10/29/2010 9:12:24 AM

The major indexes traded in a fairly narrow range either side of neutral and closed in mixed fashion but not far from neutral...

Recommendation:
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:
Short DIA at $108.57
Short QQQQ at $49.66
Short SPY at $114.82

Daily Trading Action

The major index ETFs opened higher and after flirting briefly with a potential move higher rolled over and dove lower through the morning. They major indexes did experience a bit of a bounce about an hour after the open that allowed the S&P-500 to move back into positive territory before they all rolled over again in the late morning to smack down to their intraday lows during the noon hour. By the close, the major indexes had see-sawed higher with the NASDAQ-100 making gains of nearly 4/10ths of one percent, the S&P-500 edged into a positive close and with the Dow coming up short of a positive close. The trading range was fairly narrow with none of the major indexes moving more than about 6/10ths of one percent in either direction for the day. The Russell-2000 (IWM 70.08 -0.43) again posted a fractional loss and the Semiconductor Index (SOX 370.34 -0.11) also posted a loss closing nearly flat after ascending +3.1% on Wednesday. The bank indexes weakened further with the Bank Index (KBE 22.61 -0.06) edging lower while the Regional Bank Index (KRE 22.66 -0.28) posted a loss of more than one percent. The 20+ Yr Bonds (TLT 99.49 +0.27) added modest gains as they bounced on queue. NYSE volume was light with 1.009B shares traded. NASDAQ volume was again nearly average with 2.016B shares traded.

There were two economic reports of interest released:

• Initial Jobless Claims for last week came in at 434K versus an expected 458K
• Continuing Claims came in at 4.356M versus an expected 4.428M

Both reports were released an hour before the open. Both were better than expected and futures lifted significantly when they were released.

The U.S. dollar dropped 1.1% and this helped equities to rally off of their lows but it wasn't enough to push the Dow into positive territory. It appears that some of the strong inverse correlation between equities and the U.S. dollar may be decoupling a bit.

Six out of ten economic sectors in the S&P-500 moved higher led by Healthcare (+0.5%). Industrials (-0.3%), Materials (-0.1%), and Financials (-0.1%) moved lower. Energy was unchanged.

Implied volatility for the S&P-500 (VIX 20.88 +0.17) saw a fractional gain as did the implied volatility for the NASDAQ-100 (VXN 21.65 +0.08).

The yield for the 10-year note fell five basis points to close at 2.66. The price of the near term futures contract for a barrel of crude oil rose twenty-four cents to close at $82.18.

Market internals were mixed with advancers leading decliners 6:5 on the NYSE while decliners led advancers better than 4:3 on the NASDAQ. Down volume led up volume narrowly on the NYSE while the opposite was the case for the NASDAQ. The index put/call ratio rose 0.12 to close at 1.42. The equity put/call ratio fell 0.03 to close at 0.62.

Commentary:

Thursday's trading action was in a fairly narrow range and didn't close much off the neutral line. With semiconductors giving up very little of Wednesday's gains, the bulls are feeling like they have a shot to drive the markets higher here. However, the risk trade, epitomized by the Russell-2000 continues to remain as a negative. It is the major indexes which are being maneuvered higher (well, the Dow just couldn't quite get there) but the broader market really isn't participating. As the thrust higher becomes a bit narrower and volume is relatively light, it is a good time to be cautious as that great sucking sound you may be hearing is all the air in the room being sucked out.

The dollar didn't appear to be much of a factor as a fall of more than one percent closing not far above its lows didn't help equities to do much more than fight their way to neutral. You have to ask the question of what happens if the dollar breaks the recent low or moves back up to challenge and break the recent high, which really isn't that much above Wednesday's close.

Bonds did, in fact, bounce but were contained in their move. There has been no break out, nor has there been a break down, yet. We will give this another day to see if a larger move for bonds (higher) will put equities under some pressure to move lower.

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