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Stock Market High Volume Options Expiration Leads to Flat Close...

Stock-Markets / Stock Markets 2010 Dec 20, 2010 - 06:12 AM GMT

By: Mark_McMillan

Stock-Markets

Expected quadruple witching volume left the major indexes little changed...

Recommendation: Take no action.


Daily Trend Indications:

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: In cash.

Daily Trading Action

The major index ETFs opened mixed and took off to the downside at the open. The selling abated and the major indexes were all headed higher before 11:00am. That buying continued through the remainder of the session except for the final hour, which again saw selling dominate trading action. The Dow and S&P-500 were able to see some buying in the final minutes to help them to finish fairly flat. The Russell-2000 (IWM 78.02 +0.24) gained nearly one third of one percent and the Semiconductor Index (SOX 411.44 +2.73) gainer about two thirds of one percent. It is in a trading state. The Bank Index (KBE 24.88 +0.29) moved up more than one percent and looks ready to leave its trading state to rocket higher. The Regional Bank Index (KRE 25.18 +0.03) closed flat but looks ready to continue its uptrend. The 20+ Yr Bonds (TLT 93.24 +1.67) gained most of two percent as buyers pushed prices up to resistance and then sellers moved it back a bit with TLT to entering a trading state. NYSE volume was heavy with 1.670B shares traded. NASDAQ volume was heavy with 2.419B shares traded.

There was a single economic report of interest released:

  • Leading Economic Indicators (Nov) rose +1.1% versus an expected +1.2% rise

The Leading Indicators were revised down from 0.5% to 0.4% for October. The report was released a half hour after the open.

The U.S. dollar gained 0.4% with the dollar easing off the intraday high through the afternoon which allowed equities to rise.

Implied volatility for the S&P-500 (VIX 16.11 -1.28) fell seven percent and the implied volatility for the NASDAQ-100 (VXN 17.31 -0.94) fell five percent. Both the VIX and VXN have no achieved their lowest closes since April, just before the last significant move lower.

The yield for the 10-year note fell fifteen basis points to close at 3.33. The price of the near term futures contract for a barrel of crude oil rose thirty-two cents to close at $88.02.

Market internals were positive with advancers leading decliners 5:4 on the NYSE and by 9:8 on the NASDAQ. Up volume led down volume by 7:4 on the NYSE and by 13:10 on the NASDAQ. The index put/call ratio fell -0.17 to close at 1.21. The equity put/call ratio rose +0.02 to close at 0.51.

Commentary:

Friday was the monthly was a quadruple witching day when stock index options, stock index futures options, stock options, and single-stock futures options expire on the same day. This leads to higher volume as traders work to square positions. Friday was no exception to this. In addition, the major index ETF's all paid their quarterly dividends as well, which often leads to exaggerated volumes.

All the major indexes are in uptrend states and look set to challenge overhead resistance on Monday. We are at a period of the year where volume tends to lighten as traders take time off for the holidays in this holiday shortened trading week. The stock exchanges will be closed on Friday, Christmas Eve and many traders will leave early on Thursday. The period between then and into the first couple of trading days in January tends to be seasonally strong with an effect known as the Santa Claus rally.

We believe the market could rally into early next year but we remain in cash as we wait for confirmed topping action. If we were already long, we would remain long here but it doesn't make sense to enter the market when a top could erase all the gains and then some, coming swiftly and biting deeply.

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.
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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