Stock Market Light volume rally...

By: Mark_McMillan

Trade Recommendations: Take no action.

- Positions indicated as Green are Long positions and those indicated as Red are short positions.
- The State of the 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 a position. If the BIAS is Bullish but the 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 trade on "weaker" signals than you might otherwise trade on as the 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.

Current ETF positions are:
DIA - Long at $100.46
QQQQ - Long at $45.55
SPY - Long at $108.52

Daily Trading Action
The major index ETFs opened most of one percent lower but immediately began to climb higher topping out after most of an hour of trading before dipping for the next hour of trading. That dip saw the Dow and S&P-500 ETFs retest their opening prices where they found support. From that point on the major indexes moved higher into early afternoon where the bears once again tried to mount an offensive with the bulls stepping in to form a higher intraday low with an hour and a half left in the session. The bulls finally pushed the major indexes into new intraday high territory in the final half hour of trading where they finished, closing near their highs. The Russell-2000 (IWM 64.94 +0.87) mimicked the Dow and S&P-500 whereas the Semiconductor Index (SOX 349.53 +4.84) mimicked the NASDAQ-100 by never reaching back down to fully test it's open price. In fact, it was the semiconductors that were, in large part, responsible for the strength of the NASDAQ-100. The Bank Index (KBE 24.30 -0.04) treaded water while the Regional Bank Index (KRE 24.37 +0.24) tacked on a one percent gain. All equity indexes we regularly monitor are now in trading states with only the Dow and S&P-500 below their 200-Day Moving Averages (DMAs). USD, which we use to trade the Semiconductor Index, is also below the 200-DMA but the Semiconductor Index itself has surpassed that level. The 20+ Yr Bonds (TLT 97.41 +1.22) rallied along with equities as uncertainty remained for bond investors. NYSE volume eased to 1.259B Shares. NASDAQ volume also eased to a light 1.870B shares.

There were four economic reports of interest released:
Retail Sales (May) came in at -1.2% versus an expected +0.2%
Retail Sales (May) fell to -1.1% versus an expected +0.1%
Michigan Consumer Sentiment (June) came in at 75.5 versus an expected 74.5
Business Inventories (Apr) rose 0.4% versus an expected rise of +0.5%
The first two reports were released an hour before the open and caused already weak futures markets to move decidedly lower. The other two reports were released twenty-five and thirty minutes into the session respectively.

Pessimism and profit taking appeared likely at the open after Thursday's big move higher. An upgrade of semiconductor stalwart National Semiconductor (NSM 14.21 +0.68) helped provide the bulls with reason to drive Tech (+1.1%) higher. NSM also reported better than expected earnings and raised guidance.

Nine out of ten economic sectors in the S&P-500 moved higher led by Materials (+1.2%). Utilities were unchanged.

Implied Volatility fell below the 30.0 level with the S&P-500 (VIX 28.79 -1.78) implied volatility falling six percent and the implied volatility for the NASDAQ-100 (VXN 28.80 -2.50) falling eight percent.

Commentary:
Friday's session was a light volume session that recovered from pessimism and profit taking that was pervasive in futures before the equities markets opened. From there, it was a matter of buyers stepping in at the open and withstanding the two significant bear assaults during the day. The light volume isn't a convincing follow-through to Thursday's significant gains but we are also in the light volume trading period that will persist through the summer.

For now, we are staying with our long positions, at least until they rally into resistance.
It should be noted that this coming Friday is a quarterly derivatives expiration day known as quadruple witching. On Friday, single stock futures, stock index futures, stock index options, and stock options will expire. This generally leads to higher volume on that Friday as well as added volatility for the week. In addition to this, it should be noted that the Russell-3000 will be rebalanced the following Friday, June 25th. More than 460 companies will be swapped into and out of the Russell-3000 universe. This will affect trading for the coming two weeks and will result in one of the heaviest trading volume days of the year on Friday, June 25th.

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

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By Mark McMillan

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© 2010 Copyright Mark McMillan - All Rights Reserved
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