Consumers Lack Confidence?

By: 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 $105.26

QQQQ: Long at $46.44

SPY: Long at $111.56

Daily Trading Action

The major index ETFs opened higher and immediately began to move lower for the morning with a slight bounce before 10:30am and then a continued move lower until around 11:30am. From there, the move was higher into the noon hour when the bears began to make a push to retest the low forming a double bottom by early afternoon. From there, it was a climb through most of the afternoon with the bears stepping in for the last half hour of trading to keep the major indexes as flat as possible. The Dow joined the S&P-500 in an uptrend state (along with the NASDAQ Composite) but the leading indexes (QQQQ, IWM, SOX) all remain in trading states, as do the bank indexes. The Russell-2000 (IWM 66.22 -0.24) moved lower along with the Semiconductor Index (SOX 366.08 -3.42), which lost nearly one percent. The Bank Index (KBE 24.52 +0.16) closed in positive territory and the Regional Bank Index (KRE 24.29 +0.23) moved back above its 50-Day Moving Average (DMA) as it gained one percent. The 20+ Yr Bonds (TLT 98.65 -0.96) lost one percent and is perched precariously above its 50-DMA and is in a trading state. Volume increased slightly but remained light with 1.115B shares traded on the NYSE. NASDAQ share volume decreased modestly and also came in light with 2.062B shares traded.

There were two economic reports of interest released:

• Case Shiller 20-City Index (May) increased 4.61% versus an expected 4.0% increase
• Consumer Confidence (Jul) came in at 50.4 versus an expected 51.0

The first report was released thirty minutes before the bell and the second report thirty minutes after the bell. The media pounced on the Consumer Confidence report but we are unaware of a correlation between these reports and consumer behavior.

Five out of ten economic sectors in the S&P-500 moved higher for the day led by Utilities (+1.6%) and Consumer Staples (+0.4%). The four sectors that declined we led by Consumer Discretionary (-1.2%), which was prompted by the -1.9 fall for retailers. Health Care was unchanged. The relatively strongest sectors were defensive in nature as market participants are looking for shelter.

Implied volatility for the S&P-500 (VIX 23.19 _0.46) rose two percent while implied volatility for the NASDAQ-100 (VXN 24.33 +0.22) moved only fractionally higher.

Commentary:

Tuesday's trading action was disappointing. While we expected a higher open and a retracement intraday, the finish was lackluster. In addition, even though we are moving into what appears to be a longer term bullish move, it is likely that the dip we had been patiently waiting for could begin now that we have entered long positions.

The major equity indexes are on verge of moving to a BULLISH BIAS, but could also move away from that point. Things are balanced on a knife's edge so we expect the next few days to make most traders uncomfortable. The fact that both the Dow and S&P-500 are in uptrend states is a positive for longs but their grip on these states is nascent and should be considered tenuous until confirmation is seen with a stronger move higher.

We continue to believe the major indexes are likely to come back to test their 200-DMAs by August at some point, and that there will be another opportunity to get longer.

Note that for Monday's session, we said the last time we had seen this sort of behavior (moving into an intermediate term bullish state) was August. We meant to say early March (not August) and that move lasted into late April. The difference between then and now is the relationship between current price and the 200-DMAs. As always, we will continue to monitor the markets and report to you where we see the highest probability set-ups.

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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