7/17/2014 9:11:42 AM
The canaries are singing a different tune...
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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 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: 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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The three major indexes were all able to post fractional gains but other equities were mixed. The three canaries, the Russell-2000 (IWM 114.24 -0.21), the Bank Index (KBE 32.75 -0.55), and the Regional Bank Index (KRE 39.50 -0.62) all closed lower with the bank indexes falling dramatically. The Finance Sector ETF (XLF 22.95 -0.04) joined them in their fall. The Semiconductor Index (SOX 651.75 +7.31) added more than one percent on the strength of Intel's (INTC 34.65 +2.94) incredible earnings announcement. The Dow Jones Transports (IYT 150.37 +0.89) managed a fractional gain. The canaries are the only equity indexes we regularly monitor below their 20-Day Moving Averages (DMAs). 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 113.46 +0.60) added a fractional gain and is in a trading state. It maintains a BULLISH BIAS. It remains above its 20-, 50-, and 200-DMAs. Trading volume fell to light with 675M shares traded on the NYSE. Trading volume on the NASDAQ was just above average with 2.044B shares traded.
In addition to the crude oil inventory report, there were seven economic reports of interest released:
• MBA Mortgage Index fell -3.6% last week
• PPI (Jun) rose +0.4% versus an expected +0.2% rise
• Core PPI (Jun) rose +0.2% as expected
• Net Long-Term TIC Flows (May) came in at +$19.4B versus April's -$41.2B
• Industrial Production (Jun) rose +0.2% versus an expected +0.4% rise
• Capacity Utilization (Jun) came in at 79.1% versus an expected 79.2%
• NAHB Housing Market Index (Jul) came in at 53 versus an expected 50
All but the last report came out before the bell. The NAHB report came out a half hour into trading.
Apple (AAPL 94.78 -0.54) fell fractionally. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 38.79 +0.41) added another one percent to close not far 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 rose two tenths of one percent closing not far below its 200-DMA. The Euro fell three tenths of one percent closing at a low now see since late January and is well below its 200-DMA.
The yield for the 10-year treasuries fell a single basis point to close at 2.54. The price of a barrel of crude oil rose +$1.24 to close at $101.20. The U.S. government reported that crude oil inventories fell by -7.525M barrels last week.
The implied volatility for the S&P-500 (VIX 11.00 -0.96) fell eight percent to close near multi-year lows. The implied volatility for the NASDAQ-100 (VXN 13.38 -0.95) most of seven percent.
Market internals were mixed. Advancers led decliners 5:4 on the NYSE while decliners led advancers 4:3 on the NASDAQ. Up volume led down volume 2:1 on the NYSE while down volume led up modestly on the NASDAQ. The index put/call ratio rose +0.29 to close at 1.09. The equity put/call ratio fell -0.08 to close at 0.50.
Conclusion/Commentary
The three canaries (IWM, KBE, KRE) all took ill even as the major indexes closed at or near new highs. Also, the NASDAQ trading volume increased significantly but it was those stocks that struggled while the light volume NYSE mostly pushed ahead. The caution flag is out and it is time to look for potential trouble ahead. We will remain long DIA and SPY on Thursday but we are cautious about over staying our welcome as storm clouds gather.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
