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Yellen Comments Cause Equities to Pull Back...

7/16/2014 8:51:21 AM

Financials look strong...

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 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.

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After a modest gap up open and a follow-up move higher, equities began to slide less than a half hour into trading. That slide continued all morning but by noon, the bulls stepped in and began buying and really only paused a bit in late afternoon. They bought in the final half hour leading to the close and the major indexes finished flat to down less than one half of one percent. Performance of the three canaries, the Russell-2000 (IWM 114.55 -1.14), the Bank Index (KBE 33.30 +0.40), and the Regional Bank Index (KRE 40.12 +0.35) was mixed with the Finance Sector ETF (XLF 22.99 +0.16) echoing the move higher by the bank indexes. The Semiconductor Index (SOX 644.44 -1.68) finished lower while the Dow Jones Transports (IYT 149.48 +0.54) managed a modest gain. The canaries are the only equity indexes we regularly monitor below their 20-Day Moving Averages (DMAs) but both bank indexes are poised to break up through that barrier. All equity indexes we regularly monitor closed above their 50- and 200-DMAs and all are in trading state with a BULLISH BIAS. Longer Term Bonds (TLT 112.86 -0.23) posted a modest loss and is in a trading state. It maintains a BULLISH BIAS. It remains above its 20-, 50-, and 200-DMAs. Trading volume rose to below average with 731M shares traded on the NYSE. Trading volume on the NASDAQ was light with 1.722B shares traded.

There were six economic reports of interest released:
• Retail Sales (Jun) rose +0.2% versus an expected +0.7% rise
• Retail Sales ex-auto (Jun) rose +0.4% versus an expected +0.6% rise
• NY Empire Manufacturing (Jul) came in at 25.6 versus an expected 13.2
• Export Prices ex-ag (Jun) fell -0.3% versus May's +0.1% rise
• Import Prices ex-oil (Jun) fell -0.1% versus May's flat (+0.0%) reading
• Business Inventories (May) rose +0.5% versus an expected +0.6% rise
The first five reports were released an hour before the open while the last report came out a half hour into trading.

Janet Yellen testified before the Senate Banking Committee on Tuesday. She advised them that interest rates may be raised earlier than expected and more than expected due to a stronger labor market than expected. She then also noted that interest rates may remain accommodative for longer than expected if the economy doesn't strengthen as expected. In other words, the Fed is using a data driven approach. Market participants seemed to react only to the first part of her statements and equities quickly reversed from positive into negative territory.

Apple (AAPL 95.32 -1.13) fell 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 38.38 +0.13) posted a fractional gain. 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 rose one third of one percent while the Euro fell nearly four 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 was unchanged at 2.55. The price of a barrel of crude oil fell ninety-five cents to close at $99.96.

The implied volatility for the S&P-500 (VIX 11.96 +0.14) rose one percent. The implied volatility for the NASDAQ-100 (VXN 14.33 +0.74) rose five percent.

Market internals were bearish. Decliners led advancers 2:1 on the NYSE and by 5:2 on the NASDAQ. Down volume led up volume by 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell -0.18 to close at 0.80. The equity put/call ratio was unchanged at 0.58.


Conclusion/Commentary

Janet Yellen helped the market work off overbought conditions setting the bulls up for another run higher. Recall that this is earnings season, which is seasonally bullish. The "buy the dip" crowd is still in control. With financials strengthening, the bears should be cautious. We will remain long DIA and SPY and look for an opportunity to enter a trade on QQQ in the near future.

 


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

 

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