Dollar Drop Fuels Stock Market Rally...

By: Mark_McMillan

The Euro soared against the dollar providing ample fuel for a rise in U.S. Equities on the day of the elections in the U.S. and on the even of the latest FOMC rate decision and statement on QE2...

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:

Short DIA at $108.57
Short QQQQ at $49.66
Short SPY at $114.82

Daily Trading Action

The major index ETFs opened higher and then moved even higher for most of the next thirty minutes then shifted gears and moved lower for an hour. From there, it was upward until around 2:00pm when weakness set in and the major indexes mostly sold off modestly into the close. The NASDAQ-100 has moved into a weak uptrend state, pulled up by the Semiconductors with the Semiconductor Index (SOX 374.19 +2.74) posting a fractional gain. The Russell-2000 (IWM 71.27 +1.45) posted a two percent gain as the risk trade seems back on. The bank indexes closed mixed with the Bank Index (KBE 22.43 -0.05) posting a small loss while the Regional Bank Index (KRE 22.31 +0.31) posted a more than one percent gain following its three percent loss on Monday. The 20+ Yr Bonds (TLT 100.98 +1.31) posted a better than one percent gain as it more than made up for Monday 3/4 percent loss. NYSE volume was light with 913M shares traded. NASDAQ volume was just below average with 1.917B shares traded.

There were no economic reports of interest released. Instead, it was all about the pressure on the U.S. dollar as Eurozone countries provided stronger than expected economic reports. The dollar fell 0.7%

All ten sectors in the S&P-500 moved higher led by Utilities (+1.2%), Consumer Discretionary (+1.1%), and Energy (+1.1%) as the only sectors moving up one percent or more.

Implied volatility for the S&P-500 (VIX 21.57 -0.26) fell one percent while the implied volatility for the NASDAQ-100 (VXN 22.88 -0.04) was nearly flat.

The yield for the 10-year note fell four basis points to close at 2.59. The price of the near term futures contract for a barrel of crude oil rose ninety-five cents to close at $83.90.

Market internals were positive with advancers leading decliners by nearly 3:1 on the NYSE and by a bit less than that on the NASDAQ. Up volume led down volume by 2:1 on the NYSE and by nearly 3:1 on the NASDAQ. The index put/call ratio fell 0.17 to close at 1.15. The equity put/call ratio fell 0.07 to close at 0.56. Clearly complacency is running high as market participants embrace bullish sentiment.

Commentary:

Tuesday's trading action was fueled by the falling U.S. dollar as commodity and equities prices moved higher. Bond prices also moved higher in anticipation of a new phase of quantitative easing. The normal inverse relationship between bond and stock prices is being defied and won't last indefinitely. The S&P-500 closed to within a few points of this years high and looks to challenge that high at the open. Volume has been light as the markets have moved higher which doesn't confirm the move has broad support.

With all that said, we are about as extended as we want to be as we have patiently clung to our short positions in the face of a rising tide. We are getting to the point where the market will roll over or we will have to exit our positions. Stay tuned as we examine the markets reaction to the release of the FOMC statement with more clarity, or the lack thereof, for further quantitative easing.

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

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By Mark McMillan

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