4/12/2011 9:09:42 AM

With the leading indexes leading lower, caution is warranted...

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)

Click here to learn more about my services and for our best ETF portfolios.

Value Portfolio:
We hold no value positions at this time.

Daily Trading Action

The major index ETFs opened higher and immediately climbed but reversed that into the day's first sell off beginning just after a half hour into the session. A half hour later, the bulls took control but in less than an hour the bears once again had the major indexes heading lower. The see-saw action remained with a downward bias until the major indexes started bottoming with an hour left to go and with a half hour left in the session, the buying began in earnest. This left the Dow closing up one point but with the S&P-500 and the NASDAQ-100 sporting losses. The NASDAQ-100 also slipped below its 50-Day Moving Average (DMA) but all three major indexes retained their BULLISH BIAS and remained in trading states. The Semiconductor Index (SOX 435,88 -3.70) posted a fractional loss and crossed below its 50-DMA. The Russell-2000 (IWM 83.23 -0.75) posted a significant fractional loss as well. This marks the fourth day the Russell-2000 has opened higher and finished lower. The Regional Bank Index (KRE 26.71-0.05) posted a modest loss as did the Bank Index (KBE 26.03 -0.05). The Finance Sector ETF (XLF 16.46 +0.00) closed flat on the day. Longer term Bonds (TLT 89.96 +0.08) tacked on a modest gain but remains in a downtrend state and is leaning toward a likely BEARISH BIAS shortly. NYSE trading volume was light with just 711M shares traded. NASDAQ share volume was average with 1.983 shares traded.

There were no economic reports released. Instead it was all about positioning for the kick-off of first quarter earnings season with Alcoa (AA 17.77 -0.15) reporting after the close on Monday. Alcoa did report after the close and beat earnings expectations by one penny and maintained guidance but revenue was a bit lighter than expected. When trading was resumed, sellers dominated with AA trading near $17.00 early Tuesday morning.

NYSE Euronext (NYX 37.59 -1.11) issued a rejection of the takeover bid issued by Nasdaq (NDAQ 28.03 -0.42) and IntercontinentalExchange (ICE 120.55 +0.00). It remains to be seen if NASDAQ and IntercontinentalExchange will make a hostile bid directly to NYSE Euronext shareholders over the advice of its board.

The other major deal announced was the purchase of Global Crossing (GLBC 24.97 +10.17) by Level 3 (LVLT 1.70 +1.70). The deal is for a stock-for-stock deal with a 50% premium over the prior sessions closing price for GLBC.

The U.S. dollar rose one tenth of one percent to close just off a multi-year low.

Implied volatility for the S&P-500 (VIX 16.59 -1.28) fell more than seven percent and the implied volatility for the NASDAQ-100 (VXN 19.09 -0.67) fell three percent.

The yield for the 10-year note was unchanged closing at 3.57. The price of the near term futures contract for a barrel of crude oil fell $2.87 to close at $109.92.

Energy (+0.4%), Telecom (+0.3%), and Healthcare (+0.1%) moved higher while the other seven economic sectors in the S&P-500 moved lower led by Financials (-0.9%).

Market internals were mixed with decliners leading advancers 7:3 on the NYSE and by nearly 2:1 on the NASDAQ. Down volume led up volume 2:1 on the NYSE while up volume edged down volume on the NASDAQ. The index put/call ratio rose 0.26 to close at 1.45. The equity put/call ratio rose 0.03 to close at 0.62.

Commentary:

Monday's trading was again choppy but saw a more negative tone as the sell-off of the Russell-2000 continued for the fourth consecutive session. The Semiconductor Index has been stymied in attempts to cross up through its 50-DMA. With the NASDAQ-100 closing below that level, this suggests the leading indexes lack the will to move higher at this time.

With Alcoa beating on earnings but coming up shy on revenues, the effect has been negative on the large cap indexes. In addition, Japan has moved the nuclear event to a level 7, the highest possible. While the radiation leaked is only about 1/10th the level of radiation leaked at Chernobyl, over time the radiation leaked will likely rise. Japan has increased the evacuation zone from 20km to 30km.

We are torn here in that equities, for the most part, retain a BULLISH BIAS and Longer Term bonds are shifting to a BEARISH BIAS. However, we do not like the pricing action of the leading indexes. We have been anticipating a large directional move and the flag pattern of the NASDAQ-100 is actually bullish for a break-out to the upside.

This is options expiration week and the best levels for the market makers to settle options are still below us so that may pressure the major indexes to move yet lower still. We will stay with our long positions for one more day to give the bears the chance to step in or for the bears to seal the fate of the bulls and break the chance for the market to move higher in short order.

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