3/31/2011 8:17:41 AM

The major indexes are ready to assault their recent highs...

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 higher and after moving in mixed fashion in the opening minutes, moved higher into the top of the hour and then reversed to move lower for the next half hour. This left the NASDAQ-100 close to closing the opening gap before all the major indexes once again powered higher. The move higher continued until then end of the lunch hour when the major indexes weakened. This left the Dow and S&P-500 to decline from that zenith and never made it back to re-challenge that level. However, the NASDAQ-100, which underperformed relative to the other major indexes, challenged that level on several occasions through the afternoon but was never able to break through and eventually succumbed to selling pressure. All the major indexes pulled back more steeply in the final fifteen minutes leaving all of them closing off their highs. The Semiconductor Index (SOX 441.38 +0.34) closed relatively flat while the Russell-2000 (IWM 83.88 +1.07) gained 1.3% as it led equities higher. The Bank Index (KBE 25.90 +0.21) gained eight tenths of one percent and the Regional Bank Index (KRE 26.45 +0.39) gained a full 1.5% while moving even with its 50-Day Moving Average (DMA). The Finance Sector ETF (XLF 16.45 +0.13) tacked on a solid fractional gain. This left all equity indexes we track in trading states above their 20-DMAs. Many are trading above their 50-DMAs or are ready to challenge those levels and many appear ready to shift to a BULLISH BIAS. Longer term Bonds (TLT 92.32 +0.73) also moved back above its 20-DMA as it moved in the same direction as equities, a somewhat unusual occurrence. NYSE trading volume was light with just 752M shares traded. NASDAQ share volume was also light with 1.684B shares.

In addition to the weekly crude oil inventory report, there were three economic reports of interest released:

• MBA Mortgage Index fell -7.5% versus the prior weeks +2.7% rise
• Challenger Job Cuts (Mar) fell -38.6% versus February's +20% rise
• ADP Employment Change (Mar) fell to 63.4 versus an expected 65.0

All three reports were released at least one hour before the open.

The U.S. dollar fell one tenth of one percent.

Implied volatility for the S&P-500 (VIX 17.71 -0.45) fell two percent and the implied volatility for the NASDAQ-100 (VXN 20.38 -0.96) fell four and a half percent.

The yield for the 10-year note fell three basis points to close at 3.455. The price of the near term futures contract for a barrel of crude oil fell fifty-two cents to close at $104.27. The U.S. government reported that crude oil inventories had risen by 2.945M barrels since last week.

All ten economic sectors in the S&P-500 advanced led by Telecom (+1.4%) with relative weakness shown by Tech (+0.2%).

Market internals were positive with advancers leading decliners 8:3 on the NYSE and by 7:3 on the NASDAQ. Up volume led down volume 3:1 on the NYSE and by nearly 2:1 on the NASDAQ. The index put/call ratio fell 0.07 to close at 1.03. The equity put/call ratio wsa nearly unchanged falling 0.01 to close at 0.54.

Commentary:

Wednesday's session was clearly all about a challenge of recent highs. In fact, the Russell-2000 broke above its 2-year high achieved on February 18th and is now threatening its high set in July '07. It is just 2.2% below that level which shows how much the risk trade is still on in this market. The semiconductor index isn't cooperating, however with Tech being relatively weak compared to all the other economic sectors. The tech-heavy NASDAQ-100 is underperforming the other major indexes. This isn't the kind of leadership you expect in a bull market even as resistance levels continue to be broken.

Once again, we see a sell into the close. However, the bulls continue to "Buy the Dip" and our spidy sense is tingling (reference to Spiderman's ability to sense danger). While we haven't been given a definitive sign of an imminent reversal, it won't take much as the major indexes have reached basic overbought conditions.

The Dow and Russell-2000 have shifted from their BEARISH BIAS to a NEUTRAL BIAS and many of the other equity indexes appear ready to follow. The Russell-2000 is also on the verge of shifting to an uptrend state. With all that said, this is sort of the last best chance for the bears to turn the advance. The bulls argue that stocks are significantly undervalued at this time and the bears continue to trot out concerns the threats from MENA, Japan's nuclear catastrophe in the making, sovereign debt issues, the U.S. fiscal deficit, etc. At this time, the bulls are winning and the market is at a tipping point to either break on through to the other side, meaning achieve new two year highs, or to break on down yet again.

We will trade it whichever way it breaks. We do see the potential for a reversal here but we lack a definitive sign so we will stay long for another session and we what is presented to us. Each day that the bears can't slow down the advance the bulls grow stronger, even as they use up energy to carry the market higher.

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