10/8/2014 9:20:50 AM
Final Fed Taper to be announced...
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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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 gap down open followed by an immediate rally attempt that failed and selling then continued through the rest of the session. This left all equity indexes that we regularly monitor closing down between one and two percent. All equity indexes that we monitor are below their 20- and 50-Day Moving Averages (DMAs) and the canaries are below their 200-DMAs. The canaries, the S&P-500, and the Semiconductors have a BEARISH BIAS and the others have warned of such a change. All except the Finance Sector ETF and the Dow Jones Transports are in downtrend states. Longer Term Bonds (TLT 119.36 +1.59) added more than one percent to close at a new high not seen since May of last year. It closed above its 20-, 50-, and 200-DMAs, is in an uptrend state and has a BULLISH BIAS. Trading volume was below average with 791M shares traded on the NYSE. Trading volume on the NASDAQ was average with 2.090B shares traded.
There were two economic reports of interest released:
• JOLTS Job Openings (Aug) came in at 4.835M versus July's 4.605M
• Consumer Credit (Aug) increased by $13.5B versus an expected $20.0B
Both reports were released during the session and consumer credit for July was revised down from $26.0B to $21.6B.
Apple (AAPL 98.75 -0.87) fell most of one percent. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 24.90 +0.06) closed fractionally higher. SDRL may be bottoming here but much of that will be shaped by the near term direction of equity markets and the price of oil. 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 fell seven basis points to close at 2.35. The price of a barrel of crude oil closed at $88.85.
The implied volatility for the S&P-500 (VIX 17.20 +1.74) soared eleven percent closing near recent highs and well above its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 19.17 +1.19) climbed most of seven percent closing near it recent high and well above its 200-DMA.
Market internals were bearish with decliners leading advancers 3:1 on the NYSE and by 4:1 on the NASDAQ. Down volume led up volume 4:1 on the NYSE and by 3:1 on the NASDAQ. The index put/call ratio closed at 1.09. The equity put/call ratio closed at 0.63.
Tuesday was all about anticipation of a normal trading market that will be freed from much of the Fed's influence when the release their latest policy statement on Wednesday. That statement is expected to reflect the Fed's final taper move to bring new bond purchases to zero. With a balance sheet of over $4 trillion, the closure of these positions is an overhang of some concern to market participants. In addition, the Fed is expected to begin raising short term interest rates in 2015. We believe that market participants have been anticipating this and much of the selling has already been overdone. We will monitor trading on Wednesday in anticipation of a relief rally.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.