8/9/2010 4:10:41 PM

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 one percent lower on worse than expected economic reports. Traders reacted by buying at the open to drive the major indexes higher for a half hour, and the NASDAQ-100 actually reached positive territory before the bears stepped in to drive the major indexes down for an hour, reaching their intraday lows. From 11:00am EDT, the bulls were in a buying mood and brought the major index back up toward the unchanged mark, although all of the major indexes finished with a loss for the day. The Russell-2000 (IWM 65.14 -0.39) mimicked the major indexes but performed relatively weaker. In contrast, the Semiconductor Index (SOX 351.75 -0.69) posted only a fractional loss and performed relatively stronger. The Bank Index (KBE 24.10 -0.32) and the Regional Bank Index (KRE 23.64 -0.30) both posted losses of around 1.5% and continue to underperform the other equity indexes we regularly monitor. The 20+ Yr Bonds (TLT 100.10 +1.08) moved one percent higher as fear continues to rule the roost and many investors continue to the relative safety of bonds. TLT moved back above its 20-Day Moving Average (DMA). NYSE volume was again light with just 927M shares traded. NASDAQ share volume was also very light with just 1.853B shares traded.

There were six economic reports of interest released:

• Non-farm Payrolls (Jul) fell -131K versus an expected -87K
• Non-farm Payrolls - Private (Jul) rose 71K versus an expected rise of 83K
• Unemployment Rate (Jul) remained at 9.5% versus an expected 9.6%
• Hourly Earnings (Jul) rose +0.2% versus an expected +0.1%
• Average Workweek (Jul) came in at 34.2 hours versus an expected 34.1 hours
• Consumer Credit (Jun) came in at -$1.3B versus an expected contraction of -$5.7B

The first five reports were released together an hour before the open. Futures markets immediately shifted from a modest positive to very negative. This carried into the open of the session with the major index ETFs down about one percent at the open. The final report was released with one hour remaining and was really quite a bit better than expected allowing the positive momentum to continue into the close.

This session was all about the trading at important support and resistance levels with a battle between bulls and bears. The media seized on the headline payroll loss numbers and futures markets were hammered. Overall, however, the reports weren't that bad showing continued job growth in the private sector that was just slightly below expectations. The government sector continues to hemorrhage jobs, however.

Important support levels held, namely the 200-Day Moving Average DMA for the S&P-500. With resistance areas just overhead, fundamentals are a bit of a side show as traders vie for dominance to break support or resistance in the coming week.

Implied volatility for the S&P-500 (VIX 21.74 -0.36) fell between 1.5% to 2% as did the implied volatility for the NASDAQ-100 (VXN 22.84 -0.43).

The yield for the 10-year note fell ten basis points to close at 2.82. The price of the near term futures contract for a barrel of crude oil fell $1.31 to close at $80.70.

Market internals were negative with decliners leading advancers nearly 5:4 on the NYSE and by most of 3:2 on the NASDAQ. Down volume led up volume 2:1 on the NYSE and by 5:4 on the NASDAQ. The index put/call ratio fell 0.30 to close at 1.48. The equity put/call ratio fell three basis points to close at 0.57.

Commentary:

Friday's trading action continued to see very light volume. The bears leapt out with a gap down open that was met immediately with a bull assault. That assault petered out and the bears were able to gain control for an hour forcing the major indexes most of two percent lower before the bulls regained control and forced sideways trading for much of the day. With a couple of hours left, the bulls began to move the markets higher and the bears stepped away with volume gains into the close for more than the final hour of trading and the bulls emerging as clear winners, even though the bears could claim that the major indexes posted losses on the day.

As we stated prior to Friday's open, we would remain bullish unless the bears were able to force a two to three percent loss on the day due to the poor payroll numbers. Since that didn't happen, we will remain in our long positions.

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