4/20/2011 9:11:07 AM

Once again, traders waited for the market to dip and bought on light volume...

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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.

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Value Portfolio:
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Daily Trading Action

The major index ETFs opened higher and then popped higher in the first fifteen minutes before a morning sell-off began. That would take the major indexes into negative territory before a bottom was set in late morning trading. From that point, a slow grind higher began that would last into the close. This left all three major indexes in downtrend states with BULLISH BIASes. All three closed below their 20-Day Moving Averages (DMAs) with only the Dow able to close above its 50-DMA. All three have warned of a potential move to a BEARISH BIAS. The Semiconductor Index (SOX 425.26 +1.82) posted a fractional gain and the Russell-2000 (IWM 82.15 +0.02) was flat. The Regional Bank Index (KRE 25.81 -0.26) fell one percent and the Bank Index (KBE 25.11 +0.01) was flat. The Finance Sector ETF (XLF 15.97 +0.05) posted a fractional gain. Both bank indexes and the finance sector ETF are in downtrend states with both bank indexes having a BEARISH BIAS. All are below their 20-DMAs and 50-DMAs. Longer term Bonds (TLT 93.28 +0.40) posted a fractional gain. It remains in a trading state and has a BEARISH BIAS but that could change in the coming week. NYSE trading volume was light with 845M shares traded. NASDAQ share volume was light with 1.585B shares traded.

There were two economic reports released:

• Housing Starts (Mar) came in at 549K versus an expected 520K
• Building Permits (Mar) came in at 594K versus an expected 540K

The report was released an hour before the open. Both provide annualized numbers and clearly beat expectations.

The U.S. dollar fell six tenths of one percent.

Implied volatility for the S&P-500 (VIX 15.83 -1.13) fell nearly seven percent and the implied volatility for the NASDAQ-100 (VXN 16.23 -2.24) fell twelve percent.

The yield for the 10-year note fell two basis points to close at 3.36. The price of the near term futures contract for a barrel of crude oil rose $1.16 to close at $108.28.

Utilities were unchanged and Telecom (-0.1%) was the sole loser. The other eight economic sectors in the S&P-500 closed higher led by Materials (+1.8%) and Energy (+1.1%).

Market internals were positive with advancers leading decliners 2:1 on the NYSE and by two percent on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose 0.11 to close at 1.28. The equity put/call ratio rose 0.03 to close at 0.65.

Commentary:

Tuesday's trading saw light trading volumes as the momentum investors bought at the open and then gave up but the "buy the dip" crowd waded in to pick up stocks on the cheap later in the morning. The momentum crowd then jumped in and took things higher into the close.

While the Standard and Poors negative outlook on U.S. sovereign debt has been forgotten by market participants (in just one day), Washington D.C. has had a wake-up call. All politicians who are up for re-election in 2012 now have to address the budget issue or risk losing their positions in office. This will continue to turn up like a bad penny for the foreseeable future.

Overnight, Intel (INTC 19.86 +0.24) and IBM (165.44 -0.50) reported earnings and while IBM stumbled a bit, Intel knocked the cover off the ball and is up nearly seven percent pre-market. This has caused futures to rise significantly such that he open for the major indexes should be more than one percent higher than Tuesday's close. In fact, the major indexes are going to open near their April highs so the battle to break above resistance will likely begin in earnest next week. What happens after that will determine whether we change our positions.

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