Light Volume Rally...
7/20/2010 8:58:11 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: In Cash.
Daily Trading Action
The major index ETFs opened higher and moved up immediately. That move higher peaked in less than a half an hour and then the bears had their turn. The bears pushed the markets below last Friday's low before the bulls stepped in just before 11:00am EDT. From there, it was a choppy march higher through most of the session. With two hours left, the choppiness ceased and the bears stepped back allowing the bulls to drive the major indexes to reach their peaks with less than an hour remaining. The bears then reasserted themselves causing a decline of most of a half percent in less than a half an hour and the bulls only regained control in the final fifteen minutes to drive the major indexes to a positive close. The Russell-2000 (IWM 61.33 +0.26) very weakly mimicked the major indexes and has shifted into a downtrend state. The Semiconductor Index (SOX 357.94 +8.78) added 2.5% as market participants tried to pick up stocks on the cheap after their 3.3% loss on Friday. The real losers continue to be the banks, with the Bank Index (KBE 23.34 +0.00) flat and the Regional Bank Index (KRE 23.10 -0.30) finishing more than one percent lower. The 20+ Yr Bonds (TLT 100.18 -0.62) gave up a little ground moving opposite to equities. Volume was light with just 954M shares traded on the NYSE. NASDAQ share volume was below average with just 1.718B shares traded.
There was a single economic report of interest released:
- NHA Index (Jul) fell to 14 versus an expected 15
The National Homebuilders Association Index was expected to fall two points from May's reading. However, May's Index was revised down to 16 from 17, so the two point fall was to 14, a fifteen month low. The report was released a half hour into the session. This caused a sell-off in homebuilders with Pulte (PHM 7.93 -0.12), DR Horton (DHI 9.97 -0.13), and Lennar (LEN 13.80 -0.21) all taking hits.
Bank of America (BAC 13.58 -0.40) was removed from Goldman Sachs conviction buy list but remained with a buy recommendation.
The real culprits were the banks. Citigroup (C 3.90 -0.26) fell -6.25% and Bank of America (BAC 13.98 -1.41) fell -9.2% as both reported higher than expected profits but with declining revenues and the realized profits were from raking back in reserves set aside for credit losses (i.e. loans were going to go bad). It seems that market participants are starting to doubt that the bank losses will be limited to their reserve levels and with lower revenue expectations, banks are actually collapsing on their top lines. General Electric (GE 14.55 -0.70) lost -4.6% as its GE Capital unit raked in profits but its revenues diminished. Over half of GE looks more like a bank than an industrial conglomerate. Goldman Sachs (GS 146.28 +1.06) was one of the few bright spots as it continues to recover on news of the $550M settlement of civil fraud charges.
Nine out of ten economic sectors in the S&P-500 moved higher led by Consumer Discretionary (+0.9%). Consumer Staples was unchanged. Implied Volatility was mixed with the S&P-500 (VIX 25.70 -0.55) implied volatility rising two percent and the implied volatility for the NASDAQ-100 (VXN 27.25+0.38) falling more than one percent.
The yield for the 10-year note was unchanged at 2.96. The price of the near term futures contract for a barrel of crude oil rose fifty-three cents to close at $76.54.
Market internals were positive with advancers leading decliners 9:5 on the NYSE and by nearly 3:2 on the NASDAQ. Up volume led down volume 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell 0.60 to close at 1.14. The equity put/call ratio fell 0.25 to close at 0.52. Clearly complacency reigns supreme so the markets are likely to plummet to cause sufficient fear before a rally can really get started.
Commentary:
Monday's trading action sets up a further move lower for the markets. While the Dow and NASDAQ-100 were able to claw their way back above their 20-Day Moving Averages, the S&P-500 was only just able to make it back to even with that average. The weight of the collapsing banks stocks is suppressing its ability to rally. The Russell-2000 only rallied very weakly and has entered a downtrend state. The Semiconductor Index, on the other hand, snapped back significantly.
The light volume rally is a thin veneer masking another move lower for U.S. markets. We were hoping to get a decent entry to short positions but the rally wasn't sufficient to give us a decent entry for short positions. We will be patient as we await a good set-up for entry into a non-cash position in the near future.
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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