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Basel III Boosts Bank Stocks...

Stock-Markets / Stock Markets 2010 Sep 14, 2010 - 09:10 AM GMT

By: Mark_McMillan


Best Financial Markets Analysis ArticleMarket bulls didn't have to look far for another catalyst as Basel III didn't yield any surprises allowing European bank shares to soar...

Recommendation: Take no action.

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:

Long at DIA $102.80
Long QQQQ at $44.76

Daily Trading Action

The major index ETFs opened higher and mostly moved higher until deciding to take a breather around 11:00am EDT. From there, they lost a little ground until interest returned during the lunch hour and by 2:15pm they once again began to show solid gains which lasted almost into the close with the major indexes posting solid gains for the day. The Dow finished about where it started the day. The S&P-500 and NASDAQ-100 were able to close out higher than there gap up opens with the S&P-500 finally closing back above its 200-Daily Moving Average (DMA). The Semiconductor Index (SOX 327.17 +10.60) soared an impressive three percent and finally moved back above its 20-DMA.. The Russell-2000 (IWM 65.27 +1.55) gained some two and one half percent and broke out above its 200-DMA. The Bank Index (KBE 23.83 +0.66) gained nearly three percent and the Regional Bank Index (KRE 23.07 +0.70) gained a similar amount. Both moved above their 50-DMAs. The 20+ Yr Bonds (TLT 102.83 +0.51) gained one half of one percent bucking the trend and bouncing back above its 50-DMA. NYSE volume increased to a nearly average 922M shares traded. NASDAQ volume increased to average with 1.932B shares traded.

There was a single economic report of interest released:

  • Treasury Budget (Aug) came in at -$90.5B versus an expected -$95.0B

The report was released at 2:00pm EDT and wasn't a market mover.

The most important influence on U.S. equities were two-fold. The most important was that the global banking standard Basel III will be phased in over nine years and strengthens reserve requirements for banks. Since there were no surprises, this allowed European bank shares to soar, with a corresponding move for U.S. bank shares, in particular, U.S. bank shares with exposure to Europe. The second influence was from continued Chinese economic growth with the latest figures showing a thirteen percent growth rate! Apparently, the Chinese miracle hasn't yet come off the rails.

Nine out of ten economic sectors in the S&P-500 posted gains and were led by Financials (+2.3%) and Tech (+2.1%). Consumer Staples (-0.1%) declined as traders continue discarding defensive sectors in favor of taking on higher risk for the potential rewards.

Implied volatility for the S&P-500 (VIX 21.21 -0.78) lost nearly another four percent. Implied volatility for the NASDAQ-100 (VXN 22.32 -0.66) fell three percent.

The yield for the 10-year note rose ten and one half basis points to close at 2.90. The price of the near term futures contract for a barrel of crude oil rose seventy-four cents0 to close at $77.19.

Market internals were positive with advancers leading decliners 7:2 on the NYSE and by nearly 4:1 on the NASDAQ. Up volume led down volume nearly 7:1 on the NYSE and by 9:1 on the NASDAQ. The index put/call ratio fell 0.70 to close at 1.23. The equity put/call ratio fell 0.19 to close at 0.52.


Monday's trading was really about the bullish assault on the 200-DMAs for the S&P-500 and the Russell-2000. Finally, the semiconductor index decided to participate as the short covering rally in semiconductors caused a three percent one-day gain and closed back above its 20-DMA. The bank indexes also posted handy gains and closed above their 50-DMAs. Of note is that long-bonds actually also closed higher on the day so everyone isn't buying into the equities rally.

As suggested after last Friday's session, the (at the time) potential break above the 200-DMAs for all the major indexes and the Russell-2000 could be the catalyst needed for a move into a top. We could finally be setting up for topping action here, but the Russell-2000 appears to be changing gears and moving into an uptrend state. That could indicate that the major indexes are ready to follow and will ignore overbought conditions and continue yet higher to challenge horizontal resistance from recent highs.

Volume did rise a bit as we thought it might. If volume continues to grow this week, we will be more confident that the markets will behave in a predictable manner, which means that they will confuse most participants. This is our favorite type of market to trade. For now, we will remain long until we can deduce whether we will have a minor pause before a more significant run higher or whether we will head immediately into a top (these are the most likely scenarios we see).

We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to

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By Mark McMillan

Important Disclosure
Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.
Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.
In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.
For a complete understanding of the risks associated with trading, see our Risk Disclosure.

© 2010 Copyright Mark McMillan - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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