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Stocks Bulls Get Beaten as Volume Increases

Stock-Markets / Stock Markets 2010 Jul 30, 2010 - 08:27 AM GMT

By: Mark_McMillan

Stock-Markets

Best Financial Markets Analysis ArticleTrade Recommendations: 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:

DIA: Long at $105.26

QQQQ: Long at $46.44

SPY: Long at $111.56

Daily Trading Action

The major index ETFs opened higher and, after shooting higher in the opening minutes decided the easiest path was downward after about fifteen minutes and proceed to march lower through the morning session. Shortly after noon, the major indexes turned and marched higher for most of the rest of the session. The bears came out to play with a half hour left in the session and all the major indexes were in positive territory. The sell off saw increased volume spike in the final fifteen minutes to see the major indexes finish in negative territory. The Russell-2000 (IWM 64.98 -0.17) outperformed the major indexes on a relative basis. The Semiconductor Index (SOX 352.52 -6.95) lost most of two percent leading the major indexes lower. The Bank Index (KBE 24.21 -0.03) closed nearly unchanged as did the Regional Bank Index (KRE 23.88 -0.06). The 20+ Yr Bonds (TLT 98.94 -0.03) also closed nearly unchanged. NYSE volume increased to below average levels with just 1.181B shares traded on the NYSE. NASDAQ share volume also increased with 2.331B shares traded.

There were two economic reports of interest released:

  • Initial Jobless Claims for last week came in at 457K versus an expected 464K
  • Continuing Jobless Claims came in at 4.565M versus an expected 4.550M

Both reports were released an hour before the open. While the volatile weekly number came in below expectations (bullish), continuing claims came in slightly higher than expected. Reaction was muted but tipped pre-market action slightly more bullish.

Seven out of ten economic sectors in the S&P-500 moved lower, led by Utilities (-1.6%) and Consumer Staples (-1.1%). Health Care and Materials were unchanged while Financials (+0.3%) posted a modest gain.

Implied volatility for the S&P-500 (VIX 24.13 -0.12) was nearly flat falling a half percent and implied volatility for the NASDAQ-100 (VXN 25.18 +0.15) was also relatively flat rising by a half percent.

The yield for the 10-year note fell five basis points to close at 2.95. The price of the near term futures contract for a barrel of crude oil gained $1.37 to close at $78.36.

Market internals were mixed with advancers leading decliners 5:4 on the NYSE while decliners edged advancers on the NASDAQ. Down volume edged up volume on the NYSE and down volume led up volume by nearly 2:1 on the NASDAQ. The index put/call ratio rose 0.21 to close at 1.70. The equity put/call ratio fell four basis points to close at 0.67.

Commentary:

Thursday's trading action saw volume increase to below average levels from very light levels and much of that volume came in the final fifteen minutes as bears took over and flooded the major index ETFs with sell orders. U.S. equity markets had moved from a higher open to being down a full one percent or more and then back into positive territory before the late day volume spike forced a negative close.

We are mindful that Friday is likely to have a significant gap down open. Lately, the markets have tended to move in the opposite direction of gap opens, so it is possible that buyers jump in from the open on Friday. Important support levels lie not far below Thursday's close, so we will monitor trading action to determine if they will hold and the longer term bullish rally we have seen coming will indeed get started on Friday. We saw the NASDAQ-100 join the Dow and Semiconductor Index with a BULLISH BIAS while the S&P-500 is mostly neutral at this time. The bank indexes have maintained the BEARISH BIAS even as they outperformed the other equity indexes on Thursday. With the Russell-2000 maintaining its BEARISH BIAS, we are still awaiting the three leading indexes to share in this before we can be more confident that the bulls have an all clear sign.

We reiterate our belief that by next week, all the major indexes and the leading indexes will likely be in uptrend states, but this may not come about and we will monitor trading to determine if we will need to change our stance.

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

If you are receiving these alerts on a free trial, you have access to all of our previous articles and recommendations by clicking here. If you do not recall your username and/or password, please email us at customersupport@stockbarometer.com.

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.
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© 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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