The Bear Shows Up...

By: Mark McMillan | Wed, May 7, 2014
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5/7/2014 9:13:04 AM

Eight consecutive sessions...

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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.

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Long DIA at $161.48 as of December 19, 2013
Long QQQ at $85.99 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: 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 = $5.28 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.

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Equities saw a modest gap down with a dearth of buying. Although volume was light to below average, the direction was downward. At this time, there is little that favors equity bulls. Longer Term Bonds (TLT 112.48 +0.45) added a fractional gain and look to be topping here. That may be enough to turn around the slide in equities, or it may not be. TLT remains in an uptrend state closing above its 20-, 50-, and 200-Day Moving Averages (DMAs). Trading volume was light with 700M shares traded on the NYSE. Trading volume on the NASDAQ was below average with 1.821B shares traded.

There was a single economic report of interest released:

The report was released an hour before the open.

For eight sessions in a row, now, the NASDAQ has had more new lows than new highs. So, even when the NASDAQ shows gains and otherwise shows bullish market internals, the number of new lows continues to be greater than the number of new highs. This is clearly a sign of weakness. The last time there were eight or more consecutive sessions where the NASDAQ had more new lows than new highs was in November 2012 which corresponds with the last time that the NASDAQ-100 was trading below its 200-DMA. The NASDAQ-100 struggled the entire month of December before starting a grinding move higher that lasted the entire year of 2013.

We are watching gold for a potential reversal in the Gold Miners Index (GDX 24.28 -0.13) posted a fractional loss. The price of Gold (GLD 125.98 -0.24) posted a modest loss. Both GDX and GLD closed below their respective 50-DMAs but GDL is now above its 200-DMA while GDX is below that respective moving average.

Apple (AAPL 594.41 -6.55) lost 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 34.94 +0.16) added about one half of one percent to close back above its 50-DMA. It appears to be setting up to move up and test the upper Bollinger Band. It is above its 20-DMA but below its 200-DMA. We sold March 2014 $35.00 put contracts for $150 at the open on Feb 18th and bought shares at $35.43. The stock is now trading ex-dividend for $0.98. 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 fell four tenths of one percent while the Euro moved the opposite direction. The Euro is very near its high this year and the dollar just broke to a low not seen since 2011.

The yield for the 10-year treasuries fell a basis point to close at 2.60. The price of a barrel of crude oil was essentially unchanged rising just two cents to close at $99.50.

The implied volatility for the S&P-500 (VIX 13.80 +0.51) soared most of four percent but remains just below its 20-, 50, and 200-DMAs. Implied volatility for the NASDAQ-100 (VXN 17.09 +0.31) rose two percent. It is still below its 20- and 50-DMAs but above its 200-DMA.

Market internals were bearish with decliners leading advancers 2:1 on the NYSE and by 4:1 on the NASDAQ. Down volume led up volume 3:1 on the NYSE and by 5:1 on the NASDAQ. The index put/call ratio fell -0.25 close at 0.71. The equity put/call ratio rose +0.03 to close at 0.68.


There was nothing bullish about equities on Tuesday. The bulls could not put anything together and the bears became emboldened selling into the close. The only relief for the bulls is that the downward move was on light or below average volume. We are concerned over the performance of equities of late and will shift to a more bearish stance by the close on Wednesday, barring a change in the way equities are trading. Look for an intraday signal to indicate were are closing long positions, unless something changes. In addition, we may shift to entering short trades as well.


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Mark McMillan

Author: Mark McMillan

Mark McMillan
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