4/15/2011 9:02:36 AM

The major indexes roar back after a gap down open...

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Daily Trading Action

The major index ETFs opened lower following significant losses on European bourses. The major indexes moved lower for the first half hour of trading with the Dow and S&P-500 dipping to intraday lows not seen since March. The NASDAQ-100 didn't dip as low as it had been on Tuesday when the bulls decided to bring their "A game". The plunge was quickly beat back and when the bulls tested the bears resolve found that they could move the major indexes higher fairly easily so did just that with an explosive run beginning about forty-five minutes into the session. The rest of the session was spent in a see-saw battle moving every higher until at the close, both the Dow and S&P-500 closed higher while the NASDAQ-100 posted a modest loss. All three major indexes retained their BULLISH BIAS with all three in trading states. The NASDAQ-100 and S&P-500 are both below their 50-Day Moving Averages (DMAs) and the NASDAQ-100 is only just even with its 20-DMA. The Semiconductor Index (SOX 428.41 +0.52) posted a modest gain and the Russell-2000 (IWM 82.63 +0.38) posted a strong fractional gain. This was the first day, in the last seven days, that the Russell-2000 has posted a white candlestick as market participants decided that the reward to risk ratio has improved with the recent sell-off. The Regional Bank Index (KRE 26.27 +0.08) also showed a desire by market participants to take on more risk with a gain of nearly one third of one percent. The Bank Index (KBE 25.46 -0.24) plummeted nearly one percent as expectations of further write-downs of mortgage debt loom over the large banks. The Finance Sector ETF (XLF 16.15 -0.13) logged a loss of most of one percent as well. Both Bank Indexes and the Finance Sector ETF are below their 20-Day Moving Averages (DMAs) and their 50-DMAs. Longer term Bonds (TLT 91.43 -0.07) closed between the 20-DMA just above and the 50-DMA just below. It remains in a trading state and has a BEARISH BIAS. NYSE trading volume was average with 928M shares traded. NASDAQ share volume was light with 1.604B shares traded.

There were four economic reports released:

• Initial jobless claims for last week came in at 412K versus an expected 385K
• Continuing jobless claims came in at 3.680M versus an expected 3.700M
• PPI (Mar) rose 0.7% versus an expected 1.1% rise
• Core PPI (Mar) rose 0.3% versus an expected 0.2% rise

All reports were released an hour before the open. With initial jobless claims coming in above 400K for the first time in seven weeks, market participants were initially taken aback.

The U.S. dollar fell another one tenth of one percent to close at a new multi-year low.

Implied volatility for the S&P-500 (VIX 16.27 -0.65) and the implied volatility for the NASDAQ-100 (VXN 17.70 -0.80) both slid four percent.

The yield for the 10-year note rose three basis points to close at 3.49. The price of the near term futures contract for a barrel of crude oil rose one dollar to close at $108.11.

Industrials were unchanged but Financials (-0.9%) led stocks lower with Tech (-0.3%) and Consumer Discretionary (-0.3%) in pursuit. The other six economic sectors in the S&P-500 were able to post gains with Consumer Staples (+0.6%) and Energy (+0.6%) being the strongest.

Market internals were mixed with advancers leading decliners 5:4 on both the NYSE and the NASDAQ. Down volume led up volume modestly on both the NYSE and the NASDAQ. The index put/call ratio rose 0.24 to close at 1.26. The equity put/call ratio rose 0.04 to close at 0.70.

Commentary:

Thursday's trading was a surprise to the bears who have had their way with the bulls of late. With the gap down open and immediate test lower being bought by the bulls, I think the bears were surprised at the buying interest that broke up through resistance and the buying was initially led by interest in small cap stocks. With interest in the Russell-2000 once more on the rise, and with the semiconductors reversing their continual sell-off, there may be some easing up by the bears as we come into options expiration on Friday.

With earnings season just getting kicked off this week, it seems stocks are priced to perfection and any disappointment results in shares being sold off pretty hard. There is also weakness in financials which continues to hamper the Dow and S&P-500. However, with all those negatives, the Dow and S&P-500 are barely off the highs posted in the last two weeks. The NASDAQ-100 hasn't fared so well but is currently in a bullish trading pattern just the same. If the Russell-2000 and the Semiconductor Index can show some bullish buying interest again on Friday, it may finally open the door for the bulls to come roaring back. Otherwise, we are looking for an exit from bullish positions.

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