Dollar Dumped and Equities Rally...
12/2/2010 9:08:14 AM
Investors around the world move from safe havens to riskier assets as equities soar...
Recommendation:
Buy shares of DIA at a limit of $111.20
Buy shares of QQQQ at a limit of $52.55
Buy shares of SPY at a limit of $119.55
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 markedly higher and then took off to the upside experiencing only a minor pull back when economic reports were released at 10:00am before resuming the march higher. The Dow kept rising through the session only faltering in the final hour of trading. For the S&P-500, it hit its intraday high around noon but continued to march along sideways when it faltered slightly in the final hour. The NASDAQ-100 also hit its high around noon, traded sideways through the noon hour and then faded modestly through the afternoon. All three major indexes closed back above their 20-Day Moving Averages (DMAs) and their 50-DMAs. The Semiconductor Index (SOX 403.07 +12.95) soared to a three percent gain, leading the charge higher. The Russell-2000 (IWM 74.38 +1.63) kept pace with the major indexes gaining +2.2% on the day. The bank indexes moved lower with the Bank Index (KBE 22.76 +0.50) also matched the major indexes while the Regional Bank Index (KRE 23.28 +0.76) posted a gain of more than three percent! The 20+ Yr Bonds (TLT 95.89 -2.52) fell -2.6% as investors fled safe havens. NYSE volume was average with 1.118B shares traded. NASDAQ volume was above average with 2.119B shares traded.
In addition to the weekly crude oil inventory report, there were seven economic reports of interest released:
- MBA Mortgage Applications slipped -15.4% since last week
- Challenger Job Cuts (Nov) slipped -3.3% year-over-year
- ADP Employment Report (Nov) showed an increase of 93K jobs versus an expected +58K
- Productivity-revised (Q3) came in at +2.3% versus an expected +2.4%
- Unit Labor Cost-revised (Q3) fell by -0.1% versus an expected fell of -0.5%
- ISM Index (Nov) came in at 56.6 versus an expected 56.5
- Construction Spending (Oct) rose +0.7% versus an expected fall of -0.5%
All of these reports were released before the open with the exception of the last two which came out at 10:00am.
The U.S. dollar (-0.9%) reversed course as we suggested it could. This sustained the advance in equities.
All ten economic sectors in the S&P-500 closed higher led by Energy (+2.9%).
Implied volatility for the S&P-500 (VIX 21.36 -2.18) fell nine percent as did the implied volatility for the NASDAQ-100 (VXN 23.09 -2.30).
The yield for the 10-year note rose sixteen basis points to close at 2.96. The price of the near term futures contract for a barrel of crude oil rose $2.64 to close at $86.75. The U.S. government report on crude showed an increase of +1.07M barrels since last week.
Market internals were positive with advancers leading decliners 7:2 on the NYSE and by 5:2 on the NASDAQ. Up volume led down volume 13:1 on the NYSE and by 6:1 on the NASDAQ. The index put/call ratio rose 0.07 to close at 1.42. The equity put/call ratio fell 0.13 to close at 0.45.
Commentary:
Wednesday's trading saw average to above average volume with an overwhelming move out of safe havens such as the U.S. dollar or U.S. treasuries. The bullishness grew first as the Asian markets closed higher and China released a better than expected PMI report then European markets soared on unexpected good economic news. In fact, Spain's bourse soared more than four percent as short positions were covered. This jump-started U.S. equities markets as optimism replaced bearishness and the major indexes put in their best one day gains in the last three months.
We have been projecting a stop in the move higher for the U.S. dollar which would allow equities to rise but we were unable to enter the long positions we targeted due to gap up open without a significant retreat. While we are still interested in attaining long exposure, we feel that the major indexes could dip back a bit as the move on Wednesday was quite large and some backing and filling might be necessary to digest it.
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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