7/31/2014 9:13:39 AM
Gap up open was followed by selling...
Recommendation: Take no action.
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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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A large gap up was followed by a sell-off that lasted through the morning. From noon, equity markets rallied into the Fed announcement at 2:00pm then spiked for fifteen minutes before easing off of most of the gains by the close. This left the Dow with a modest loss, the S&P-500 flat, and the NASDAQ-100 with a fractional gain. This left the Dow and S&P-500 closing below their 20-Day Moving Averages (DMAs) and both are now in downtrend states. The Dow closed even with its 50-DMA. All three major indexes closed above their 200-DMAs and have a BULLISH BIAS. The Semiconductor Index (SOX 620.60 +6.18) added one percent and the Dow Jones Transports (IYT 148.25 +1.13) posted a solid fractional gain. This left both indexes below their 20-DMAs and with the Semis still below their 50-DMA. The Semis are also in a downtrend state. The Finance Sector ETF (XLF 22.88 +0.10) fell half of one percent to close below its 20-DMA. The three canaries all closed mixed: the Russell-2000 (IWM 113.79 +0.45) posted a fractional gain but closed well below its initial gap up open, the Bank Index (KBE 32.55 +0.23) posted a strong fractional gain, and the Regional Bank Index (KRE 39.07 +0.36) gained nearly one percent. gain. All three closed below their respective 20- and 50-DMAs but the Russell-2000 was able to close back above its 200-DMA. All three are in trading states. All three maintain a BEARISH BIAS. Longer Term Bonds (TLT 114.32 -1.61) lost more than one percent and it appears that our top call was right on the money. It shifted to a trading state and maintains a BULLISH BIAS and is above its 20-, 50-, and 200-DMAs. Trading volume remained light with 680M shares traded on the NYSE. Trading volume on the NASDAQ remained average with 1.868B shares traded.
There were four economic reports of interest released:
• Case-Shiller 20-City Index (May) rose +9.3% versus an expected +10.0% rise
• Consumer Confidence (Jul) came in at 90.9 versus an expected 85.6
The first report was released a half hour before the open while the other report was released a half hour into the session.
On Wednesday at 2:00pm EDT, following the Fed Open Market Committed (FOMC) meeting, the Fed released its statement indicating it would continue to taper by $10B, down to $25B in bond buying. It didn't change the Fed funds rate, which remains between 0.00 to 0.25%. The Fed did say that second quarter growth was better than expected.
Apple (AAPL 98.15 -0.23) posted a fractional loss. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 36.45 -0.04) posted a modest loss. It is in a downtrend 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 nearly a quarter of one percent while the Euro slid a bit more than one eighth of one percent.
The yield for the 10-year treasuries rose nine basis points to close at 2.55. The price of a barrel of crude oil closed down seventy cents to close at $100.27. The U.S. government reported a draw down of 3.697M barrels of oil last week.
The implied volatility for the S&P-500 (VIX 13.33 +0.05) closed relatively flat. This left the VIX not far below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 13.93 -0.27) fell two percent.
Market internals were mixed. Decliners led advancers 8:5 on the NYSE and by 10:7 on the NASDAQ. Down volume led up volume 4:4 on the NYSW while up volume led down volume nearly 2:1 on the NASDAQ. The index put/call ratio fell -0.26 to close at 0.81. The equity put/call ratio fell -0.03 to close at 0.57.
Conclusion/Commentary
Wednesday sets the market up for a potential rally after a lower open. The Dow and S&P-500 are now both in downtrend states. We have definitely seen a failure to follow through on bullish moves higher but the market did rally based on the Fed meeting expectations on their policy statement announcement. We will watch to see if the bulls buy the dip on Thursday. If not, we could finally see something get started to the downside and we will exit long trades.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
