9/27/2011 9:16:24 AM

Rumors that Europe will take a coordinated action to shore up finances boosted financials.

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Daily Trading Action

The major index ETFs opened higher and after struggling with indecision began to move lower for a period that lasted a bit more than an hour. A rally into the lunch hour followed with a new move lower begin served for lunch. The markets found a bottom shortly after the lunch hour concluded and fought their way higher the rest of the session closing at session highs. This left the NASDAQ-100 closing on its 20-Day Moving Average (DMA) and just below its 50-DMA. The NASDAQ-100 posted a gain of 1.25%, the S&P-500 gained more than 2%, and the Dow Jones Industrial Average gained more than 2.5%! The Dow Jones Transport Index (IYT 77.49 +1.75) gained more than two percent on the day. The Russell-2000 (IWM 66.37 +1.23) tacked on a gain of nearly two percent. The semiconductor Index (SOX 359.50 -0.45) was the only equity index we follow to post a loss, but a 0.13% loss is almost unchanged and it had led the upside reversal in the last two sessions. The Regional Bank Index (KRE 19.82 +0.73) rocketed nearly four percent19.09 +0.07) and the Bank Index (KBE 18.29 +0.91) soared 5.23% to lead all equity indexes we regularly report on. In fact, it has the most bullish formation that we see in all the equity indexes at this time. The Finance Sector ETF (XLF 12.20 +0.52) gained +4.45%. 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 118.89 -1.94) fell -1.6%. The BIAS of longer term bonds is BULLISH and they are in an uptrend state. NYSE trading volume was below average with 1.157B shares traded.

There was a single economic report released:

• New Home Sales (Aug) came in at 295K versus an expected 293K

The report was released a half hour after the open and essentially met expectations. The July number was revised from 298K to 302K.

The big swing in equity indexes was likely influenced by rumors that there will be a more centrally coordinated effort to shore up the European financial situation with an increase in the funding and coordinating a shoring up of European banks.

The U.S. dollar slipped one tenth of one percent.

All ten economic sectors in the S&P-500 move higher led by Financials (+4.4%). The four "safe" sectors, Consumer Staples (+1.8%), Healthcare (+1.6%), Telecom (+1.5%), and Utilities (+0.8%) were joined by Tech (+1.3%) as the worst performers.

The yield for the 10-year note rose nine basis points to close at 1.90. The price of the near term futures contract for a barrel of crude oil rose thirty-nine cents to close at $80.24.

Implied volatility for the S&P-500 (VIX 39.02 -2.23) fell -5.4% and the implied volatility for the NASDAQ-100 (VXN 39.24 -0.64) fell -1.6%. Implied volatility remains elevated trading below 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 -0.03 to close at 1.51. The equity put/call ratio fell -0.06 to close at 0.59.

Commentary:

Monday saw a significant dip down from the higher open to retest Friday's close and then some before the bulls finally took control and sent the major indexes to a solidly higher close. The leadership for the move was from the financial sector which had been leading the major indexes lower. This is truly a relief rally from oversold conditions. The question is how high can it go.

The NASDAQ-100 and Semiconductor Index underperformed the other equity indexes and they will need to rejoin with a leadership position if this rally is to gain legs. Otherwise, it is likel to be a rally that will shortly run into trouble and we would once again look to position for a downside move. We are going to stay long and monitor market action going forward. The Asian stock exchanges reported solid gains and the European bourses are solidly higher pre-market so there is reason to believe that U.S. markets will follow them until they don't, of course.

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