3/28/2011 8:55:30 AM

Tech started to lead the markets higher but faded into the close...

Recommendation:
Take no action.

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Stock Market Trends:

- ETF Positions indicated as Green are Long ETF positions and those indicated as Red are short positions.

- The State of the stock 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 an ETF position. If the BIAS is Bullish but the stock 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 ETF trade on "weaker" signals than you might otherwise trade on as the stock 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.

Best ETFs to buy now (current positions):
Long DIA at $117.22 (adjusted for $0.23 dividend on 03/18/11)
Long QQQQ at $54.90 (adjusted for $0.11 dividend on 03/18/11)
Long SPY at $127.45 (adjusted for $0.55 dividend on 03/18/11)

Value Portfolio:
We hold no value positions at this time.

Daily Trading Action

The major index ETFs opened higher and then eased in the first half hour before leaping higher around the top of the hour and continuing the move through the morning. By the middle of the lunch hour, that move reversed itself into a slow decline that would last through the afternoon. Overhead resistance contained a move higher by the S&P-500 while the NASDAQ-100 was able to fight its way to close just under its 50-Day Moving Average (DMA). The Dow maintains a neutral BIAS while the NASDAQ-100 and S&P-500 have a BEARISH BIAS. The Semiconductor Index (SOX 436.27 -1.14) closed with a fractional loss after opening with a fractional gain. The Russell-2000 (IWM 82.22 +0.71) added most of one percent after soaring higher and then losing most of those intraday gains over above average volume. The Bank Index (KBE 25.71 +0.11) posted a fractional gain as did the Regional Bank Index (KRE 25.85 +0.11). The Finance Sector ETF (XLF 16.34 +0.04) closed with a modest gain. The Bank Indexes and the Finance Sector all have a BEARISH BIAS and all three moved to downtrend states. Longer term Bonds (TLT 92.40 -0.70) posted a large fractional loss but has maintained its uptrend state and BULLISH BIAS. NYSE trading volume was quite light with just 647M shares traded. NASDAQ share volume was light with 1.683B shares.

There were three economic reports of interest released:

• GDP-Final (Q4) came in at +3.1% versus an expected +2.9%
• GDP-Deflator-Final (Q4) came in at 0.4% as expected
• Univ of Michigan Consumer Sentiment-Final (Mar) came in at 67.5 versus an expected 68.0

The first two reports were released an hour before the open. The Consumer Sentiment report was released twenty-five minutes into the session.

Oracle (ORCL 32.64 +0.50) helped Tech to gap up higher on better than expected earnings and a strong forecast. Research in Motion (RIMM 56.89 -7.20) relesased results which not only missed on earnings but also provided disappointing guidance. The effect was to reverse the bullish bias exhibited at the open and caused the NASDAQ-100 to close lower than it opened.

The U.S. dollar rose seven tenths of one percent.

Implied volatility for the S&P-500 (VIX 17.91 -0.09) fell modestly while the implied volatility for the NASDAQ-100 (VXN 20.78 +0.19) rose nearly one percent.

The yield for the 10-year note rose four basis points to close at 3.44. The price of the near term futures contract for a barrel of crude oil fell twenty cents to close at $105.40.

Eight of ten economic sectors in the S&P-500 moved higher led by Energy (+0.9%) and Telecom (+0.8%). Consumer Discretionary (+0.2%), Tech (+0.2%), and Financials (+0.2%) were the weakest advancing sectors. Utilities and Consumer Staples were unchanged.

Market internals were positive with advancers leading decliners 9:5 on the NYSE and by 7:5 on the NASDAQ. Up volume led down volume 2:1 on both the NYSE and the NASDAQ. The index put/call ratio fell 0.32 to close at 1.11. The equity put/call ratio was unchanged closing at 0.57.

Commentary:

Friday's session a win as all the major indexes were able to post gains. The fact that leadership in Financials and Tech reversed from bullish to bearish with the NASDAQ-100 finishing lower than it opened pretty much summed up trading action. It is also a useful barometer of the market's current condition. With all of the equity indexes we regularly monitor having a NEUTRAL or BEARISH BIAS, this is no time to expect a break-out to the upside. It looks like there will be some chopping around as the market works to build energy for another move.

The unrepentant bulls continue to "Buy the Dip." We believe that this creed will be challenged shortly, either by a rise to levels where the bears believe the bulls are vulnerable with a corresponding sell-off, or through choppy trade that sees sector rotation occurring but little in the way of forward progress. The NASDAQ-100 sits just below its 50-DMA, and success by the bulls to push price above this level and hold it may enable the bulls to push the major indexes back up to challenge recent highs seen in mid-February.

Longer term bonds remain with a BULLISH BIAS but are only in a trading state. None of the indexes we regularly monitor has the potent coupling of a bullish bias and an uptrend state or a bearish bias and a downtrend state. A lot of damage was done to the major indexes on this latest move lower that has to be repaired before the markets will likely breach recent highs. Could the coming week result in that damage being repaired? While anything is possible, and we are still positioned for a bullish move, we are painfully aware of the fragile nature of this rally and will monitor things closely to see if the damage is getting repaired or whether the bulls will overextend themselves presenting yet another opportunity for the bears to launch a successful counterattack.

Of note has been the rally in commodities. We continue to actively look for short trade entries for commodities to play a reversal. Since the consensus is that commodities will continue to run higher due to the weakening U.S. dollar, we would like to get a good entry to when the crowded trade begins to unwind. When we find such an entry, you will be informed.

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