4/14/2011 9:14:39 AM

Tech's gains aren't enough to offset bearish financials...

Recommendation:
Take no action.

Click here to access our stock chat rooms today! For a limited time, try our chat room for free. No subscription necessary to give it a try.

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 following gains of nearly one percent on European bourses. The mood turned almost immediately bearish with a corresponding sell-off that lasted forty-five minutes followed by a move in the opposite direction that lasted a like amount of time. The move saw a lower high for the Dow and S&P-500 with a higher high for the NASDAQ-100. When all three major indexes rolled over, they would find corresponding lows just before the end of the lunch hour with the NASDAQ-100 essentially closing the morning gap but with the Dow and S&P-500 significantly in negative territory. The afternoon rally was enough to push the major indexes into positive territory but a sell-off in the final fifteen minutes left the S&P-500 barely positive and the Dow not much better. The NASDAQ-100 was able to tack on nearly one percent in gains on the strength of a rally in Tech. All three major indexes retained their BULLISH BIAS with all three in trading states. The Semiconductor Index (SOX 427.89 +1.11) tacked on a fractional gain as did the Russell-2000 (IWM 82.25 +0.11). This marks the sixth day the Russell-2000 has posted a red candlestick, even though it eeked out a gain. The Regional Bank Index (KRE 26.19 -0.37) lost 1.4% and the Bank Index (KBE 25.70 -0.29) lost more than one percent. The Finance Sector ETF (XLF 16.28 -0.12) lost eight tenths of one percent. Both Bank Indexes and the Finance Sector ETF have fallen back below their 20-Day Moving Averages (DMAs) and their 50-DMAs. Longer term Bonds (TLT 91.50 +0.57) rallied back above their 50-DMA but remains in a trading state and has a BEARISH BIAS. NYSE trading volume was average with 901M shares traded. NASDAQ share volume was fairly light with 1.652B shares traded.

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

• MBA Mortgage Index fell -6.7% since last week
• Retail Sales (Mar) rose 0.4% versus an expected 0.5% rise
• Retail Sales exluding Autos (Mar) rose 0.8% versus an expected 0.7% rise
• Business Inventories (Feb) rose 0.5% versus an expected 0.8% rise

The first three reports were released at least an hour before the open and the last report came out a half hour into the session.

JP Morgan Chase (JPM 46.25 -0.39) fell significantly after gapping up at the open on an earnings beat. Revenue was a little light but the see-off began when CEO Jamie Dimon suggested that no dividend increases were likely in the near future. That cause JPM to sell-off as well as all the other large banks with the banking indexes and finance sector taking huge hits.

The Fed also released its beige book with 2 hours left in the session. There were no surprises with all districts reporting some economic growth and all reporting some effect or expected effect to come from the natural disasters that hit Japan. At the time of the release, President Barack Obama had just begun a speech attempting to re-frame the budget debate. In our estimation, he wasn't effective in doing so and the 2012 budget debate will likely be front and center on the campaign trail with the President caught between liberal Democrats who don't want any budget cuts and newly elected Tea Party candidates who have pledged to cut the budget.

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

Implied volatility for the S&P-500 (VIX 16.92 -0.17) fell one percent and the implied volatility for the NASDAQ-100 (VXN 18.50 -0.89) fell nearly five percent.

The yield for the 10-year note fell four basis point to close at 3.46. The price of the near term futures contract for a barrel of crude oil rose seventy-six cents to close at $107.11.

Tech (0.7%), Energy (+0.3%), Consumer Discretionary (+0.3%), Utilities (+0.3%) and Consumer Staples (+0.1%) were the gaining sectors on the day. The other five economic sectors in the S&P-500 all moved lower led by Financials (-0.8%).

Market internals were mixed with advancers leading decliners 5:4 on the NYSE and by a narrow margin on the NASDAQ. Down volume led up volume 5:4 on the NYSE while up volume led down volume 2:1 on the NASDAQ. The index put/call ratio fell 0.82 to close at 1.02. The equity put/call ratio rose 0.06 to close at 0.66.

Commentary:

Wednesday's trading was disappointing for the bulls. The gap up open due to the bullish performance of foreign markets was almost entirely lost by the Dow and S&P-500 and the potential gains for the NASDAQ-100 were mitigated by bearish overtones. A "sell the news" attitude seems to be the prevailing one for market participants at this time.

With the NASDAQ-100, Russell-2000, and the Semiconductor Index all posting positive closes, the door is still open for the leading indexes to lead the way higher. However, we are now believers that the bullish sentiment is turning sour and will likely look to escape our long positions on the next gap up open. Of course, a recovery from a gap down open (expected on Thursday) could modify our expectations.

One thing to keep an eye on is that the MAX Pain level for SPY (S&P-500 ETF) is around $130.00. We expect market makers to do their very best to push SPY toward that level and some of that energy will dissipate with options expiration on Friday. It may be useful to wait out the market action this week in favor of more favorable conditions next week. We do expect a loss to be recorded by the major indexes on Thursday, the question is to what degree does the loss impact bullish sentiment.

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