Japan Earthquake Spooks the Market...
4/8/2011 9:01:29 AM
An earthquake and Tsunami warning occurs and U.S. markets move lower...
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.
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- 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)
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Long SPY at $127.45 (adjusted for $0.55 dividend on 03/18/11)
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Value Portfolio:
We hold no value positions at this time.
Daily Trading Action
The major index ETFs opened lower and moved immediately higher from the open but rolled over just after the top of the hour to start a descent. That descent was accelerated by an exogenous event at about half past the hour but the selling subsided within about fifteen minutes before the bulls once again took control. Choppy trade conditions continued through the session with another reversal lower during the lunch hour and then a bottom and sideways to a slight upward bias dominated the final two hours of trading. This left all three major with a BULLISH BIAS and in trading states. The Semiconductor Index (SOX 443.25 -2.25) notched a half of one percent loss and the Russell-2000 (IWM 84.87 -0.51) lost a bit more than that. Both indexes are battling to rise above resistance. For the semiconductor index, it is the 50-Day Moving Average (DMA) and for the Russell-2000, it is the all time high set four years ago. The Regional Bank Index (KRE 27.22 -0.14) eased about one half of one percent after adding two percent on Wednesday. Likewise, the Bank Index (KBE 26.30 -0.13) eased a similar amount after adding one and one half of one percent on Wednesday. The Finance Sector ETF (XLF 16.61 -0.08) lost one half of one percent as well. Longer term Bonds (TLT 90.36 -0.18) eased slightly lower. NYSE trading volume was just below average with 895M shares traded. NASDAQ share volume was a bit below average with 1.794B shares.
In addition to the weekly crude oil inventory report, there was a single economic report released:
- Initial Jobless Claims for last week came in at 382K versus an expected 386K
- Continuing Jobless Claims came in at 3.723M versus an expected 3.700M
- Consumer Credit (Feb) came in at +$7.6B versus an expected $2.5B increase
The first two reports were released an hour before the open. The last report was released on hour before the close. January's consumer credit figure was adjusted down from +$5B to +$4.5B. The jobless claims numbers for the prior week were adjusted up modestly.
The European Central Bank (ECB) raised its key lending rate 0.25% to 1.25%. This was expected as it had been telegraphed in order to combat rising inflationary pressures. It also occurred before U.S. markets opened.
During the session, the major indexes had already been heading lower from around 10:00am but this move accelerated sharply just after 10:30 am when an earthquake was reported in Japan. Early reports suggested this was a 7.4 Earthquake with an immediate Tsunami warning issued. It turns out there was no Tsunami and the quake was ruled a 7.1 on the Richter scale. This means it was nearly two orders of magnitude (100 times) less powerful that the devastating quake that hit Japan a month ago.
The U.S. dollar was nearly flat rising almost imperceptibly. It is hovering just above its closing low recorded on March 21st. It appears ready to break down through a double bottom, which would likely benefit U.S. equities and U.S. companies that export products as demand should rise as the dollar rises. Of course, U.S. dollar denominated commodities should also see prices rises adding to commodity-based inflation.
Implied volatility for the S&P-500 (VIX 17.11 +0.21) rose more than one percent while the implied volatility for the NASDAQ-100 (VXN 19.34 +0.02) closed essentially flat.
The yield for the 10-year note rose two basis points closing at 3.555. The price of the near term futures contract for a barrel of crude oil rose $1.47 to close at $110.30.
Energy (+0.2%), Consumer Staples (+0.1%), and Tech (+0.1%) moved higher as Telecom remained unchanged. The other six of ten economic sectors in the S&P-500 moved lower led by Industrials (-0.5%).
Market internals were negative with decliners leading advancers 5:3 on the NYSE and by 9:5 on the NASDAQ. Down volume led up volume 2:1 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose 0.50 to close at 1.46. The equity put/call ratio fell 0.04 to close at 0.53.
Commentary:
Thursday's trading was as expected. That is, a lot of intraday movement without a lot of price change by the close. These choppy conditions are likely to continue until earnings season kicks off next week. With the Dow pressing at the resistance of June 2008 highs and with the S&P-500 just under similar highs, the key major index to watch is the NASDAQ-100 which has been underperforming relative to the Dow and S&P-500. That is largely due to Tech's underperformance and, in particular, due to the lagging performance in the shadow of supply chain disruptions from Japan's recent natural disasters and looming nuclear incident. If the semiconductor index is able to break above its 50-DMA, it will likely be the catalyst for a run higher. In addition, with the small cap Russell-2000 index threatening to break to a new all time high, this market could be on the verge of making another bullish advance.
Whether this break out occurs or whether earnings season will raise the caution flag and market participants decide to take some profits, at this time, it is best to bide our time to see which eventuality will prevail.
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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