7/10/2014 8:51:25 AM
Fed releases minutes...
Recommendation:
Close long position in DIA at a $169.58.
Close long position in QQQ at $94.96.
Close long position in SPY at $197.12.
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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
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: June 10, 2014 $1.00, 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 = $6.28 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.) We have collected dividends: June 10, 2014 $1.00.
Short GDX at $26.38 on July 3, 2014
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Equities, for the most part, gapped up at the open and the major indexes all posted fractional gains, which were closes above their gap up opens. Of concern, however, was the lack of a significant move for the three canaries. The Russell-2000 (IWM 116.49 +0.15), the Bank Index (KBE 33.20 +0.03), and the Regional Bank Index (KRE 40.18 +0.04) all barely moved higher and again closed below their respective 20-DMAs. Other equity indexes performed better but it is the very nature of the underperforming canaries that has us concerned. All the major indexes closed above their 20-, 50-, and 200-Day Moving Averages (DMAs) as did the other equity indexes we regularly monitor, with the exception of the canaries. The Finance Sector ETF (XLF 22.80 +0.06) move was muted while the Dow Jones Transports (IYT 147.75 +0.77) and the Semiconductor Index (SOX 646.55 +3.92) were more enthusiastic. All equity indexes we regularly monitor are now in trading states. All maintain their BULLISH BIAS. Longer Term Bonds (TLT 112.83 +0.09) closed relatively flat maintaining its position above its 20-, 50-, and 200-DMAs, maintaining a trading state and maintaining a NEUTRAL BIAS. Trading volume was light with 565M shares traded on the NYSE. Trading volume on the NASDAQ was also light with 1.720B shares traded.
In addition to the crude oil inventory report, there was a single economic report of interest released:
• MBA Mortgage Index for last week rose +1.9%
The report was released hours before the open.
The big event of the day was the Fed's release of its meeting minutes. The minutes showed that the Fed expects to conclude its Quantitative Easing (QE) by October. They expect two more reductions of $10B in purchases and a final $15B in purchases to be phased out. The Fed expects to begin hiking interest rates in 2015. The Fed will continue purchasing fixed income investments as they mature.
Apple (AAPL 95.39 +0.04) closed relatively flat. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 38.59 +1.06) gained most of three percent recovering from a five percent slide on Tuesday. It remains below its 200-DMA. The next target above remains $40.96, it's closing price on the last trading day of 2013. It is in an trading state. We sold March 2014 $35.00 put contracts for $150 at the open on Feb 18th, 2014 and bought shares at $35.43. The stock is now trading ex-dividend for $0.98 and one dollar for total dividends issued of $1.98. 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 most of a quarter of one percent while the Euro rose two tenths of one percent. The dollar continues to trade below its 200-DMA while the Euro failed to break up through its 200-DMA.
The yield for the 10-year treasuries fell two basis points to close at 2.55. The price of a barrel of crude oil fell -$1.11 to close at $102.29. The U.S. government reported that crude oil inventories decreased by 2.370M barrels last week.
The implied volatility for the S&P-500 (VIX 11.65 -0.33) fell three percent. The implied volatility for the NASDAQ-100 (VXN 13.22 -0.52) fell four percent.
Market internals were bullish. Advancers led decliners 7:5 on the NYSE and by 6:5 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 3:2 on the NASDAQ. The index put/call ratio rose +0.33 to close at 1.08. The equity put/call ratio fell -0.09 to close at 0.54.
Conclusion/Commentary
Volume decreased and the bulls were buying. Rather than signal that the bulls are back, we believe it may signal a rough patch ahead for equity markets. The bulls had their chance to maintain upward momentum, but this weak buying effort essentially hands control over to the bears for another leg down. How far equity indexes can descend is an unknown. We will close long positions at Wednesday's closing prices if we have the opportunity. Otherwise, we will maintain long positions and see if the bulls can thwart an expected bear attack.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
