6/24/2011 8:55:33 AM

The counter-Fed trade worked after allowing for the higher open...

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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

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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 around one percent lower and then dipped most of another one percent as panic induced selling became apparent over the next hour and a half. Fear reached up to a crescendo and then value buyers stepped in. The move for the rest of the session was to the upside in a see-saw fashion with notable spikes upward (both price and volume) with a bit more than an hour remaining and in the final fifteen minutes. This left the NASDAQ-100 closing nearly one percent higher and higher than it had on Tuesday but still below the close a week earlier Tuesday. The Dow and S&P-500 closed with modest losses after having been down most of two percent at the intraday low. The Semiconductor Index (SOX 402.56 +5.83) led the way higher closing up +1.5%. The Russell-2000 (IWM 80.35 +0.31) closed with a fractional gain. The concern was really over financials with the Regional Bank Index (KRE 24.67 -0.37) collapsing -1.5% and the Bank Index (KBE 23.24 -0.24) logging a one percent loss. The Finance Sector ETF (XLF 14.85 -0.15) lost one percent as well. Of all the equity indexes we regularly monitor, only the bank index remains in a downtrend state. Long term bonds (TLT 97.39 +0.74) added a strong fractional gain as investors fled to the relative safety of long term bonds. NYSE trading volume increased to average with 1.117B shares traded. NASDAQ share volume was above average with 2.022B shares traded.

There were three economic reports of interest released:

• Initial Jobless Claims for last week came in at 429K versus an expected 413K
• Continuing Jobless Claims came in at 3.697M versus an expected 3.680M
• New Home Sales (May) came in 319K versus an expected 305K

The first two reports were released an hour before the open and the latter report was released a half hour into the session. Initial Jobless Claims for the prior week were adjusted upward from 414K to 420K. New Homes Sales for April were adjusted upward from 323K to 326K.

The U.S. dollar rose one half of one percent, well down from its highs up over one percent at the open of the session.

The yield for the 10-year note fell eight basis points to close at 2.91. The price of the near term futures contract for a barrel of oil collapsed -$4.39 to close at $91.02. This was specifically linked to a coordinated release of 60 millions barrels of oil from reserves, 30 million of which came from the U.S. 727M barrel Strategic Petroleum Reserve (SPR).

Implied volatility for the S&P-500 (VIX 19.29 +0.77) rose four percent and the implied volatility for the NASDAQ-100 (VXN 20.76 +0.56) rose a bit under three percent. This left both the VIX and VXN to close above their respective 200-DMAs but well below where implied volatility opened and the highs which sneaked intraday above their 400-DMAs. This is along the lines of what we expected.

Tech (+0.9%) and Consumer Discretionary (+0.4%) were the only economic sectors in the S&P-500 to close with gains. Energy (-1.2%), Financials (-1.0%), Utilities (-0.9%), and Consumer Staples (-0.9%) led the other eight sectors lower. It is notable that the "safe" sectors helped move sectors lower as the "risk on" trade appears to be alive and well.

Market internals were mixed with decliners leading advancers 3:2 on the NYSE while advancers led decliners 8:7 on the NASDAQ. Down volume led up volume 5:3 on the NYSE while up volume led down volume 2:1 on the NASDAQ. The index put/call ratio rose +0.16 to close at 1.33. The equity put/call ratio rose +0.13 to close at 0.66.

Commentary:

Thursday saw the market open significantly lower. This was really due to fears of a market collapse that was manifested in U.S. futures markets as Asian and European markets moved lower. European bourses were sensitive to disappointing PMI data and futures were hit further when the U.S. unemployment numbers came out above expectations. Essentially, the fear from Wednesday's late day sell-off during and after Fed Chairman's Bernanke's Q&A session continued into Thursday's open but then the counter-Fed trade was on. There was a late day boost when news that Greece and the IMF/ECB had reached agreement on austerity measures. The parliamentary vote to adopt those measures is due next week and funding by the IMF and ECB would be voted on on July 3rd.

We received what we expected that can set a bottom with a capitulation low. The key was the premiums demanded by option writers again tested upward to/through the 400-DMA before rolling over to close the day with a modestly higher premium. The semiconductor index showed buying interest after the first fifteen minutes of selling pressure. It was consistent buying in the semiconductors and Tech leaders such as Apple (AAPL 331.23 +8.62) which helped turn around the panic induced sell-off. The S&P-500 bounced for the second time in as many weeks off its 200-DMA as bulls reaffirmed their commitment to equities. The "risk on" trade continues to be in place.

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