12/12/2011 8:19:34 AM
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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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Long DIA at $118.96
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Long SPY at $124.79
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Daily Trading Action
The major indexes opened higher and then moved higher for the first forty-five minutes before a modest pull-back that lasted for a half hour. The surge higher then began anew and until about fifteen minute before noon when again a modest pull-back took place. From noon until the final fifteen minutes of trading the major indexes ground modestly higher before they succumbed once again to a modest pull back. The major indexes gained 1.6% to 1.7% on the day, regaining almost all of what they lost on Thursday. This put the NASDAQ-100, like the Dow, above its 20-, 50-, and 200-Day Moving Averages (DMAs). The S&P-500 closed below its 200-DMA after testing to just below that important level near the end of the session. This left the Dow in an uptrend state with all other equity indexes we regularly monitor in trading states. The semiconductor index (SOX 375.67 +4.54) finished more than one percent higher after gapping down one percent at the open. It closed back above its 20- and 50-DMAs. The Russell 2000 (IWM 74.54 +2.18) gained three percent. The Dow Jones Transport Index (IYT 88.56 +1.60) rose +1.8%. The Bank index (KBE 19.48 +0.47) gained +2.5% and the Regional Bank Index (KRE 23.77 +0.66) gained +2.9%. The Finance Sector ETF (XLF 13.10 +0.28) gained +2.2%. The Dow, Regional Bank Index and Dow Jones Transport all have a BULLISH BIAS with the S&P-500 and Russell-2000 NEUTRAL. Long term bonds (TLT 119.16 -2.45) fell -2.1% closing back below its 20- and 50-DMAs. It is in a trading state and retains its BULLISH BIAS but is leaning toward a shift to a BEARISH BIAS. Trading volume was light 810M shares traded on the NYSE and with 1.380B shares traded on the NASDAQ.
There were two economic reports released:
- Trade Balance (Oct) came out at -$43.5B versus an expected -$44.0B
- UnivofMichigan Consumer Sentiment (Dec) came in at 67.7 versus an expected 65.1
The first report was released an hour before the open with the latter report coming out twenty-five minutes after the opening bell.
The U.S. dollar fell three tenths of one percent as it continues to walk up the support of its 20-DMA.
The yield for the 10-year note fell two basis points to close at 1.97. The price of the near term futures contract for a barrel of crude oil rose $1.07 to close at $99.41.
Implied volatility for the S&P-500 (VIX 26.38 -4.21) fell fourteen percent and the implied volatility for the NASDAQ-100 (VXN 25.99 -4.01) fell nearly that much.
Market internals were positive with advancers leading decliners 6:1 on the NYSE and by 5:1 on the NASDAQ. Up volume led down volume 9:1 on both the NYSE and the NASDAQ. The index put/call ratio rose 0.42 to 1.54. The equity put/call ratio fell -0.07 to close at 0.71.
Friday was really just a snap back rally. The market sold off hard on Thursday on Draghi's speech that many market participants have decided was a bluff. The market rallied back to recover nearly all of Thursday's losses on Friday with a convincing 9:1 up volume over down volume.
As we stated after Thursday's close, "We believe that the sell-off was rather muted and the evidence that the U.S. tech sector showed relative strength suggests that the bulls aren't yet done with this move higher." This proved to be a stronger rally than we anticipated and the additional positions we wanted to put on have already reacted. Friday's bounce wasn't what we wanted as it once again leaves the major indexes vulnerable to another sell-off. Perhaps that will provide another opportunity. We will stay with our long positions for now and patiently (or impatiently) await the market to begin its next run.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.