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The Bulls Buy The Dip...

5/19/2014 9:10:10 AM

The canaries sing a varied tune...

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Stock Market Trends:

Stock Market Trends Table

- 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):

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

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


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 saw a gap down open with selling dominating the first hour of trade before a weak rally led prices back up to the open levels. Sellers then gradually drove prices lower into early/mid afternoon. The bulls finally came alive with less than two hours remaining in the session. Prices never approached the depths that they hit on Thursday before rallying. This left the Dow closing still below its 20-Day Moving Average (DMA) but above its 50- and 200-DMAs. The S&P-500 finished the same relative to its moving averages. The NASDAQ-100 finished just below its 50-DMA but above its 20-DMA. All three recorded fractional gains. The Dow and S&P-500 maintain their uptrend states while the NASDAQ-100 remains in a trading state. The Semiconductor Index (SOX 576.01 +6.02) added one percent closing even with its 20-DMA and just below its 50-DMA in a trading state. The Dow Jones Transports (IYT 140.55 +1.12) closed fractionally higher and remains above its 20-, 50-, and 200-DMAs and signaled a likely reversal higher on Friday. The Russell-2000 (IWM 109.57 +0.69) closed fractionally higher but remains below its 20-, 50- and 200-DMAs. It maintains a BEARISH BIAS shifted to a trading state. The Bank Index (KBE 31.03 -0.10) and the Regional Bank Index (KRE 37.30 -0.08) closed fractionally lower, below their respective 20-, 50-, and 200-DMAs in downtrend states and maintain a BEARISH BIAS. The Finance Sector ETF (XLF 21.75 +0.03) closed modestly higher but remains below its 20- and 50-DMAs. Longer Term Bonds (TLT 113.54 -0.32) closed fractionally lower and put in a second doji candlestick suggesting indecision and a possible top. TLT is in an uptrend state and closed above its 20-, 50-, and 200-DMAs. Trading volume increased but remained light with 775M shares traded on the NYSE. Trading volume on the NASDAQ decreased to below average with 1.735B shares traded.

There were three economic reports of interest released:

  • Housing Starts (Apr) came in at 950K versus an expected 975K
  • Building Permits (Apr) came in at 1.080 versus an expected 1.008M
  • UoMichigan Consumer Sentiment (May) came in at 81.8 versus an expected 84.5

The first two reports were released an hour before the open. The last report was released twenty-five minutes into the session.

We are watching gold for a potential reversal in the Gold Miners Index (GDX 23.42 -0.20) fell most of one percent and the price of Gold (GLD 124.50 -0.27) slipped about two tenths of one percent. Both closed below their 20-, 50-, and 200-DMAs.

Apple (AAPL 597.51 +8.69) rose more than one percent. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 35.30 -0.07) slipped about two tenths of one percent. It remains above the support of its 20- and 50-DMAs with the 20-DMA crossing up through the 50-DMA on Thursday. 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 was unchanged while the Euro slipped modestly lower.

The yield for the 10-year treasuries rose two basis points to close at 2.52. The price of a barrel of crude oil rose fifty-two cents to close at $102.02.

The implied volatility for the S&P-500 (VIX 12.44 -0.73) slipped most of six percent remaining well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 15.25 -0.81) slipped five percent closing below its 200-DMA. With implied volatility closing below the 200-DMAs, complacency is high. We will be watching for the next spike in volatility but it has not yet been signaled.

Market internals were bullish with advancers leading decliners 2:1 on the NYSE and by 3:2 on the NASDAQ. Up volume led down volume 3:2 on both the NYSE and the NASDAQ. The index put/call ratio fell -0.14 to close at 0.89. The equity put/call ratio fell -0.01 to close at 0.68.


Conclusion/Commentary

Friday saw a dip down toward Thursday's lows but no index we regularly track dipped far enough to reach those depths. Afternoon buying saw all equity indexes we regularly monitor close higher with the noted exception of the bank indexes, which closed modestly lower. In other words, we have a partial reversal with a second day suggesting indecision for the bank indexes. The Russell-2000 and the two bank indexes still closed below their respective 200-DMAs and we will need to see trading on Monday to see if the bulls can get the job done, of turning around the very negative sentiment on those indexes. We will maintain our long positions for now.

 


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

 

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