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6/5/2014 9:13:58 AM

Bears back on their heels...

Recommendation: Take no action.

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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 a little follow-through selling in the opening minutes but then the bulls began buying, and except for an occassional head-fake, never stopped buying senind the S&P-500 to a new all time closing high and with the Dow just below its all time closing high. The NASDAQ-100 closed at a multi-year high, as did the Semiconductor Index (SOX 611.13 +2.71). In fact, all four equity indexes finished above their respective 20-, 50-, and 200-Day Moving Averages (DMAs). The Dow Jones Transports (IYT 144.99 +0.09) eeked out a modest gain. it remains above its 20-, 50- and 200-DMAs in an uptrend state. The Russell-2000 (IWM 112.42 +0.44) closed even with its 50-DMA and sits above its 20- and 200-DMAs. The Bank Index (KBE 32.43 +0.07), the Regional Bank Index (KRE 38.95 +0.09), and the Finance Sector ETF (XLF 22.44 +0.06) all added gains. All three remain above their 20- and 200-DMAs and the Finance Sector ETF remains above its 50-DMA. The bank indexes are in trading states while the finance sector maintains an uptrend state. Longer Term Bonds (TLT 111.54 +0.03) closed flat and remains below its 20-DMA but above its 50- and 200-DMAs. It maintains a tradings state but has indicated a possible change to a BEARISH BIAS. Trading volume was again light with 592M shares traded on the NYSE. Trading volume on the NASDAQ was again light with 1.597B shares traded.

There were five economic reports of interest released:

  • MBA Mortgage Index for last week fell -3.1%
  • ADP Employment Change (May) saw 179K jobs added versus an expected 200K jobs
  • Trade Balance (Apr) came in at -$47.2B versus an expected -$42.3B
  • Productivity-revised (Q1) fell -3.2% versus an expected -2.5% fall
  • Unit Labor Costs-revised (Q1) roes +5.7% versus an expected +4.8% rise
  • ISM Index (May) came in at 56.3 versus an expected 55.5

The first five reports were released an hour or more before the open. The last report was released a half hour into the session.

We are watching gold for a potential reversal in the Gold Miners Index (GDX 22.28 -0.09) posted a fractional loss as did the price of Gold (GLD 119.76 -0.25), Both closed below their 20-, 50-, and 200-DMAs.

Apple (AAPL 644.82 +7.28) rose a bit 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 38.95 -0.07) slipped modestly lower. It is in an uptrend 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 rose a tenth of one percent while the Euro fell two tenths of one percent.

The yield for the 10-year treasuries rose two basis points to close at 2.61. The price of a barrel of crude oil closed flat (down two cents) closing at $102.64. The U.S. Government reported a draw down of -3.431M barrels of crude oil last week.

The implied volatility for the S&P-500 (VIX 12.08 +0.21) rose most of two percent but remains well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 14.21 -0.14) slid one percent and remains well below its 200-DMA.

Market internals were bullish with advancers leading decliners 11:10 on the NYSE and by 5:4 on the NASDAQ. Up volume led down 5:4 on the NYSE and by nearly 2:1 on the NASDAQ. The index put/call ratio fell -0.64 to close at 0.74. The equity put/call ratio fell -0.15 to close at 0.43. Note: The number of new lows edged the number of new highs on the NASDAQ, which bears watching as it suggests a narrowing of breadth of advancers, which is bearish.


Conclusion/Commentary

The bears lost the battle with the bulls. In particular, the bears have pushed the Russell-2000 down to test its 200-DMA for three consecutive sessions and the bulls have bought at that point each time. The bulls were able to drive the Russell-200 back up to its 50-DMA so a relatively small move on Thursday can secure the bullish beach head. The entire argument made by the bears was that 35 out of the last 35 times the Russell-2000 declined by ten percent, so did the broader market. Well, the Russell-2000 did decline ten percent, primarily due to large short positions. The broader market never came close to this sort of decline and, in point of fact, has been hitting new all-time highs. This suggests a short covering rally for the Russell-2000 could be close at hand with a violent move higher possible. The bank indexes are nestled just below their 50-DMAs so a larger move is likely no later than next week. We will maintain our long positions.

 


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

 

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