7/16/2010 9:23:18 AM

Trade Recommendations:
Sell DIA, QQQQ, and SPY at the open to close our positions.

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 relatively flat and moved down for most of the first hour of trading before reversing to head higher into late morning. That established the low for the day but price gradually fell off through most of the lunch hour before the bulls began pushing prices higher again. The final sell-off began with an hour and a half to go and that sell-off was reversed in the final fifteen minutes and the major indexes finished relatively flat. The Russell-2000 (IWM 63.38 -0.59) again lost ground as did the Semiconductor Index (SOX 361.09 -0.77). They were joined by the Bank Index (KBE 24.79 -0.12) and the Regional Bank Index (KRE 24.40 -0.27). The 20+ Yr Bonds (TLT 100.31 +0.99) gained one percent moved to the relative safety of bonds. Volume was below average at 1.117B shares traded on the NYSE and with 1.962B shares traded on the NASDAQ.

There were eight economic reports of interest released:

• Initial Jobless Claims for last week came out at 429K versus an expected 450K
• Continuing Jobless Claims came out at 4.681M versus an expected 4.400M
• PPI (Jun) fell -0.5% versus an expected fall of -0.1%
• Core PPI (Jun) rose +0.1% as expected
• Empire Mfg Index (Jul) came out at 5.08 versus an expected 18.0
• Industrial Production (Jun) rose 0.1% versus an expected flat (+0.0%) reading
• Capacity Utilization (Jun) came out at 74.1% versus an expected 74.2%
• Philadelphia Fed Index (Jul) came out at 5.1 versus an expected 10.1

The first five reports were released an hour before the open. The next two came out fifteen minutes into the session followed by the last report another fifteen minutes later.

BP (BP 38.92 +2.73) reported that it had successfully capped the well-head that has been spewing crude oil into the Gulf of Mexico for three months now. The announcement came late in the session causing price to spike in the final forty-five minutes of trading. The rumor that Goldman Sachs (GS 145.22 +6.14) would settle its civil law suit with the U.S. government was enough to cause the price of GS to rise meteorically in the final forty-five minutes of trading as well pulling up the broader indexes along with it. The size of the settlement turned out to be $550M, a paltry sum compared to the $10B in profits GS would now be able to make unimpeded.

The news and rumor during the session was accompanied by news that the Senate had secured three votes from Republicans in Maine and Massachusetts to ensure that a filibuster couldn't take place (known as cloture) on Financial Regulatory Reform (FINREG). After the session, the vote was taken on the bill itself and it passed by the same margin, i.e. 60-38. The bill will now be sent to President Obama for signature.

Six out of ten economic sectors in the S&P-500 moved higher led by Utilities (+0.6%). Financials (-0.1%), Materials (-0.1%), and Industrials (-0.1%) were the losers with Energy unchanged.

Implied Volatility rose modestly with the S&P-500 (VIX 25.14 +0.25) implied volatility rising one percent and the implied volatility for the NASDAQ-100 (VXN 26.57 +0.61) rising more than two percent.

Commentary:

Thursday's trading action saw a mild increase of volume on the NYSE and a mild decrease on the NASDAQ. With the equity indexes in trading states and banging up against resistance, it is time to get defensive and let whatever selling is going to happen to take place before re-loading up on long positions. We also note that Bank of America (BAC) and Citigroup (C) announced earnings and both stocks are down in pre-market trading.

We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.