Horrible U.S. Home Sales...

By: Mark_McMillan

Trade Recommendations: Take no action.

Daily Trend Indications:

- 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 $101.18 ($101.37 - $0.19 dividend)

QQQQ - at $45.50 (adjusted down $0.05 for a dividend payment)

SPY - Long at $107.99 ($108.52 less the $0.53 dividend)

Daily Trading Action

The major index ETFs opened modestly higher and then moved slightly into negative territory as market participants awaited the housing number a half hour into the session. The market sold of hard on the news but that sell-off lasted only a half hour and then the bulls began to bid up equities in anticipation of the release of the FOMC statement at 2:15pm EDT. The major indexes did their characteristic bounce in both directions, first lower for fifteen minutes then higher for fifteen minutes then settled into a move lower for a half hour, a move higher for a half hour, and then a move lower in the final fifteen minutes. It was the definition of choppy trading. The Russell-2000 (IWM 64.57 -0.18) fell modestly while the Semiconductor Index (SOX 362.88 +1.49) rose modestly. The Bank Index (KBE 24.30 -0.18) and the Regional Bank Index (KRE 24.13 -0.33) both moved lower and at a steeper pace than other equity indexes. The 20+ Yr Bonds (TLT 99.24 +0.67) is once again closing in on its recent intraday high of 100.00. Volume remained light on the NYSE with 1.122B shares trading and the NASDAQ also saw light volume with 1.863B shares traded.

In addition to the weekly crude oil inventory report, there was a single economic report of interest released:

• New Home Sales (May) came in at 300K versus an expected 430K

Market participants seemed shocked at the news so apparently most were surprised by the size of the miss. The market responded by dropping straight down immediately on the news.

The Fed Open Market Committee (FOMC) left rates unchanged with the Fed Funds rate target between 0.0 and 0.25%. The FOMC acknowledged that the sovereign debt crisis with accompanying austerity measures, etc. will have a negative effect on the global economy so growth will be less strong than previously anticipated.

The Euro gained 0.3% versus the U.S. dollar and the British pound gained 0.9%.

Six out of ten economic sectors in the S&P-500 moved lower on the day led by Utilities (-1.1%) and Energy (-0.5%). Telecom (+0.6%), Consumer Staples (+0.3%), and Materials (+0.1%) moved higher while Consumer Discretionary was unchanged.

Implied Volatility fell modestly with the S&P-500 (VIX 26.91 -0.14) implied volatility falling a half percent and the implied volatility for the NASDAQ-100 (VXN 26.57 -0.26) falling nearly one percent.

Commentary:

Wednesday's trading action was textbook choppy, at least after the release of the FOMC statement. The Dow closed up five points, the S&P-500 down three points, and the NASDAQ-100 closed down six points. We had expected Wednesday's trading to either see a rally or at least a braking of the downside action. We received the latter.

At this time, all the indexes we regularly monitor are still in trading states which means the indexes will bounce between support and resistance rather than just keep moving in a single direction. Fear continues to creep up and is nearing the range where we could see a reversal to the upside but we aren't necessarily there yet. Stay tuned.

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 through that date 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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