FOMC Leaves Rate Unchanged...
8/11/2010 9:26:17 AM
Trade Recommendations:
Sell shares of DIA to close the long positions and to open short positions.
Sell shares of QQQQ to close the long positions and to open short positions.
Sell shares of SPY to close the long positions and to open short positions.
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:
DIA: Long at $105.26
QQQQ: Long at $46.44
SPY: Long at $111.56
Daily Trading Action
The major index ETFs saw a gap down open with a further move lower in the first half hour of trading. After that initial half hour, the markets recovered modestly and then retested their lows by around 1:30pm. From there, the major indexes advanced modestly until the 2:15pm FOMC rate decision was announced. The markets then soared up for about a half hour until the Dow went briefly positive and then rolled over again. Price action into the close saw selling dominate and the major indexes finished lower. The S&P-500 managed to close above its 200-DMA but only marginally so. All three major indexes are caught in a wedge pattern with short term support running into horizontal resistance by early next week. That will force a break of the pattern that will force a break out of the tight trading range the markets have been held in recently. The Russell-2000 (IWM 64.62 -1.24) lost two percent while the Semiconductor Index (SOX 344.74 -9.31) lost 2.6%. More importantly, the SOX is in a downtrend state and leading the markets lower. The Bank Index (KBE 24.05 -0.14) lost more than one half of one percent while the Regional Bank Index (KRE 23.58 -0.47) fell two percent finishing below all the moving averages we regularly monitor. The 20+ Yr Bonds (TLT 99.94 +0.21) posted a modest gain. NYSE volume was light with just 980M shares traded. NASDAQ share volume was a little light with just 2.034B shares traded.
There were three economic reports of interest released:
- Productivity-Preliminary (Q2) fell -0.9% versus an expected rise of +0.1%
- Unit Labor Costs (Q2) rose 0.2% versus an expected rise of +1.4%
- Wholesale Inventories (Jun) rose +0.1% versus an expected rise of 0.4%
The first two reports were released an hour before the open while the Inventories report came out a half hour after the bell.
The main focus through the day was to await the policy statement accompanying the FOMC (Fed Open Market Committee) rate decision. The statement and rate decision were released at 2:15pm EDT (as usual) with no change to the Fed Funds rate, which is currently targeted between 0.0% and 0.25%. Nothing in the statement was specifically negative but the Fed did announce that they would not reduce their balance sheet but instead would roll over maturing mortgage securities into purchases of long term treasuries. This should have the effect of supporting long term bond prices and could further reduce long term mortgage rates.
Prior to the open of U.S. markets, the Shanghai Composite dropped 2.9% on data showing rising exports but declining imports. This caused weakness in European stock exchanges and contributed to the lower open for U.S. equities markets.
Economic sectors in the S&P-500 finished mixed with the winners led by Telecom (+0.4%), which was joined by Utilities (+0.4%), Consumer Staples (+0.3%), and HealthCare (+0.2%). These are the traditional defensive sectors. This move suggests bearish sentiment among market participants looking to play defense. The other six economic sectors moved lower, led by Tech (-1.2%).
Implied volatility for the S&P-500 (VIX 22.37 +0.23) rose one percent while the implied volatility for the NASDAQ-100 (VXN 23.56 +0.59) rose most of three percent. Both remain under their respective 200-Day Moving Averages (DMAs), but not by a wide margin.
The yield for the 10-year note fell four points to close at 2.78. The price of the near term futures contract for a barrel of crude oil fell $1.23 to close at $80.25.
Market internals were negative with decliners leading advancers 5:2 on the NYSE and by 8:3 on the NASDAQ. Down volume led up volume 7:2 on the NYSE and by 4:1 on the NASDAQ. The index put/call ratio rose 0.37 to close at 1.57. The equity put/call ratio rose 0.06 to close at 0.63.
Commentary:
Tuesday's trading action saw average volume for the major index ETFs with continued light trading volume overall on the NYSE and the NASDAQ. We have seen enough that we will close our long positions at the open and we will switch to short positions. With the semiconductors in a downtrend state and clearly leading equities lower, we believe that the bulls resolve is giving way to a bearish sentiment which must be washed out of the market before the bulls can achieve a successful rally.
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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