4/5/2011 9:10:05 AM

For the fourth straight session, Semiconductors have sold off hampering Tech...

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Daily Trading Action

The major index ETFs opened higher and then were mixed. The Dow traded mostly sideways through the day while the S&P-500 drifted slowly lower. The NASDAQ-100 see-sawed its way lower. All three major indexes moved higher with two hours left in the session but the NASDAQ had to test lower one more time before strong buying in the forty-five minutes allowed both the Dow and S&P-500 to close higher while the NASDAQ-100 recorded a loss of about one third of one percent. The Dow is now in an uptrend state with a BULLISH BIAS while the S&P-500 is in a trading state with a NEUTRAL BIAS. The NASDAQ-100 is also in a trading state but with a BEARISH BIAS. The Semiconductor Index (SOX 429.05 -3.80) lost nearly nine tenths of one percent. The Russell-2000 (IWM 84.73 +0.19 added another fractional gain as it attempts to break out to multi-year highs. The Regional Bank Index (KRE 27.03 +0.11) tacked on fresh gains while the Bank Index (KBE 26.03 -0.01) closed essentially flat. The Finance Sector ETF (XLF 16.51 -0.02) closed down about one eight of one percent. Longer term Bonds (TLT 92.29 +0.10) closed little changed. NYSE trading volume was light with just 675M shares traded. NASDAQ share volume was light with 1.632B shares.

There were no economic reports of interest released. Instead, the theme of the day was weakness in Tech as the supply chain disruptions due to Japan's natural disasters (earthquake and Tsunami) continue to be factored in to semiconductor stocks and companies that are large consumers of these products. After the market closed, Texas Instruments (TXN 34.11 -0.12) announced it has offered to acquire National Semiconductor (NSM 14.07 -0.16) for $6.5 billion. This caused Tech to trade significantly higher in after hours trading. The NASDAQ-100 traded higher than last Friday's close within minutes of the close, making up for the drubbing it took during Monday's session.

The U.S. dollar was unchanged.

Implied volatility for the S&P-500 (VIX 17.50 +0.10) rose fractionally while the implied volatility for the NASDAQ-100 (VXN 20.05 +0.64) ratcheted up 3.3%.

The yield for the 10-year note fell two basis points closing at 3.43. The price of the near term futures contract for a barrel of crude oil rose fifty-three cents to close at $108.47.

Tech (-0.5%), Financials (-0.1%), and Utilities (-0.1%) lost ground while Energy was unchanged. The remaining six economic sectors in the S&P-500 moved higher led by Materials (+0.7%) and Healthcare (+0.6%).

Market internals were mixed with advancers leading decliners 4:3 on the NYSE and by 9:8 on the NASDAQ. Up volume led down volume by two percent on the NYSE while just the opposite occured on the NASDAQ. The index put/call ratio rose 0.50 to close at 1.94. The equity put/call ratio rose 0.09 to close at 0.60.

Commentary:

Monday's session, once again, leaves the major indexes in a tenuous state. With semiconductors companies continuing to break lower and the Tech companies that depend on them also taking a beating, market participants are unsure how to properly value them because the length and severity of supply disruptions is an unknown. While the risk trade of small caps continues to power the Russell-2000 to continually higher closes, the other leading indexes (NASDAQ-100 and Semiconductor Index) are "taking it on the chin." Without their united leadership, gains will be difficult for the broader market. We are essentially playing a waiting game until companies affected by the supply chain disruptions can provide guidance as to the length and severity on their operations.

On the plus side, complacency is rapidly being exchanged for healthy fear in the marketplace as implied volatility begins to rise and put buying leaps higher. We are tempted to reverse to a short trade here to catch a bit of trading weakness but we don't believe that losses will be particularly significant and the underlying bullishness of the market is still apparent, even with the increase in defensive posturing.

Next Monday, Alcoa (AA 17.56 +0.09) reports its quarterly earnings. That is the unofficial start of earnings season and we will hear from the Tech companies that are affected by Japan's economic disruptions. Until then, we expect more difficult conditions (choppy trading) 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.