4/21/2011 9:01:57 AM

Intel opens up seven percent and markets gap up 1.5% in sympathy...

Recommendation:
Buy shares of DIA, QQQ, and SPY to close the short positions.
Buy shares of DIA, QQQ, and SPY to open long positions.

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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.

Best ETFs to buy now (current positions):
Short DIA at $121.83
Short SPY at $130.59
Short QQQ at $56.09

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 incredibly higher and then ran strongly higher for the first forty-five minutes. Both the Dow and S&P-500 then reversed direction and stalled moving mostly sideways the rest of the morning and then fading lower in the afternoon. A steady climb from there continued most of the afternoon. A surge higher with forty-five minutes to go placed the major indexes within striking distance of the morning highs. By the close, price was still below those morning highs but the major indexes notched significant gains. This left all three major indexes in trading states with BULLISH BIASes. All three closed back above all moving averages we regularly report on. The Dow posted a new closing high at 12453.54. The S&P-500 is about one percent below it's mid-February high and the NASDAQ-100 closed on its upper Bollinger Band and is about two percent below its mid-February high and looks set to walk up its upper Bollinger Band. The Semiconductor Index (SOX 443.42 +18.16) gained an outstanding 4.3% in a single day! The Russell-2000 (IWM 83.83 +1.68) gained two percent. The Regional Bank Index (KRE 25.89 +0.08) posted a modest gain while the Bank Index (KBE 24.99 -0.12) lost about one half of one percent. The Finance Sector ETF (XLF 16.01 +0.04) gained about one quarter of one percent. Both bank indexes and the finance sector ETF are in downtrend states and the bank index and Finance Sector ETF have a BEARISH BIAS. All are below their 20-DMAs and 50-DMAs. Longer term Bonds (TLT 92.68 -0.60) posted a fractional loss. It remains in a trading state and has a BEARISH BIAS. NYSE trading volume was average with 968M shares traded. NASDAQ share volume was above average with 2.010B shares traded.

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

• MBA Mortgage Purchase Index rose +5.3% versus the prior week's -6.7% decline
• Existing Home Sales (Mar) came in at 5.10M versus an expected 5.00M

The first report was released 2.5 hours before the open. The final report came out a half hour into the session.

When Intel Corp (INTC 21.41 +7.8%) reported after the close on Tuesday, foreign markets took its blow-out earnings report and solid guidance as a sign that the global economy would continue to report solid growth and the rose accordingly. While the Hang Seng rose only 1.4%, Japan's Nikkei rose +1.6%, the UK's FTSE rose 2.0%, and Germany's DAX rose +2.5%! The stage was set for a monster gap up open led by a race higher by semiconductor companies. Tech, and semiconductor companies in particular, had been held in check by worries over supply chain disruptions due to Japan's Earthquakes, Tsunami, and nuclear reactor catastrophes. When the largest semiconductor company allayed those fears, the market took off like a rocket higher.

While Wells Fargo & Co. (WFC 28.83 -1.24) reported better than expected earnings, their revenues came in shy of expectations. The stock was punished and it caused the bank index to sell off. While the Financial Sector (+0.3%) was able to notch a gain, it was the weakest economic sector in the S&P-500.

The U.S. dollar fell one percent to a new two year low.

Implied volatility for the S&P-500 (VIX 15.07 -0.76) fell five percent and the implied volatility for the NASDAQ-100 (VXN 16.49 +0.26) rose 1.5%.

The yield for the 10-year note rose four basis points to close at 3.40. The price of the near term futures contract for a barrel of crude oil rose $3.17 to close at $111.45. The U.S. government's weekly report on crude oil inventories showed a rise of 2.322M barrels.

All ten economic sectors of the S&P-500 moved higher led by Tech's tremendous +2.4% surge.

Market internals were positive with advancers leading decliners 9:2 on the NYSE and by 3:1 on the NASDAQ. Up volume led down volume nearly 3:1 on the NYSE and by better than 5:1 on the NASDAQ. The index put/call ratio rose 0.34 to close at 1.62. The equity put/call ratio fell thirteen to close at 0.52.

Commentary:

Wednesday's trading saw trading volumes move up into the average range versus the light volumes we have been growing used to. The huge gap up open and unrelenting pressure by the bears caused a short covering rally which settled at various resistance levels.

While we had expected a gap up open, we needed to see how market participants reacted to the move after the open. With the major indexes finishing near their intraday highs and set for another gap up open on Thursday, we have to abandon our short positions, and go with the momentum as the major indexes move up to test their February highs. While we expected the battle to occur next week, we don't want to be caught short over a three-day weekend with the potential for a continued liquidity fueled rally ahead. U.S. markets are closed on Friday in observance of Good Friday. We will shift to long positions and we will continue to monitor conditions for a set-up to get short again.

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