1/9/2012 9:04:30 AM

Friday closes as a mixed bag...

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Daily Trading Action

The major indexes opened higher and moved lower for the first hour of trading. The S&P-500 and Dow moved more convincingly lower with the NASDAQ-100 moving only modestly into negative territory while the Dow and S&P-500 moved more than a half of one percent into negative territory before all three reversed to move high by the top of the hour. That move continued through the morning reversing just before noon but none of three would again make it back down to their morning lows. All three again reversed at around 1:30pm but by 2:00pm the Dow and S&P-500 were still below their morning highs while the NASDAQ-100 hit its intraday. The final two hours were spent sliding into the close leaving the Dow and S&P-500 in negative territory while the NASADAQ-100 managed a fractional gain. The semiconductor index (SOX 375.22 +1.05) posted a modest gain. The Russell 2000 (IWM 74.80 -0.18) posted a modest loss. The Dow Jones Transport Index (IYT 90.31 -0.11) also posted a modest loss. The Bank index (KBE 20.79 -0.01) closed flat. The Regional Bank Index (KRE 25.53 -0.10) posted a fractional loss as did the Finance Sector ETF (XLF 13.40 -0.08). The Bank, Regional Bank, and Finance Sector ETFs are all in uptrend states as are the S&P-500 and the NASDAQ-100. The other equity indexes are in trading states. All but the Semiconductor Index have a BULLISH BIAS. Long term bonds (TLT 118.73 +0.93) posted a fractional gain but remains in a trading state and retains its BULLISH BIAS but continues to warn of a potential change. Trading volume was light on the NYSE (710M shares traded) and on the NASDAQ (1.470B shares traded).

There were five economic reports released:

• Non-farm Payrolls (Dec) came in at 200K versus an expected 150K
• Non-farm Private Payrolls (Dec) came in at 212K versus an expected 170K
• Unemployment Rate (Dec) came in at 8.5% versus an expected 8.7%
• Hourly Earnings (Dec) rose +0.2% as expected
• Average Workweek (Dec) came in at 34.4 hours versus an expected 34.3 hours

All five reports were released one hour before the open. The surprisingly good jobs reports helped support the bullish case but it wasn't enough to overshadow continued concerns regarding Europe.

The U.S. dollar rose one third of one percent but appears to have topped providing a high probability reversal signal. The Euro collapsed nearly six tenths of one percent but may be bottoming here.

The yield for the 10-year note fell three basis points to close at 1.96. The price of the near term futures contract for a barrel of crude oil fell twenty-five cents to close at $101.56.

Implied volatility for the S&P-500 (VIX 20.63 -0.85) fell four percent as did the implied volatility for the NASDAQ-100 (VXN 20.52 -0.88). Both achieved a new six-month closing low.

Market internals were mixed with decliners leading advancers 9:8 on the NYSE and by 5:4 on the NASDAQ. Down volume led up volume 2:1 on the NYSE while up volume led down volume by 3:2 on the NASDAQ. The index put/call ratio rose +0.29 to close at 1.38. The equity put/call ratio was unchanged at 0.62.

Conclusion/Commentary

Friday was inconclusive but would generally be regarded as bearish. We view it as more neutral as market participants wait to see if earnings exceed expectations as U.S. economic reports have. Alcoa (AA 19.16 -0.20) reports on Monday after the close to unofficially kick off earnings season.

With such an impressive beat on the jobs reports, it should give the bears pause in their urge to sell-off U.S. equities. An expected rally in the Euro might also support upward movement by U.S. equities in the near term.

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