Anticipating Earnings Season...
7/13/2010 9:04:21 AM
Trade Recommendations:
Take no action.
Daily Trend Indications:
- Positions indicated as Green are Long positions and those indicated as Red are short positions.
- The State of the 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 a position. If the BIAS is Bullish but the 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 trade on "weaker" signals than you might otherwise trade on as the 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.
Current ETF positions are:
Long DIA @ $97.00
Long QQQQ @ $42.50
Long SPY @ $102.35
Daily Trading Action
The major index ETFs opened lower and then raced higher in the first half hour of trading only to see the bears take charge after the NASDAQ-100 showed intraday gains of around one percent. From that point into late morning, the major indexes moved lower and reached lower than the negative open levels before rebounding late in the morning. From there, it was a slow slog higher through the rest of the session with all the major indexes posting modest gains for the day. The Russell-2000 (IWM 62.23 -0.71) posted a loss of more than one percent as market participants aren't embracing the risk trades. The Semiconductor Index (SOX 355.33 +3.97) posted a one percent gain for the day. The Bank Index (KBE 24.59 +0.09) posted a modest gain while the Regional Bank Index (KRE 24.10 -0.17) posted a loss of nearly three-quarters of one percent but remains above its 20-Day Moving Average (DMA) and its 200-DMA. The 20+ Yr Bonds (TLT 99.18 -0.04) was nearly unchanged as market participants remain somewhat leary of riskier equities. Volume was incredibly light with just 847M shares traded on the NYSE and with 1.746B shares traded on the NASDAQ.
There were no economic reports of interest released. Instead, the market traded on very light volume and seemed directionless as market participants await the kick-off to earnings season. Traditional, Alcoa (AA 10.87 -0.07) kicks off earnings season and reported their earnings after U.S. Equities markets closed. They posted a profit that met earnings expectations and exceeded revenue expectations. They also raised their demand forecast of global aluminum consumption from 10% to 12%. Aftermarket showed an immediate uptick of a few percent bid higher for AA common shares.
Four out of ten economic sectors in the S&P-500 moved higher led by Tech (+0.7%). Materials (-1.1%) led the decliners. Financials were unchanged.
While the bid for semiconductors was strong which helped Tech to its gains and the bids for large money center banks saw all of them move higher, the bid regional banks was uneven with the index moving lower. With three of the largest banks set to report earning this week, all eyes are on the financial sector.
Implied Volatility dropped for the seventh day with the S&P-500 (VIX 24.43 -0.55) implied volatility falling more than two percent and the implied volatility for the NASDAQ-100 (VXN 25.50 -0.49) falling nearly two percent.
Commentary:
Monday's trading action was on extremely light volume and could be characterized as directionless. Price moved in a fairly narrow band and didn't end up much different than where it started. Market internals were negative even as the major indexes were able to advance modestly. While there are definitely bids in key areas (Tech and large banks), the overwhelming sentiment is to reduce risk in anticipation of earnings season. Of course, if earnings meet/exceed expectations and guidance is raised, then market participants will rush back into equities.
We remain long as await clarity. The NASDAQ-100 rushed up to touch its 20-DMA which is where the bears were waiting to ambush the bulls. That level is around 1828 with the 200-DMA about twenty points above that.
We continue to monitor the 200-DMAs for the major indexes, along with the closing levels:
| Index | 200-DMA | Close |
| Dow | 10,360 | 10,216.27 |
| S&P-500 | 1,112 | 1,078.75 |
| NASDAQ-100 | 1,841 | 1,821.03 |
What will happen during the rest of the week? Alcoa's earnings release was enough to place a bid under equities so we are looking for a stronger open on Tuesday. As other big name companies report, this will help the market to get moving one way of the other. We remain vigilant to see if there is a signal that says the latest move higher is ready to fade, but otherwise remain long as the major indexes approach the underside of the major indexes 200-DMAs.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
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Author: Mark McMillan
Mark McMillan
The McMillan Portfolio
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