4/4/2011 9:16:42 AM

The market did its best to fool bulls and bears...

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 immediately reversed for the first half hour after bettern than expected economic reports. A half hour into the session, economic reports that didn't disappoint triggered a buying frenzy that moved the major indexes higher than the gap up open. By noon, the rally was over and a slow drift began. That move lower would last into the final hour of trading with the NASDAQ-100 selling off disproportionate the other major indexes. All the major indexes closed higher on the day with the Dow failing to close above its February 18th close for the third straight session. Both the S&P-500 and Dow are ready to challenge their recent highs while the NASDAQ-100 is definitely lagging. The Dow, in fact, moved into an uptrend state. The Semiconductor Index (SOX 432.85 -4.51) fell one percent while the Russell-2000 (IWM 84.54 +0.37) posted a fractional gain. The Russell-2000 joins the Dow in an uptrend state as did the Regional Bank Index (KRE 26.92 +0.29) which soared more than one percent. The Bank Index (KBE 26.04 +0.22) put on a strong fractional gain but is, by far, the weakest of the equity indexes we regularly monitor. The Finance Sector ETF (XLF 16.53 +0.14) tacked on similar gains and is the next weakest of the equity indexes. Longer term Bonds (TLT 92.19 +0.45) due to a six cent capital gain and a thirty-nine cent dividend. NYSE trading volume was light with just 681M shares traded. NASDAQ share volume was below average with 1.822B shares.

There were seven economic reports of interest released:

• Non-farm Payrolls (Mar) came in at 216K versus an expected 185K
• Non-farm Private Payrolls (Mar) came in at 230K versus an expected 203K
• Unemployment Rate (Mar) fell to 8.8% versus an expected 8.9%
• Hourly Earnings (Mar) were flat (+0.0%) versus an expected +0.2% rise
• Average Workweek (Mar) came in at 34.3 hours as expected
• ISM Index (Mar) came in at 61.2 versus an expected 61.4
• Construction Spening (Feb) fell -1.4% versus an expected -0.7% fall

The first five reports were released an hour before the open. The other two were released a half hour into the session. Non-farm Private Payrolls for February were revised to 240K from 222K suggesting that job growth has been somewhat better than previously believed.

The U.S. dollar fell one tenth of one percent after gapping significantly higher at the open.

Implied volatility for the S&P-500 (VIX 17.40 -0.34) fell two percent and the implied volatility for the NASDAQ-100 (VXN 19.41 -0.33) fell similarly.

The yield for the 10-year note was unchanged closing at 3.45. The price of the near term futures contract for a barrel of crude oil rose $1.22 to close at $107.94.

Tech (-0.1%) and Telecom (-0.1%) were the only losing sectors. The other eight economic sectors in the S&P-500 moved higher led by Industrials (+0.9%) and Finanicals (+0.8%).

Market internals were positive with advancers leading decliners 9:4 on the NYSE and by 5:4 on the NASDAQ. Up volume led down volume 3:1 on the NYSE while just edging past down volume on the NASDAQ. The index put/call ratio rose 0.06 to close at 1.44. The equity put/call ratio fell 0.05 to close at 0.51.

Commentary:

Friday's session was a bit scary for the bulls as the were fooled with the higher open and the immediate dive lower even after the stronger than expected employment picture. Then a race to new intraday highs was followed by a drop into negative territory in the afternoon before the strong rally in the final fifteen minutes left the major indexes closing in positive territory.

The continued weakness in semiconductors continues to be evident as the NASDAQ-100 continues to underperform. Given the amount of semiconductor wafers that are manufactured in Japan and the disruption to that production from the natural disasters that occurred there recently, it is pretty easy to connect the dots to supply chain disruptions throughout Tech. Japan is also home of chip foundries and other important players in the semiconductor space. With potential disruptions in supply of these chips, cell phones, smart phones, tablets, laptops, desktops, navigation systems, gaming systems, etc. can all see constrained supplies which can affect the top and bottom lines for many companies. Savvy market participants have factored in these disruptions and are expecting companies affected to guide lower for some time until suppy is reasserted. This will act as a temporary drag on the space. Timing, as they say, is everything.

We await the start of earnings season in April, which is more than a week away. Until then, we expect more difficult conditions as the major indexes ready to challenge overhead resistance. Until we see a clear change in direction, the most likely path for the major indexes is still higher.

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