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Stock Market Bounce but Hindenburg Crash Omen Reappears...

Stock-Markets / Stock Markets 2010 Aug 13, 2010 - 09:51 AM GMT

By: Mark_McMillan


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: Short at $105.19

QQQQ: Short at $45.91

SPY: Short at $110.65

Daily Trading Action

The major index ETFs saw another large gap down open with QQQQ opening just above its lower Bollinger Band, SPY opening in significantly lower, and DIA opening on its 50-DMA. The bulls took immediate control and drove the major indexes higher until late morning when neutral ground was reached and the major indexes traded sideways to lower. By the end of the noon lunch hour, the bulls pressed the major indexes to challenge their late morning intraday highs and the bears stepped in to drive the major indexes lower but weren't able to reach the morning lows before the bulls stepped in again around 2:30pm. The bulls forced the major indexes to break above intraday highs but were stymied in the final hour as the major indexes ran into intraday technical resistance levels and settled lower for the last forty-five minutes of trading. The Russell-2000 (IWM 61.77 -0.31) opened just above its lower Bollinger Band and was actually able to close the open gap by late morning but once it rolled over, unlike the major indexes, it was never able to regain those levels in the afternoon. The Semiconductor Index (SOX 325.75 -4.31) opened below its lower Bollinger Band and wasn't able to fight its way back above that level losing more than one percent on the day.

The Bank Index (KBE 22.89 -0.13) and the Regional Bank Index (KRE 22.15 -0.38) both moved lower with the Regional Bank Index continuing to look relatively weaker than the broader index.All equity indexes we regularly monitor remain below their 200-Day Moving Averages (DMAs) and are in downtrend states now. The 20+ Yr Bonds (TLT 101.03 -0.25) gave up a little ground as they saw some profit taking. NYSE volume was light with just 1.002M shares traded. NASDAQ share volume also decreased to below average with 2.171B shares traded.

There were four economic reports of interest released:

  • Initial Jobless Claims for last week came in at 484K versus an expected 465K
  • Continuing Claims came in at 4.452M versus an expected 4.600M
  • Export Prices-excluding Agriculture (Jul) fell -0.2%
  • Import Prices-excluding Oil (Jul) fell -0.3%

All four reports were released an hour before the open. The jobless claims helped drive futures lower. Export Prices for June were revised from down -0.2% to down -0.8%! Import Prices for June were revised from -0.6% to -0.5%. This confirms the trade deficit that was worse than expected (announced on Wednesday).

Cisco (CSCO 21.36 -2.37) announced earnings after the close on Wednesday and delivered better than expected earnings but provided weak revenue guidance which caused a selling orgy that took down Tech and the tech-heavy NASDAQ which was relatively weaker than the Dow or S&P-500.

Tech (-1.7%) led the seven economic sectors in the S&P-500 that finished lower. The gainers were Telecom (+0.9%), Materials (+0.5%), and Health Care (+0.4%).

Clearly, the gap down open of more than one percent fueled the interest of value investors who dove in from the open to slow the slide of the major indexes. Trading volume, however, was relatively light.

Implied volatility for the S&P-500 (VIX 25.73 +0.34) opened significantly higher but by the close was only up a bit more than one percent. Implied volatility for the NASDAQ-100 (VXN 27.63 +0.73) also opened significantly higher but closed with a gain of less than three percent.

The yield for the 10-year note rose five basis points to close at 2.74. The price of the near term futures contract for a barrel of crude oil fell $2.28 to close at $75.74.

Market internals were negative with decliners leading advancers 7:5 on the NYSE and by 3:2 on the NASDAQ. Down volume led up volume by 5:3 on the NYSE and by nearly 2:1 on the NASDAQ. The index put/call ratio was flat closing at 1.57. The equity put/call ratio fell 0.15 to close at 0.62.


Thursday's trading action saw lighter volume for the major index ETFs with only DIA posting above average volumes. With only the Dow and NASDAQ-100 not having reached oversold levels on Wednesday, the equity indexes were due for a bounce which they received after the gap down open. Still, all the equity indexes finished lower. We would expect that the major could still attempt to rally here but we don't expect the bulls to be successful.

The Hindenburg Omen showed itself again for the second consecutive day which confirms the signal that the market is likely to achieve at least a ten percent correction in the next few months. The last time we had a confirmed Hindenburg Omen signal was in May 2008. We can all remember what happened from that point.

We exited all long positions in our value portfolio yesterday with the following results for closed trades:

With all the equity indexes in downtrend states but with the major indexes and Russell-2000 maintaining a BULLISH BIAS, the major indexes could hang in here for another day before moving more significantly lower. We will be patient and see what trading action brings on Friday.

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.
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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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