6/22/2011 9:03:15 AM

A broad rally shows promise...

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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):
Long DIA at $125.90
Long SPY at $134.43
Long QQQ at $58.20

Click here to learn more about my services and for our ETF Trend Trading.

Value Portfolio:
We are long TBT at $32.50 from June 16th
We sold short one contract TLT July $98 Calls at $1.19 per share on June 16th
We sold short one contract TLT Aug $98 Calls at $1.80 per share on June 16th
We sold short one contract TLT Sep $98 Calls at $2.13 per share on June 16th

Daily Trading Action

The major index ETFs opened higher and, after a scary plunge in the opening minutes, were able to stabilize and began to move higher through the morning. By late morning and for the first couple of hours of the afternoon, equities moved sideways before buying began to heat up with a heavy volume push higher shortly after 2:30pm. When that buy program was completed, prices leveled out and then fell for an hour with buying in the final fifteen minutes allowing the major indexes to record gains of 0.9% to 2.1% on the day. The Dow was a relative laggard, which is another way of saying that outperformers of late underperformed and underperformers outperformed. With this move, the NASDAQ-100 was able to close back above its 200-Day Moving Average (DMA). This was primarily due to the outperformance of the battered Semiconductor Index (SOX 398.61 +9.88) as it bounced some 2.5%! The Russell-2000 (IWM 80.66 +0.71) tacked on a strong fractional gain closing above its 20-DMA. The Regional Bank Index (KRE 25.27 +0.19) added a fraction gain closing above it's 20- and 200-DMA. The Bank Index (KBE 23.67 +0.27) gained more than one percent after it moved up to test its 20-DMA intraday before closing below it as did the Finance Sector ETF (XLF 15.09 +0.21) which added 1.5% on the day. Of all the equity indexes we regularly monitor, only the bank index remains in a downtrend state. Long term bonds (TLT 96.59 -0.43) shed about half of one percent and is poised just above its 20-DMA. NYSE trading volume increased but was still below average with 842M shares traded. NASDAQ share volume was average with 1.813B shares traded.

There was a single economic report of interest released:

• Existing Home Sales (May) came in at 4.81M versus an expected 4.79M

The report was released a half hour into the session and essentially arrived as expected. The prior months 5.05M home number was revised down to 5.0M so the report actually was a bit stronger than would otherwise be expected.

The U.S. dollar fell nearly seven tenths of one percent as the Euro strengthened on confirmation of Greece's Prime Minister in a confidence vote. The next step is a formal vote by Greece's parliament to adopt austerity measures so Greece will qualify for the ECB sponsored bailout package and a Greek sovereign debt default can be avoided.

The yield for the 10-year note rose two and one half basis points to close at 2.985. The price of the near term futures contract for a barrel of oil rose ninety-one cents to close at $94.17.

Implied volatility for the S&P-500 (VIX 18.86 -1.13) fell nearly six percent and the implied volatility for the NASDAQ-100 (VXN 20.36 -1.71) fell nearly eight percent. Both closed on their respective 200-DMAs. A bounce in implied volatility on Wednesday will leave the near term market direction in doubt. A fall below the 200-DMA means that the most likely direction for equities (after a potential moderate slide) is higher.

Materials (+2.6%), Energy (+2.4%), and Consumer Discretionary (+2.0%) led equities higher after recent underperformance. All ten economic sectors in the S&P-500 recorded gains.

Market internals were positive with advancers leading decliners nearly 5:1 on the NYSE and by 4:1 on the NASDAQ. Up volume led down 8:1 on the NYSE and by 11:1 on the NASDAQ. The index put/call ratio was nearly unchanged (rising +0.01) to close at 1.33. The equity put/call ratio rose +0.03 to close at 0.60.

Commentary:

Tuesday saw worries over the Greek sovereign debt bailout abate as it appears a near term crisis will be avoided. The oversold nature of equities markets then snapped back with recent poor performers rising with a vengeance and relatively strong performance were more muted.

Finally, the semiconductors joined the party and put in strong gains. That means that all equity indexes move higher and all the equity indexes we regularly monitor (but the Bank Index) are now in trading states. However, a strong follow-through day will be required to cement an advance. Often, the market will creep up in advance of the release of the Fed Open Market Committee (FOMC) release of its policy statement. That release follows a two-day meeting with a release time of 12:30pm on Wednesday. Fed Chairman Ben Bernanke will hold a Q&A session a bit later in the afternoon which could affect the market late in the session.

With the NASDAQ-100 and Regional Bank Index both retaking their 200-DMAs and with the Russell-2000 and the Dow retaking their 20-DMAs, the stage is set for the bears to do their very best to derail a bullish advance. Since trading states are now the norm for equity indexes, the bears must force them back into downtrend states or lose the advantage. The dollar and longer term bonds cooperated by moving lower but a bounce, even if it is a small one, is likely here. We need to see the bulls add to recent gains to ensure a possible continuation of the nascent advance. We think it is likely due to the nature of equities markets preceding the release of the FOMC policy statement. While we don't anticipate any change in interest rates, we do expect that there can be "ripples on the pond" caused by the statement and Bernanke's Q&A session. Until we see it, we will remain with our current positions.

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