9/26/2011 9:09:39 AM

The market opens lower but stabilizes and closes higher with no new bad news.

Recommendation:
Buy shares of DIA to cover the short position and buy shares of DIA to open a long position.
Buy shares of QQQ to cover the short position and buy shares of QQQ to open a long position.
Buy shares of SPY to cover the short position and buy shares of SPY to open a long position.

Click here to access our stock market chat rooms today! For a limited time, try our chat room for free. No subscription necessary to give it a try.

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 $113.72
Short QQQ at $56.61
Short SPY at $120.31

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

Value Portfolio:

Daily Trading Action

The major index ETFs opened lower and immediately bounced for the first half hour which was the start of a saw tooth move higher that lasted through the session. This left the NASDAQ-100 higher by one percent with fractional gains for both the Dow and S&P-500. All equity indexes are below all the moving indexes we regularly report on but with the NASDAQ-100 showing a neutral bias and leaning towards moving to a BULLISH BIAS. The Dow Jones Transport Index (IYT 75.74 +0.75) gained one percent. The Russell-2000 (IWM 65.14 +0.41) added a fractional gain. The semiconductor Index (SOX 359.95 +7.17) added two percent and is the only equity index we monitor that isn't in a downtrend state. The Regional Bank Index (KRE 19.09 +0.07) added a fractional gain. The Bank Index (KBE 17.38 +0.29) gained most of two percent. The Finance Sector ETF (XLF 11.68 +0.12) gained one percent. All equity indexes we monitor are in downtrend states and all have a bearish bias with the exception of the Semiconductor Index and the NASDAQ-100 which have a neutral bias. In contrast, the long term bonds (TLT 120.83 -2.29) dell two percent failing to break above Thursday's intraday high and reversing at the level of the height of the financial crisis in December 2008. The BIAS of longer term bonds is BULLISH and they are in an uptrend state. NYSE trading volume was heavy with 1.716B shares traded. NASDAQ share volume was very heavy with 2.670B shares traded.

There were no economic reports released. In fact, there was little news flow on Friday that affected the markets. It was the absence of anything negative that allowed stocks to snap back from oversold conditions.

In a classic burst bubble, precious metals moved significantly lower with gold dropping 5.6% on Friday and silver shedding more than 22% in two days!

The U.S. dollar slipped one quarter on one percent as some of the panic eased.

All ten economic sectors in the S&P-500 move higher as a relief rally took shape off of oversold conditions.

The yield for the 10-year note rose nine basis points to close at 1.81. The price of the near term futures contract for a barrel of crude oil fell sisty-six cents to close at $79.85.

Implied volatility for the S&P-500 (VIX 41.25 -0.10) was essentially unchanged and the implied volatility for the NASDAQ-100 (VXN 39.88 -0.37) fell most of one percent. Implied volatility was contained just within resistance.

Market internals were positive with advancers leading decliners 7:4 on the NYSE and by 2:1 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 5:1 on the NASDAQ. The index put/call ratio fell -0.02 to close at 1.54. The equity put/call ratio rose 0.22 to close at 0.65.

Commentary:

Friday saw a relief rally off of oversold conditions. The move higher was two percent for the semiconductor index and one percent for the NASDAQ-100 with the financial sector showing the largest bounce back after it had the largest move lower during the week.

Once again, the NASDAQ-100 and Semiconductor Index continue to defy other equity indexes in a continued bid to resist the bearish onslaught. Their failure to move lower allowed the major indexes and other indexes to rally from the lower open. This is a possibility we allowed for but neither the bulls nor the bears enjoy an overwhelming advantage at this time.

It is still likely that equity indexes will have to retest their lows. With that said, the absence of bad news can allow U.S. equities to move higher while bears await a catalyst to break the backs of the bulls. We will favor a move to the long side until we see a failure of the NASDAQ-100 and semiconductor index which would allow the major indexes to complete a move to the downside. We will cautiously exit our short positions and move to long positions as we await the next top that should allow the major indexes to continue a more significant move to the downside.

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