A failed rally... - The McMillan Portfolio Newsletter
A failed rally...
After a gap down open, the bulls decided to try to take the NASDAQ-100 to new highs but failed at the critical instant...
Recommendation:
The major index ETFs opened lower and immediately began to move higher reaching their zeniths shortly before 11:30am EDT. From there, the indexes hung up in the general vicinity through the lunch hour and early afternoon. At 2:30pm, the bears began their assault and drove the major indexes to their lows by 3:45pm. The major indexes recovered in the final fifteen minutes to close with losses, although the NASDAQ-100 loss was diminimus. The Russell-2000 (IWM 64.88 -0.96) lost about 1.5% while the Semiconductor Index (SOX 332.83 +2.38 ) actually posted a gain of about two thirds of one percent. The Bank Index (KBE 22.63 -0.41) lost two percent while the Regional Bank Index (KRE 22.04 -0.15) only posted a fractional loss. The 20+ Yr Bonds (TLT 104.91 +0.30) posted a fractional gain and now sits above all moving averages we regularly report on as volume dropped back to average. NYSE volume was average with 942B shares traded. NASDAQ volume was average with 1.912B shares traded.
The first two reports were released an hour before the open while the latter two reports were released a half hour into the session.
Lower than expected PMI readings in Europe (mainly Germany) caused futures to mimic European bourses. The lower open was immediately met by buyers but the bulls were stymied as the NASADQ-100 approached its recent (Tuesday) intraday high. It failed a tiny fraction short of that intraday high mark and that rejection (from a technical standpoint) was considered a successful test and the bears took the Dow and S&P-500 back down to the lower open levels. The NASDAQ-100 was able to close nearly unchanged which was one percent below its intraday high water mark.
The yield for the 10-year note rose four basis points to close at 2.59. The price of the near term futures contract for a barrel of crude oil rose forty-seven cents to close at $75.18.
Market internals were negative with decliners leading advancers 7:3 on the NYSE and by 2:1 on the NASDAQ. Down volume led up volume 3:1 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose 0.23 to close at 1.52. The equity put/call ratio fell 0.08 to close at 0.64.
Thursday's trading saw average volume but a significant move higher in implied volatility as the market actually showed some fear (not a lot yet) instead of the recent complacency. The S&P-500 has moved into a trading state. That leaves the Dow and NASDAQ-100 on the edge of leaving their uptrend states and the other equity indexes are all in trading states. The long-term bond ETF (TLT) is in an uptrend state and above all the moving averages we regularly report on, so the stage is finally set for a move down for the major indexes.
We exited our QQQQ position yesterday at the close when QQQQs closed higher than their open. We now believe the markets still have an opportunity for one last rally attempt here but we believe it will fail and we will move to short positions when the S&P-500 attempts to reach a new high. We will be satisfied to enter short positions on a close above a higher open on Friday with a conditional order.