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Corporate Earnings Season Optimism...

Stock-Markets / Corporate Earnings Jul 14, 2010 - 09:04 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:

Long DIA @ $97.00

Long QQQQ @ $42.50

Long SPY @ $102.35

Daily Trading Action

The major index ETFs opened higher, with SPY actually gapping up a full one percent. While there was a modest dip in the minutes after the open, it never was close to reaching negative territory. Even the volatile NASDAQ-100 was never seriously in jeopardy though it did dip markedly farther than either the Dow, with an almost non-existent dip, and the S&P-500. The rest of the day was spent building on gains with a modest dip through the lunch hour and a sell-off in the final fifteen minutes which left the major indexes closing well off their highs but leaving healthy gains. The Russell-2000 (IWM 64.20 +1.97 +3.2%) exploded higher as the risk trade is back on. The Semiconductor Index (SOX 362.83 +7.50) gained 2.1% in anticipation of Intel's (INTC) earnings report after the bell. The Bank Index (KBE 25.29 +0.70) gained +2.8% and the Regional Bank Index (KRE 25.12 +1.02) gained a staggering 4.2%! The 20+ Yr Bonds (TLT 98.33 -0.85) posted a modest loss continuing to move inversely to equities. Volume was below average at 1.092B shares traded on the NYSE and with 2.283B shares traded on the NASDAQ.

It should be noted that all the equity indexes we monitor are above their 20-Day Moving Averages (DMA) and the long bond fund (TLT) just dropped below its 20-DMA. In fact, the Semiconductor Index (SOX), the Bank Index, and the Regional Index are now above their 20-DMA, their 50-DMA, and their 200-DMAs. Even the Russell-2000 is above its 200-DMA. The Dow and NASDAQ-100 both closed on their respective 200-DMAs. Moreover, the Dow, Bank Index, and Regional Bank Index have all seen the current Bearish BIAS challenged and could possible change as early as next week. There are many signs of bullish optimism that aren't fully apparent on the surface.

There were two economic reports of interest released:

  • Trade Balance (May) came in at -$42.3B versus an expected -$39.4B
  • Treasury Budget (Jun) came in at -$68.4B versus an expected -$70.0B

The trade deficit grew and market participants essentially ignored the report in favor of earnings expectations topping estimates. That report was released one hour before the open. The Treasury Budget report was released late in the day and really had no impact on equities, other than to allow the rally to continue.

Alcoa (AA 11.00 +0.13) gapped open four percent higher on an earnings beat and raised guidance. Even though Alcoa saw profit taking action through the session, it was an important catalyst to get some bulls off the fence in anticipation of further earnings beats and potential for raised guidance.

All ten economic sectors in the S&P-500 moved higher led by Financials (+2.6%). In fact, the bank indexes are leading the markets higher and are in the most bullish of all the equity indexes we regularly monitor.

Implied Volatility was mixed with the S&P-500 (VIX 24.56 +0.13) implied volatility rising modestly and the implied volatility for the NASDAQ-100 (VXN 25.37 -0.13) falling modestly.


Tuesday's trading action was on increased volume and somewhat average for summer. Bullish optimism has crept into equities as two out of three closed at their 200-DMAs. We have been watching for a definitive move above the 200-DMAs or a reversal at that point so market action on Wednesday will be particularly interesting.

We continue to monitor the 200-DMAs for the major indexes, along with the closing levels:

Index 200-DMA Close
Dow 10,365 10,363.02
S&P-500 1,112 1,095.34
NASDAQ-100 1,841 1,845.03

With the 200-DMAs clearly in play and with the other equity indexes we regularly monitoring looking quite bullish, the stage is set for a tremendous clash between bulls and bears. The Russell-2000 has closed above its 200-DMA but remains below its 50-DMA and leapt tremendously in price as the risk trade is back on. Intel (INTC 21.01 +0.44) gained more than two percent in anticipation of their earnings release which occurred after the close. INTC did in fact announce an earnings beat and provided positive guidance and tech soared in after hours trade. Three of the largest U.S. banks report in the three remaining days this week. With the Bank Indexes out in front leading the markets higher, this bullishness will either be confirmed or denied with big market moves possible. We remain long to see what happens now that two of the major indexes have reached thier 200-DMAs.

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.
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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