subject: Day Trading Economic News Analysis: June 25, 2010 Russell Rebalance [print this page] Day Trading Economic News Analysis: June 25, 2010 Russell Rebalance
Understanding the direction of the market as well as the economic activity will lead to profitable trades. Keep up with our live news feed with TraderMongers.com!
Annual Russell Rebalance 2010
The annual Russell rebalance occurs on the last Friday of June. The rebalance consists of updating the global list of investment equities and assigning them appropriately to their indices. The additions and deletions of equities to various indices create a spread. Speculators enter the market to take advantage of the spread. However too much speculator activity will cause major reversals as speculators create more supply and demand to the market to take advantage of the price action.
For example: If there is a buy imbalance of 5,000,000 shares of AAPL at the end of the day and there is usually only an average trading volume of 2 million shares then speculators will take advantage of the extra demand. Speculators will buy AAPL shares and have a Market on Close Sell Order to sell to the buyer of the 5 million shares. The profit is made by taking advantage of the price action that occurs.
However if too many speculators enter the market and if the demand of the 5 million shares is equally supplied then there will be extra supply. The original buy imbalance will reversal into a sell imbalance. Market activity for the Russell rebalance begins during the last 10 to 15 minutes of the closing day on Friday, June 25, 2010.
S&P 500 Pivots
Consumer discretionary and energy sectors took a beating due to disappointing earnings and uncertainty over deep-water drilling. The downgrade in the US economy after the FOMC announcement on Wednesday did not help build confidence for traders and investors. This was relevant when the S&P 500 opened below Thursday's previous low.
Currently the S&P 500 is continuing to trade below all the major Fibonacci moving averages (8, 21, 55, 144). The index rallied mid-day then reversed when it hit Thursday's previous low and extended lower. We will give examples of stocks that followed the S&P 500 movements and how news was related to those stocks as mentioned on our TraderMongers.com News Feed.
News broke that Disney was going to open a pet hotel for its visitors. The stock went lower however followed the movement in the S&P by rally to its previous Thursday low before ending near the low of the day.
Sempra Energy had news that it could continue operations in Mexico due to an environment regulation that was eliminated. The stock rallied on the news then fell when the S&P 500 reversed direction.
Walmart broke through Thursday's previous lows on lower consumer confidence and continued lower when the S&P 500 reversed form its mid-day rally.
On the daily chart of the S&P 500, we are trading below the 144 and 200 day moving averages of 1110 and 1087. Do not expect any major movements unless we break out of this trading range.
- If we break above 1110 then expect the January 2010 resistance levels starting at 1125 to hold back the market during these low volume summer months.
- If we break below 1087 then be wary of picking bottoms in the market as we may be expect to go even lower due to the slow down in manufacturing, increasing jobless claims, the European debt crisis, and the fears of another flash crash.'
The Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX) measures options activity within the market and is widely used tracking the S&P 500. A common trading strategy for traders and investors includes a VIX level of 30 or above means an immediate switch from equities to cash. Traders and investors are retreating from the markets and finding safety and protection within the Treasuries, gold, and the dollar.
The Market Volatility Index is currently between 30 and 25, which usually means that traders and investors are switching from cash to riskier assets such as equities and other financial instruments. We have stated before that we will be within a trading range after the FOMC Announcement.
If the volatility breaks through the 25 level then the markets show an influx of equity purchases. The 25 level is a major level of support for CBOE Market Volatility Index as it is the convergence of the 144 and 200 day moving averages.
This index must break down below 25 or bounce above 30 for the markets to show a consistent momentum and direction. The index is continuing to stay within a range between 25 and 30 so this range should continue due to the low volume of tradint activity throughout the summer months.
Summary of Major Pivot Levels
1219: S&P 500 52 Week High
Technical Levels Natural Support and Resistance
1125: January 2010 Resistance Level
1100: Natural Support Level
1075: Natural Support Level
Technical Levels 5 Minute Chart
1190: 200 Day Moving Average on 5 Minute Chart
1085: 144 Day Fibonacci Moving Average on 5 Minute Chart
Technical Levels Daily Minute Chart
1110: 144 Day Fibonacci Moving Average on Daily Chart
1088: 200 Day Moving Average on Daily Chart
Daily Economic Calendar
GDP / 8.30 AM
Consumer Sentiment / 9.55 AM
Disclaimer
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