8/10/2010 9:14:30 AM

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 between one third and one half of one percent higher then immediately moved lower to close the gap open in the first half hour of trading. From there, the bulls remained in charge as the major indexes slowly crept higher on light volume trading through the session. The final hour saw some of the gains given back but all three major indexes finished with solid gains. The Russell-2000 (IWM 65.86 +0.72) finished with a gain of more than one percent while the Semiconductor Index (SOX 354.05 +2.30) added a fractional gain after having bounced off of the support of its 200-Day Moving Average (DMA) last Friday. The Bank Index (KBE 24.19 +0.09) posted a fractional gain while the Regional Bank Index (KRE 24.05 +0.41) gained one and a half percent, finishing just under its 200-DMA. The 20+ Yr Bonds (TLT 99.73 -0.37) lost one third of one percent continuing to move inverse to equities. TLT remains above all of the MAs we regularly report on and shows signs of breaking downward. NYSE volume was extremely light with just 789M shares traded. NASDAQ share volume was also extremely light with just 1.597B shares traded.

There were no economic reports of interest released. Instead, the session was all about trading as high as possible, without breaking through overhead resistance. Volume was some of the lightest of the year, even as all ten economic sectors in the S&P-500 closed higher, led by Telecoms (+1.1%).

The U.S. dollar gained 0.3% against a basket of foreign currencies with a 0.4% gain versus the Euro.

Tuesday, the FOMC (Fed Open Market Committee) will announce their policy statement at 2:15pm EDT. While most market participants anticipate no change in the current Fed Rate (0.0% to 0.25%), there are concerns over changes to the statements verbiage.

Implied volatility for the S&P-500 (VIX 22.14 +0.40) rose most of two percent while the implied volatility for the NASDAQ-100 (VXN 22.97 +0.13) rose about a half of one percent. Both remain under their respective 200-Day Moving Averages (DMAs).

The yield for the 10-year note was unchanged at 2.82. The price of the near term futures contract for a barrel of crude oil rose seventy-eight cents to close at $81.48.

Market internals were positive with advancers leading decliners 5:2 on the NYSE and by 2:1 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by nearly 3:1 on the NASDAQ. The index put/call ratio fell 0.28 to close at 1.20. The equity put/call ratio was unchanged at 0.57. The index put/call ratio reflects a dangerous level of complacency.

Commentary:

Monday's trading action continued to see very light volume. The bears leapt on the gap up open and forced the major indexes to close the gap before they advanced through the session. The major indexes closed at their highest levels since mid-May with the Dow having climbed over its mid-June intraday high but with the NASDAQ-100 and S&P-500 still trading below those levels.

The major indexes are overbought at this time and in trading states. They are also in a wedge pattern with a break out above horizontal resistance or a break down through a short /intermediate term uptrend line forced by early next week at the latest. Traders have required higher premiums for options as higher volatility is all but assured in the near future with a forced breakout of the tight trading range the major indexes have been contained in.

The market could move in either direction after the FOMC statement and usually moves in the opposite direction the next day. We would look for a lower open and a run higher prior to the release of the statement with significant volatility on release of the statement.

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