3/30/2011 8:24:46 AM

The major indexes dove at the open and rallied at support to end higher...

Recommendation:
Take no action.

My subscribers have access to the StockBarometer Market Chat room as usual. The chat room password is "mark55" without the quotes, of course. I look forward to seeing you there.

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 lower and were slammed in the first fifteen minute but halted the headlong rush lower in the next fifteen minutes. The top of the hour saw a significant rally that would be maintained through the session. The only respite for the bears occured during a slow drift lower during the lunch hour. This left the major indexes all closing above key resistance levels as they closed at or very near their highs. The Semiconductor Index (SOX 441.04 +4.29) notched a one percent gain as did the Russell-2000 (IWM 82.81 _0.77). The Bank Index (KBE 25.69 +0.06) and the Regional Bank Index (KRE 26.06 +0.17) both added fractional gain but remained relatively weak compared to other equity indexes. The Finance Sector ETF (XLF 16.32 +0.03) posted a modest gain as the Financial sector (+0.3%) was the weakest sector in the S&P-500. Longer term Bonds (TLT 91.59 -0.71) posted a fractional loss and fell below its 20-Day Moving Average). NYSE trading volume was light with just 717M shares traded. NASDAQ share volume was also light with 1.600B shares.

There were two economic reports of interest released:

• Case-Shiller 20-City Home Price Index (Jan) fell 3.06% versus an expected -3.3%
• Consumer Confidence (Mar) fell to 63.4 versus an expected 65.0

The first report was released a half hour before the open while the latter report trailed th open by one half hour.

Late in the session, the auction of 5-Year notes showed a degradation in demand for treasuries, even though the auction netted some $97.7B. While the auction was successful, there is evidence that higher interest rates will need to be offered to induce buyers, which suggests that the growing U.S. Federal deficits will need to be addressed sooner rather than later. This will require a change in attitude by the executive branch as well as our legislative bodies. The austerity measures being adopted and/or being balked at in Europe will be hitting the United States in short order or the U.S. will be forced to raise rates shortly.

While QE3 is being discusses as a possibility, I don't think that it we be enacted on anything like the scale of QE2. I would prefer it not be enacted at all but I am not certain that the Fed can restrain itself. It may have to buy treasuries, given the lack of interest in the private sector and due to limited participation by foreign central banks.

The U.S. dollar was nearly unchanged falling less than one tenth of one percent.

Implied volatility for the S&P-500 (VIX 18.16 -1.28) 19.44 +1.53) fell nearly seven percent as the implied volatility for the NASDAQ-100 (VXN 21.34 -0.89) 22.23 +1.45) fell four percent.

The yield for the 10-year note rose four basis points to close at 3.49. The price of the near term futures contract for a barrel of crude oil rose eighty-one cents to close at $104.79.

Telecom (+1.5%) continues to lead the market higher as all ten economic sectors in the S&P-500 advanced.

Market internals were positive with advancers leading decliners 2:1 on both the NYSE and the NASDAQ. Up volume led down volume nearly 2:1 on the NYSE and by nearly 3:1 on the NASDAQ. The index put/call ratio fell 0.11 to close at 1.10. The equity put/call ratio fell 0.02 to close at 0.55.

Commentary:

Tuesday's session was all about a bear trap. After Monday's strong sell into the close behavior, the major indexes opened modestly lower and took off to the downside in the opening fifteen minutes. It was at that point that all the bears were surprised at the intensity of the buying effort. The next fifteen minutes were pivotal as the slide was halted and set up a significant move higher that began just after the top of the hour. While the major indexes did drift lower during the lunch hour, there was no where to hide the rest of the session from the bullish assault. Trying to short the market frustrated many bears and a short covering rally was induced. The major indexes finished at or close to their highs of the day. It appears that the trap will be compleded with a large gap up open on Wednesday which is likely to induce more short covering as the "Buy the Dip" crowd continues to rule the roost.

While the BEARISH BIAS remains for all equity indexes we monitor, the leading indexes and the major indexes have all warned of a shift toward a BULLISH BIAS. That shift could come as early as the end of this week as end of month window dressing and the beginning of the seasonally strong month of April come into play. What a difference a day makes. On top of this, Longer term bonds remain with a BULLISH BIAS but flashed a warning that they may shift to a BEARISH BIAS shortly. The vast majority of time, when a warning of a change in BIAS is detected, it comes to be in relatively short order. With the leading indexes all leading higher with relative strength compared to other equity indexes, we have to side with the bulls now and will maintain our long stance.

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