10/6/2014 9:30:58 AM
An early week clash between bulls and bears is coming...
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 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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Equities saw a large gap up open then ran higher. Longer Term Bonds (TLT 117.70 +0.50) posted a fractional gain as it completes a likely top formation. It closed above its 20-, 50-, and 200-DMAs, is in an uptrend state and shifted to a BULLISH BIAS. Trading volume was nearly unchanged with a below average 803M shares traded on the NYSE. Trading volume on the NASDAQ plummeted to a below average 1.760B shares traded.
There were seven economic reports of interest released:
• Non-farm Payrolls (Sep) came in at 248K versus an expected 210K
• Non-farm Private Payrolls (Sep) came in at 236K versus an expected 205K
• Unemployment Rate (Sep) came in at 5.9% versus an expected 6.1%
• Hourly Earnings (Sep) were flat versus an expected +0.2% rise
• Average Workweek (Sep) came in at 34.6 hours versus an expected 34.5 hours
• Trade Balance (Aug) came in at -$40.1B versus an expected -$40.9B
• ISM Services (Sep) came in at 58.6 versus an expected 58.9
All reports but the last were released an hour before the open. The last report came out a half hour into trading.
Apple (AAPL 99.62 -0.28) 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 24.30 -0.55) fell another two percent. SDRL has not yet been able to put in a bottom even though equities, in general, appear to be bottoming here. SDRL's slide appears to be linked to the price of oil which peaked on June 20th. The U.S. dollar bottomed in early May and confirmed that bottom in late June. Dollar denominated commodities, such as oil, are inversely correlated to moves in the dollar and the dollar is currently long-term bullish. SDRL is in a downtrend state and closed below its 20-, 50-, and 200-DMAs. 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 $2.98 of total dividends. 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 yield for the 10-year treasuries was unchanged at 2.44. The price of a barrel of crude oil fell -$1.27 to close at $89.74.
The implied volatility for the S&P-500 (VIX 14.55 -1.61) plummeted ten percent closing above its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 17.54 -1.09) fell six percent to close well above its 200-DMA.
Market internals were bullish with advancers leading decliners 2:1 on both the NYSE and the NASDAQ. Up volume led down volume 5:2 on the NYSE and by 3:1 on the NASDAQ. The index put/call ratio rose +0.04 to close at 1.04. The equity put/call ratio fell -0.08 to close at 0.54.
Conclusion/Commentary
Friday saw the bulls fight back to set up a clash early in the coming week to see whether equities are likely to, in the short term push up to test recent highs or whether they will collapse down to test recent lows. We believe the bulls will win out and will maintain current positions in the short term.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.
