Pre-April Fools Day, Who is the Market Fooling?
4/1/2011 9:08:58 AM
Which way is up, er I mean down?
Recommendation:
Take no action.
My subscribers have access to the StockBarometer Market Chat room as usual. The chat room password is "mark55" without the quotes, of course. I look forward to seeing you there.
Stock Market Trends:
- ETF Positions indicated as Green are Long ETF positions and those indicated as Red are short positions.
- The State of the stock 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 an ETF position. If the BIAS is Bullish but the stock 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 ETF trade on "weaker" signals than you might otherwise trade on as the stock 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.
Best ETFs to buy now (current positions):
Long DIA at $117.22 (adjusted for $0.23
dividend on 03/18/11)
Long QQQQ at $54.90 (adjusted for $0.11 dividend on 03/18/11)
Long SPY at $127.45 (adjusted for $0.55 dividend on 03/18/11)
Value Portfolio:
We hold no value positions at this time.
Daily Trading Action
The major index ETFs opened lower and immediately shot higher in the first fifteen minutes before reversing and diving for the next fifteen minutes. Such was the nature of the day with constant changes in direction for the major indexes without a lot of actual change in price. The Dow came up to challenge horizontal resistance stemming from the February 18th high. Like on Wendesday, it was unable to breach that level and retreated during afternoon trade. The S&P-500 was less ambitious but otherwise followed the same ups and downs. The NASDAQ-100 was different but did continue to pound at resistance through the session. That resistance was from the intraday highs achieved multiple times on Wednesday and matched on Thursday. Thursday afternoon saw a brief break above this resistance level with the close being back just below this importain measure. The Semiconductor Index (SOX 437.36 -4.02) lost nine tenths of one percent while the Russell-2000 (IWM 84.17 +0.29) gained over one third of one percent. The Bank Index (KBE 25.82 -0.08) lost one third of one percent while the Regional Bank Index (KRE 26.63 +0.18) tacked on two thirds of one percent. The Finance Sector ETF (XLF 16.39 -0.06) fell modeslty. This left all equity indexes we track in trading states above their 20-DMAs. Many are trading above their 50-DMAs or are ready to challenge those levels and many appear ready to shift to a BULLISH BIAS. Longer term Bonds (TLT 92.32 +0.73) also moved back above its 20-DMA as it moved in the same direction as equities, a somewhat unusual occurrence. NYSE trading volume was light with just 757M shares traded. NASDAQ share volume was below average with 1.875B shares.
There were four economic reports of interest released:
- Initial Jobless Claims for last week came in at 388K versus an expected 383K
- Continuing Jobless Claims came in at 3.714M versus an expected 3.700M
- Chicago PMI (Mar) came in at 70.6 versus an expected 69.5
- Factory Orders (Feb) fell -0.1% versus an expected gain of +0.4%
All three reports were released at least one hour before the open.
The U.S. dollar fell two tenths of one percent.
Implied volatility for the S&P-500 (VIX 17.74 +0.03) was almost unchanges while the implied volatility for the NASDAQ-100 (VXN 19.74 -0.64) fell three percent.
The yield for the 10-year note was unchanged closing at 3.45. The price of the near term futures contract for a barrel of crude oil rose $2.45 to close at $106.72.
Telecom and Healthcare were unchanged while Industrials (+0.4%) and Materials (+0.4%) advanced. That left the other six economic sectors in the S&P-500 falling led by Consumer Discretionary (-0.4%) and Consumer Staples (-0.4%).
Market internals were mixed with advancers leading decliners 7:5 on the NYSE and by 4:3 on the NASDAQ. Down volume led up volume 3:2 on the NYSE and by 9:8 on the NASDAQ. The index put/call ratio rose 0.35 to close at 1.38. The equity put/call ratio rose 0.02 to close at 0.56.
Commentary:
Thursday's session was all about marching in place in anticipation of Friday's important economic report releases. The non-farm payrolls report is due out an hour before the open on Friday and the ISM report is due out a half hour into the session. With that as a back-drop, the mixed close matches up completely. The continued weakness in semiconductors, and for Tech in general, has been problematic with the Russell-2000 continuing to break higher as the risk trade for small caps continues to dominate equity trading action.
We saw a mixed close with all the major indexes, once again, starting to sell-off with fifteen minutes left in the session but the NASDAQ-100 and Russell-2000 reversed after five minutes and began to head higher. While the Dow and S&P-500 closed lower, the NASDAQ-100 and Russell-2000 posted gains!
The Russell-2000 actually shifted to a BULLISH BIAS. The Dow has a NEUTRAL BIAS and, with the noted exception of the Bank Index, the other equity indexes are leaning to shift from their BEARISH BIAS to a NEUTRAL BIAS or BULLISH BIAS perhaps next week.
We intended to short the major indexes on a large gap higher at the open on Friday. The gap open won't be that large, however, so we don't look at this as a viable strategy. Instead, we will have to watch how trading action unfolds on Friday as the major indexes haven't yet moved up into position to challenge their mid-February highs. The possibility exists for an extended run higher, if the major indexes move into uptrend states and reinstate their BULLISH BIAS. While it isn't a foregone conclusion this will be the case, we are wary of stepping out in front of the bullish juggernaut at this time.
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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