China will allow Yuan to appreciate...
Stock-Markets / Financial Markets 2010 Jun 22, 2010 - 08:19 AM GMTBy: Mark_McMillan
Trade 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 $101.18 ($101.37 - $0.19 dividend)
QQQQ - at $45.50 (adjusted down $0.05 for a dividend payment)
SPY - Long at $107.99 ($108.52 less the $0.53 dividend)
Daily Trading Action
The major index ETFs gapped more than one percent higher before before rolling over in the first half hour of trading to continually sell-off through the session. If not for a rally in the final fifteen minutes (on heavy volume), the major indexes would have finished at their lows. The Russell-2000 (IWM 66.11 -0.59) and the Semiconductor Index (SOX 368.04 -3.17) mimicked the behavior of the major indexes. The Bank Index (KBE 24.82 -0.02) and the Regional Bank Index (KRE 24.84 -0.04) had a similar pattern to the major indexes but similar to the Dow, their losses were minimal. The 20+ Yr Bonds (TLT 97.41 -0.28) closed modestly lower. Volume was light.
There were no economic reports of interest released. Instead, the focus was on ramifications of China allowing the Yuan to float more against other currencies, and in particular, versus the dollar. While it wasn't clear what would happen and China hadn't made a move prior to Monday's U.S. equities markets session, investors initially bid up U.S. stocks prior to the open (futures markets) and then sold off stocks when the session opened.
Two of the ten economic sectors in the S&P-500 moved higher on the day. Materials (+0.4%) and Industrials (+0.3%) both moved higher while Consumer Discretionary (-0.9%), Tech (-0.8%), and Utilities (-0.8%) led the way lower for the other eight sectors.
Implied Volatility reversed course with the S&P-500 (VIX 24.88 +0.93)23.95 -1.10) implied volatility rising nearly four percent and the implied volatility for the NASDAQ-100 (VXN 25.57 +1.42) rising nearly six percent.
Commentary:
Monday's gap up open was entirely worn away by the time the market closed. Key resistance levels came in to play as the Dow touched to its 50-Day Moving Average (DMA) and the NASDAQ-100 touched its upper Bollinger Band. As we noted after Friday's session, the key support level for the S&P-500 is around 1114 which also corresponds to the 200-DMA. Monday's close was at 1113.20 so we are right on top of support. The Russell-2000 has tried to move above the same level of horizontal resistance for seven sessions of the last seventeen sessions, and opened above it on Monday but was slammed back below that level by the close.
We will reserve judgment as to the potential for this pull back until after Tuesday's session. Market participants were over eager in causing the gap up open, given the energy depleted in pushing the major indexes above their 200-DMAs. A rest is needed and with the S&P-500 now settled nicely at its 200-DMA, we would look for the full support of the bull camp to kick in here. If not, then the bears gain control and we would look to abandon our long positions.
It should be noted that the Russell-3000 will be rebalanced the following Friday, June 25th. More than 460 companies will be swapped into and out of the Russell-3000 universe. This will affect trading for the coming two weeks and will result in one of the heaviest trading volume days of the year on Friday, June 25th.
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By Mark McMillan
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