on the NYSE while the opposite was the case on the NASDAQ. The index put/call ratio fell -0.53 to close at 1.35. The equity put/call ratio rose 0.09 to close at 0.72.

Conclusion/Commentary

Thursday was a mixed bag as investors bid up Tech with the Semiconductor Index up two percent on the day. In contrast with that, Financials tanked as fear over waning performance caused investors to sell off banks and financial service companies. Market internals were mixed.

Overnight, Google (GOOG 558.99 +10.49) reported after hours and it handily beat expectations driving the stock price to trade more than forty dollars higher in after hours trading. This will help the NASDAQ-100 in particular and will help the Dow & S&P-500 by causing other Tech issues to rally in sympathy.

The leading indexes (NASDAQ-100, Semiconductor Index, Russell-2000, and Dow Jones Transport Index) posted mixed results with a fractional loss for the Transports and an essentially flat close for the Russell-2000. There is no denying the dominant leadership higher by the NASDAQ-100 and Semiconductor Index. We believe that market will follow that lead, at least into early next week and will be looking for signs of a top in that time frame. Until then, we will remain with our long positions.

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