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7/27/2010 9:28:25 AM

Trade Recommendations:
Buy shares of DIA at a limit of $105.26.
Buy shares of QQQQ at a limit of $46.44.
Buy shares of SPY at a limit of $111.56.

Daily Trend Indications:

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: In Cash.

Daily Trading Action

The major index ETFs opened higher and after an initial drop into negative territory in the first fifteen minutes of trading, moved higher through the rest of the morning. The afternoon was spent trading sideways to gradually lower with the bulls once again moving into buy mode with an hour left in the session. The major indexes finished strong closing at their highs. This left the S&P-500 even (slightly above) its 200-Day Moving Average (DMA) and in an uptrend state for the first time since mid-March. The S&P-500 is not alone as the Dow now has a BULLISH BIAS. The Russell-2000 (IWM 66.46 +1.48) marched up another 2.3% higher while the Semiconductor Index (SOX 369.50 +4.97) moved another 1.4% higher. The Bank Index (KBE 24.37 +0.61) gained 2.6% and the Regional Bank Index (KRE 24.06 +0.64) tacked on another 2.7%. The 20+ Yr Bonds (TLT 99.61 -0.17) was mostly unchanged as fixed income investors haven't yet embraced equities. TLT moved into a trading state. Volume dropped to light with 1.017B shares traded on the NYSE. NASDAQ share volume also came in light with 2.154B shares traded.

There was a single economic report of interest released:

  • New Home Sales (Jun) came in at 330K versus an expected 310K

The report was released a half hour into the session and represents a bounce from a bottom. The prior months New Homes Sales were revised downward from 300K to 267K.

The mood was all about optimism as Fedex (FDX 83.39 +4.43) raised expectations on earnings by twenty cents as it is seeing a continued improvement in the economy. While volume continues to be lackluster, the mood has definitely changed among market participants.

In additional news, BP CEO and executive director, Tony Hayward will step down as CEO of BP.

The Euro continued to strengthen and the U.S. dollar fell 0.5% against a basket of currencies.

All ten economic sectors in the S&P-500 moved higher for the day led by Industrials (+1.7%) and Financials (+1.6%).

Implied volatility for the S&P-500 (VIX 22.73 -0.74) fell three percent while implied volatility for the NASDAQ-100 (VXN 24.11 -0.05) was nearly unchanged.

The yield for the 10-year note was unchanged at 2.99. The price of the near term futures contract for a barrel of crude oil was unchanged at $78.98.

Market internals were positive with advancers leading decliners nearly 4:1 on the NYSE and by 3:1 on the NASDAQ. Up volume led down volume by nearly 7:1 on the NYSE and by 8:1 on the NASDAQ. The index put/call ratio rose 0.42 to close at 1.78. The equity put/call ratio fell two basis points to close at 0.56.


Monday's trading action was a breakout. From a chartist perspective, all sorts of downtrend lines have now been broken which meant the market is breaking through resistance. While the S&P-500 has yet to break-out above its 200-DMA, it looks set to do that on Tuesday. With the Dow changing from a BEARISH to a BULLISH BIAS and with the S&P-500 moving into an uptrend state and the long bonds moving out of their uptrend states, we believe the markets are breaking out here. Even though the break-out is on light volume, we believe that there will be a stampeded as investors fret the train is leaving the station.

We 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. With all that said, the last time we saw this sort of underlying behavior in the markets was early August and that run up into late April (two months). It is time to get off the fence if we can enter long trades on the major indexes at the closing prices on Monday.

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


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