Bulls Rally and Bears Pounce...
8/27/2010 8:56:02 AM
The major indexes rally attempt is shut down by pessimistic bears...
Recommendation:
Take no action.
Daily
- 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 after taking a quick dip in the first half hour of trading, the major indexes moved higher than the open before rolling over within the next half hour of trading. That was the beginning of a slide that would last through the session with a bit of relief only in the final hour of trading and then a collapse again in the final fifteen minutes. The Russell-2000 (IWM 60.08 -0.45) actually lead the major indexes higher and didn't finish as much lower (percentage-wise) as did the NASDAQ-100. The Semiconductor Index (SOX 315.23 -6.27) closed down nearly two percent, effectively leading other equity indexes lower. The Bank Index (KBE 21.45 -0.11) fell another half percent and the Regional Bank Index (KRE 21.21 -0.16) fell just a bit more. All equity indexes are in downtrend states with all equity indexes have a BEARISH BIAS. The 20+ Yr Bonds (TLT 108.42 +1.01) rose nearly one percent as investor continue to choose the perceived lower risk of fixed income, closing at a new 52-week high. NYSE volume was below average with 1.042B shares traded. NASDAQ share volume was light with 1.793B shares traded.
There were two economic reports of interest released:
- Initial Jobless Claims for last week came in at 473K versus an expected 485K
- Continuing Jobless Claims came in at 4.456M versus an expected 4.515M
Both reports were released an hour before the open and were responsible for the gap up open.
That gap up open wasn't sufficient to ensure a positive finish as pessimism remained the driving energy for equities markets.
Nine out of ten economic sectors in the S&P-500 moved lower led by Tech (-1.1%). The Materials sector was unchanged.
Implied volatility for the S&P-500 (VIX 27.36 +0.66) rose more than two percent and implied volatility for the NASDAQ-100 (VXN 28.94 +1.17) rose more than four percent.
The yield for the 10-year note fell four basis points to close at 2.50. The price of the near term futures contract for a barrel of crude oil fell sixteen cents to close at $72.36.
Market internals were negative with decliners leading advancers by nearly 2:1 on the NYSE and by just over 2:1 on the NASDAQ. Down volume led up volume by 7:2 on the NYSE and by 11:2 on the NASDAQ. The index put/call ratio fell 0.48 to close at 1.12. The equity put/call ratio rose 0.05 to close at 0.67. The absence of downside protection in the form of index put/call ratio suggests complacency is stil high.
Commentary:
Thursday's trading prompted some market participants to get more bullish on not as bad as expected jobless claims. The bears took this as an opportunity to sell at higher prices and the major indexes closed at new lows not seen since early July. The market moves aren't correlated to the economic reports being received but rather reflect the sentiment of market participants willing to take the opposite side of trades where there is a gap opening in either direction.
Futures markets continue to react immediately to economic reports but at the end of the equities trading session, market participants seem inclined to take the opposite position to any influence caused by positive or negative economic reports. Until we see a high-probability set-up, we will keep our powder dry and remain ready to exit our cash position to benefit from an exaggerated move made by market participants when the pendulum swings too far in one direction.
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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