Options Expiration Rally...
4/18/2011 9:08:34 AM
Equity indexes rally even as the NASDAQ-100 gets tripped up...
Recommendation:
Sell shares of DIA and sell short shares of DIA to establish a short position.
Sell shares of QQQ and sell short shares of QQQ to establish a short position.
Sell shares of SPY and sell short shares of SPY to establish a short position.
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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)
Click here to learn more about my services and for our best ETF portfolios.
Value Portfolio:
We hold no value positions at this time.
Daily Trading Action
The major index ETFs opened mixed with the Dow and S&P-500 higher but with the NASDAQ-100 lower. This was specifically related to disappointing earnings from Google (GOOG 530.70 -48.71) which opened down six percent and closed down more than eight percent. The major indexes dipped at the open and for the first fifteen minutes plunged lower but were then able to stabilize and began to see-saw higher through the morning until they reached their zenith around 1:00pm. Each of the major indexes then sold off at varying rates leaving the Dow and S&P-500 closing higher with good fractional gains while the NASDAQ-100 posted a modest loss, primarily due to Google's influence. All three major indexes retained their BULLISH BIAS with all three in trading states. The NASDAQ-100 is below its 50-Day Moving Average (DMAs) and remains even with its 20-DMA. The Dow and S&P-500 closed above their respective levels. The Semiconductor Index (SOX 431.23 +2.82) posted a solid fractional gain and the Russell-2000 (IWM 83.51 +0.88) gained more than one percent. The Regional Bank Index (KRE 26.46 +0.19) posted a strong fractional gain. The Bank Index (KBE 25.40 -0.06) posted a modest loss primarily due to a poor showing by Bank of America (BAC 12.82 -0.31) which plunged more than two percent. The Finance Sector ETF (XLF 16.14 +0.01) closed somewhat flat on the session. The Bank Index and the Finance Sector ETF are below their 20-Day Moving Averages (DMAs) but the Regional Bank Index managed to close just above its 20-DMA. All three are below their 50-DMAs. Longer term Bonds (TLT 92.67 +1.24) gained more than one percent It remains in a trading state and has a BEARISH BIAS but that could change in the coming week. NYSE trading volume was above average with 1.039B shares traded. NASDAQ share volume was light with 1.548B shares traded.
There were seven economic reports released:
- CPI (Mar) rose 0.5% as expected
- Core CPI (Mar) rose 0.1% versus an expected 0.2% rise
- NY Empire MFG Index (Apr) rose to 21.7 versus an expected 15.0
- Net Long-Term TIC Flows (Feb) came in at $26.9B versus Jan's $51.1B
- Industrial Production (Mar) increased by 0.8% versus an expected rise of 0.6%
- Capacity Utilization (Mar) came in at 77.4% as expected
- UnivofMichigan Consumer Sentiment (Apr) came in at 69.6 versus an expected 66.5
The first three reports were released an hour before the open. The next three were released fifteen minutes to a half hour before the open. The final report was released twenty-five minutes into the session.
The U.S. dollar rose two tenths of one percent to close just above its multi-year low.
Implied volatility for the S&P-500 (VIX 15.32 -0.95) fell six percent and the implied volatility for the NASDAQ-100 (VXN 17.48 -0.22) fell one percent.
The yield for the 10-year note fell nine basis points to close at 3.40. The price of the near term futures contract for a barrel of crude oil rose $1.55 to close at $109.66.
Nine out of ten economic sectors in the S&P-500 closed higher on Friday led by Utilities (+1.1%) and trailed by Financials (+0.1%). Tech (-0.4%) was the only losing sector.
Market internals were positive with advancers leading decliners by more than 2:1 on the NYSE and by nearly 2:1 on the NASDAQ. Up volume led down volume 5:4 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose 0.08 to close at 1.34. The equity put/call ratio fell 0.08 to close at 0.62.
Commentary:
Friday's trading saw heavier trading volume on the NYSE (above the average for recent times) as is typical for options expiration. NASDAQ trading volume continued to be light. The Dow, S&P-500, and NASDAQ composite all finished in positive territory but the tech-heavy NASDAQ-100 finished lower, primarily due to the heavy loss incurred by Google. Support for the major indexes was there but they were unable to overcome resistance.
Once again, the Russell-2000 and Semiconductor Indexes led the way higher as the risk trade was embraced but once again, the NASDAQ-100 failed to take up the call. It is time to abandon our long positions and attempt to profit on a bit of a correction here.
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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