Stock Market Head Fake?

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 lower and the bears had their way for the first forty-five minutes of trading as the direction was clearly downward after initial indecision in the opening minutes. After the descent, which saw the major indexes sell off nearly one percent, the rest of the day was spent making up for the early session losses. The direction was mostly upward with a countermove that began shortly before noon and that ended halfway through the lunch hour. Gains after that were modest with selling pressure in the final hour causing the major indexes to close with losses of half of one percent or less. All the major index remain in trading states above their 200-Day Moving Averages (DMAs) and with bullish biases. The Russell-2000 (IWM 65.62 -0.53) followed the direction of the major indexes with a loss of 0.8%. The Semiconductor Index (SOX 351.25 -3.69) lost just over one percent and remains in a downtrend state. The Bank Index (KBE 24.59 -0.32) lost more than one percent while the Regional Bank Index (KRE 24.11 -0.13) posted minor losses after having spent some time in positive territory during the session. The 20+ Yr Bonds (TLT 99.32 +0.57) moved inversely to equity indexes but remains below its 20-DMA. NYSE volume was light with just 1.000B shares traded on the NYSE. NASDAQ share volume was also light with just 2.000B shares traded.

There were five economic reports of interest released:

• Personal Income (Jun) was flat (+0.0%) versus an expected gain of +0.1%
• Personal Spending (Jun) was flat (+0.0%) as expected
• PCE Prices - Core (Jun) were flat (+0.0%) versus an expected gain of +0.1%
• Factory Orders (Jun) fell -1.2% versus an expected fall of -0.5%
• Pending Homes Sales (Jun) fell -2.6% versus an expected -0.5% fall

The first three reports came out an hour before the open while the latter two reports were released a half hour into the session.

The day was all about whether the bears could instill fear in the bulls. After the run up seen late last week and Monday, some profit taking was in order. The economic reports were nothing particularly stirring but weren't enough to breed pessimism with the Pending Homes Sales report actually beating expectations, even though it was a decrease overall.

Implied volatility for the S&P-500 (VIX 22.63 +0.62) rose most of three percent but remains clearly below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 23.61 +0.13) rose fractionally but remains just under its 200-DMA.

The yield for the 10-year note fell seven basis points to close at 2.89. The price of the near term futures contract for a barrel of crude oil gained $1.21 to close at $82.55.

Market internals were negative with decliners leading advancers 3:2 on the NYSE and by nearly 2:1 on the NASDAQ. Down volume led up volume 2:1 on the NYSE and by 3:1 on the NASDAQ. The index put/call ratio fell 0.20 to close at 1.42. The equity put/call ratio rose three basis points to close at 0.60.

Commentary:

Tuesday's trading action continued on light volume. The bears tried to cause a break down and will still get another chance on Wednesday as the bulls cling tenaciously to all the major indexes closing above their 200-DMAs and actually establishing higher closing highs than seen since the latest move higher began at the beginning of July. We believe there is a reasonable chance that the move lower on Tuesday was just a head-fake as the major indexes look to challenge various resistance levels.

Money flow is now a mixed bag with the Dow ETF (DIA) seeing inflows, the S&P-500 ETF (SPY) in neutral and the NASDAQ-100 ETF (QQQQ) still seeing outflows on a daily basis. This can all snap in the same direction which will likely determine short term trading in the near future.

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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