4/7/2011 9:08:10 AM

Buyers chased financials stocks while overzealous bulls were clobbered by small cap sellers...

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Daily Trading Action

The major index ETFs opened higher and moved immediately higher from the open but rolled over before the top of the hour to start a descent that would last until noon. That descent was interrupted with a brief modest rally about an hour into the session but it failed and the bears seized control. The bulls did step in when the bears took off for lunch and kept buying into the close. This left the major indexes closing in positive territory but not as high as the gap up open. The Dow is at a high not seen since June 2008. The S&P-500 is a fraction of one percent away from breaking the mid-February high. The NASDAQ-100 is still well off its mid-February or even early March highs but those highs are above the levels reached since 2001 (during the dot bomb era). The Dow and S&P-500 have a BULLISH BIAS while the NASDAQ-100 has a NEUTRAL BIAS. The S&P-500 and NASDAQ-100 are in trading states. The Semiconductor Index (SOX 445.50 +6.72) tacked on another one and one half of one percent while closing at its 50-Day Moving Average (DMA). A break out or down here would be significant. The Russell-2000 (IWM 85.38 +0.19) added a fractional gain but was well of its high (84.91) which broke above the intraday high of 84.75 hit on Tuesday which match the $84.74 high hit four years earlier which was the all time high. Obviously, a break-out by the Russell-2000 would be significant. The Regional Bank Index (KRE 27.36 +0.54) added two percent and the Bank Index (KBE 26.43 +0.40) added one and one half of one percent. The Finance Sector ETF (XLF 16.69 +0.19) tacked on a gain of more than 1.1%. Longer term Bonds (TLT 90.54 -1.38) cratered 1.5% closing below all the major averages we regularly report on. NYSE trading volume was below average with 866M shares traded. NASDAQ share volume was average with 1.985B shares.

In addition to the weekly crude oil inventory report, there was a single economic report released:

• The MBA Mortgage Index fell two percent versus last week's reading

This report was released two and a half hours before the open.

The U.S. dollar fell 0.55% moving even lower after a gap down open. It is hovering just above its closing low recorded on March 21st. It appears ready to bounce off of a double bottom, but a break down through this low would be significant.

Implied volatility for the S&P-500 (VIX 16.90 -0.35) fell two percent and the implied volatility for the NASDAQ-100 (VXN 19.32 -0.14) fell nearly three quarter of one percent.

The yield for the 10-year note rose five basis points closing at 3.54. The price of the near term futures contract for a barrel of crude oil rose 0.49 to close at $108.83. The weekly U.S. Government report showed crude oil inventories rose by 2M barrels since last week and is the fifth consecutive increase with inventory up by 22M barrels this year.

Six of ten economic sectors in the S&P-500 moved higher led by Financials (+1.1%). Consumer Discretionary (-0.2%), Telecom (-0.6%), Materials (-0.8%), and Energy (-0.9%) were the losing sectors.

Market internals were positive with advancers leading decliners 7:5 on both the NYSE and the NASDAQ. Up volume led down volume 7:4 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell 0.25 to close at 0.96. The equity put/call ratio fell 0.01 to close at 0.57.

Commentary:

Reflecting on Wednesday's trading action, the bulls came out ready to really rough up the bears but failed to execute as all market participants know that earnings season kicks off next week. The attempted break-out by the Russell-2000 failed but the move up by Semiconductors threatens another break-out on Thursday, with the S&P-500 poised to break out to highs not seen since June 2008. The Dow has already led the major indexes there so it is a matter of what happens with the NASDAQ-100 due to concerns over supply disruptions in Tech due to Japan's natural disasters and nuclear catastrophe.

The choppy conditions continue and, although a break-out is possible, we expect this to be the case through the end of this week. Certainly the health of the financial sector is helping to press the major indexes higher at this time. If the concerns of supply chain disruptions are alleviated with guidance next week, the market could really still run higher before investors show concerns over the lapse of QE2 scheduled for the end of June. We will remain long during these choppy conditions awaiting a clear sign of a top or extension of the current rally.

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