5/1/2014 9:06:49 AM
Fed stays the course, continues taper...
Dow achieves a new all-time closing high...
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Best ETFs to buy now (current positions):
Long DIA at $161.48 as of December 19, 2013
Long QQQ at $85.99 as of December 19, 2013
Long SPY at $181.19 as of December 19, 2013
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Value Portfolio:
Long SDRL at $33.90 on June 15, 2012 (Shares were put to us when options expired. We were paid $1.10 per share when we sold those options and bought shares for $35.00 each). We have collected dividends: March 5, 2014 $0.98, December 3, 2013 $0.95, September 5, 2013 $0.91, June 5, 2013 $0.88, $1.70 Dec 4, 2012, $0.84 Sep 4, 2012. Total = $5.28 in dividend payments.
Short FXE at $124.19 on August 24, 2012
Long UUP at $22.43 on August 24, 2012
Short FXE at $134.48 on October 4, 2013
Long SDRL at $35.43 on Feb 18, 2014
Long SDRL at $33.50 on March 21, 2014 (Shares were put to us when options expired. We were paid $1.50 per share when we sold those options and bought the shares for $35.00 each.
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Equities gapped lower at the open and tested a bit lower for the first forty-five minutes of the session before buyers stepped in to drive prices to close the opening gaps. The upward move was gradual and continued most of the day with a late morning modest pullback and then a pull back from around 1:00 - 2:00pm. After that, volatility initially increased at 2:00pm for a move lower that lasted about fifteen minutes before the bulls took over and drove prices gradually higher into the close. This left the NASDAQ-100 closing above its 20- and 200-Day Moving Averages (DMAs) but still below its 50-DMA. The Dow and S&P-500 added more modest gains, but are trading above their 20-, 50-, and 200-DMAs. This was enough for the Dow to achieve a new all-time closing high at 16580.84. The Semiconductor Index (SOX 575.96 +2.97) and the Dow Jones Transports (IYT 137.18 +0.97) added fractional gains. The Russell 2000 (IWM 111.98 +0.74), the Regional Bank Index (KRE 38.49 +0.24), and the Bank Index (KBE 32.06 +0.17) were able to put in very strong reversal signs. Although all three are the only equity indexes we regularly monitor in downtrend states, the bullish engulfing patterns all three showed suggest that is about to change. The other equity indexes we regularly monitor are in trading states. Longer Term Bonds (TLT 110.83 +0.19) added a modest gain. Trading volume was average with 909M shares traded on the NYSE. Trading volume on the NASDAQ was above average with 2.104B shares traded.
There were six economic reports of interest released:
- MBA Mortgage Index for last week fell -5.9% versus the prior week's -3.3% fall
- ADP Employment Change (Apr) saw 220K jobs added versus an expected 215K jobs
- GDP-Advanced (Q1) rose +0.1% versus an expected +1.0% rise
- GDP Deflator-Advanced (Q1) rose +1.3% versus an expected +1.8% rise
- Employment Cost Index (Q1) rose +0.3% versus an expected +0.5% rise
- Chicago PMI (Apr) came at 63.0 versus an expected 56.5
The first five reports were released an hour or more before the open. The last report was released fifteen minutes into the session. The largest surprise was the poor GDP number.
The Fed Open Market Committee (FOMC) released their policy statement at 2:00pm. There were no surprises in the announcement with the Fed funds rate target remaining at 0% - 0.25%. They announced the expected $10B in tapering of long term bond purchases. It will now be only $45B per month in new asset purchases.
We are watching gold for a potential reversal in the Gold Miners Index (GDX 24.11 -0.20) slid most of one percent and Gold (GLD 124.22 -0.64) slid half of one percent. Both GDX and GLD closed below their respective 20-, 50-, and 200-DMAs.
Apple (AAPL 590.09 -2.24) slid modestly. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 35.22 +0.03) closed relatively flat. It now trades above its 20- and 50-DMAs but below its 200-DMA and is in a trading state. We sold March 2014 $35.00 put contracts for $150 at the open on Feb 18th and bought shares at $35.43. The stock is now trading ex-dividend for $0.98. The shares were put to us at $35.00 less the $1.50 per share we were paid for the puts, so we have an effective price of $33.50.
The U.S. dollar fell nearly three tenths of one percent while the Euro rose four tenths of one percent.
The yield for the 10-year fell five basis points to close at 2.65. The price of a barrel of crude oil fell -$1.56 to close at $99.74. The U.S. government reported that crude oil inventories increased by 1.698M barrels last week.
The implied volatility for the S&P-500 (VIX 13.41 -0.30) slipped another two percent and remains below its 20-, 50, and 200-DMAs. Implied volatility for the NASDAQ-100 (VXN 17.68 -0.65) slipped most of four percent to close below its 50-DMA but above its 50- and 200-DMAs.
Market internals were bullish with advancers leading decliners 2:1 on the NYSE and by 4:3 on the NASDAQ. Up volume led down volume 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell -0.40 close at 0.71. The equity put/call ratio fell -0.07 to close at 0.54. The number of stocks achieving new 52-week lows exceeded those hitting new 52-week highs on the NASDAQ for the fourth consecutive session.
Conclusion/Commentary
Wednesday saw a lower open and a creep higher into the 2:00pm Fed policy statement release. The initial volatility following the announcement saw the major indexes dive modestly into negative territory before the bulls began buying. By the time the market closed, most equity indexes posted fractional gains with the weakest ones showing nice bullish reversal patterns. Does this mean that the sell-off is over? It used to be that the counter-Fed trade was a high probability. That meant the day after the release of a Fed policy statement, the market would trade in the opposite direction from the day of the announcement. The strong inverse correlation no longer holds. We will watch to see if the Russell-2000 and the bank indexes use their bullish engulfing patterns to thrust higher on Thursday. If that happens, we will become more bullish. For now, we will remain cautiously long.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
