6/10/2014 8:42:01 AM
Shorts continue to cover...
Recommendation: Take no action.
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Stock Market Trends:
- 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
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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 saw a flat open then the major indexes meandered higher until noon then descended for two hours to move into negative territory before rising again in the final two hours to close with modest gains. In fact, all equity indexes we monitor were able to close with gains, although the Dow Jones Transports (IYT 117.44 +0.01) was all but unchanged. The only equity indexes to post strong gains were the Russell-2000 (IWM 116.90 +1.02), the Bank Index (KBE 33.65 +0.48), and the Regional Bank Index (KRE 40.73 +0.62). Both Bank Indexes have a NEUTRAL bias while all other equity indexes have a BULLISH BIAS. All equity indexes we regularly monitor are above their 20-, 50-, and 200-Day Moving Averages (DMAs) and are in uptrend states. Longer Term Bonds (TLT 111.43 -0.16) closed modestly lower 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 decreased and remained light with 608M shares traded on the NYSE. Trading volume on the NASDAQ increased but remained light with 1.765B shares traded.
There were no economic reports of interest released. Instead, market watchers observed the continued short covering of the Russell-2000 and the bank indexes while other equities rose modestly.
We are watching gold for a potential reversal in the Gold Miners Index (GDX 22.55 -0.09) posted a fractional loss as the price of Gold (GLD 120.65 +0.04) was nearly unchanged. Both closed below their 20-, 50-, and 200-DMAs.
Apple (AAPL 93.70 +1.48) soared 1.6% after a 7:1 split effective at the open on Monday, June 10th. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 39.55 +0.17) posted a fractional gain. 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 four tenths of one percent while the Euro fell a like amount.
The yield for the 10-year treasuries rose a single basis point to close at 2.61. The price of a barrel of crude oil rose +$1.75 to close at $104.41.
The implied volatility for the S&P-500 (VIX 11.15 +0.42) rose four percent but remains well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 13.79 +0.58) rose four percent but remains well below its 200-DMA.
Market internals were bullish with advancers leading decliners 8:5 on the NYSE and by 2:1 on the NASDAQ. Up volume led down 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell -0.07 to close at 0.97. The equity put/call ratio rose +0.01 to close at 0.48. The ratio of new highs to new lows on the NYSE surged to nearly 45:1 which is certainly an extreme.
Conclusion/Commentary
Buying continues with short covering responsible for propelling the Russell-2000 and bank indexes to outsized gains of late. The Russell-2000 is only about two percent below its high this year and the bank indexes are only three to four percent below their respective highs. Equities are certainly overbought here and we do not expect equities to move up in a straight line but we will maintain our long positions until we see clear signs of the next reversal.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
