Big Intraday Reversal Yet Again...
5/8/2014 8:58:23 AM
Bear assault repulsed...
Recommendation: Take no action.
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Best ETFs to buy now (current positions):
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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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 up that was immediately met with selling which saw a steep plunge for the first hour of trading before buyers were able to take control. Still, the path higher saw many setbacks along the way. At the close, both the Dow and S&P-500 had recorded strong fractional gains while the NASDAQ-100 posted a fractional loss. It was the only equity index we regularly monitor to post a loss. Still, the Dow and S&P-500 are above their 20-, 50-, and 200-Day Moving Averages (DMAs). The NASDAQ-100 closed even with its 20-DMA and below its 50-DMA. The Semiconductor Index (SOX 573.99 +0.21) was nearly unchanged as was the Russell-2000 (IWM 110.14 +0.07). The Dow Jones Transports (IYT 137.80 +0.86) looked strong by comparison. The Bank Index (KBE 31.66 +0.30) and the Regional Bank Index (KRE 38.06 +0.38) both added nearly one percent gains and the Finance Sector ETF (XLF 21.88 +0.29) added more than one percent and closed above its 20- and 200-DMAs but below its 50-DMA. Longer Term Bonds (TLT 112.08 -0.40) slipped fractionally as it has been held at its 400DMA for five consecutive sessions. 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.
In addition to the weekly crude oil inventory report, there were four economic reports of interest released:
- MBA Mortgage Index for last week rose 5.3%
- Productivity-Preliminary (Q1) fell -1.7% versus an expected -1.2% fall
- Unit Labor Costs-Preliminary (Q1) rose +4.2% versus an expected +2.5% rise
- Consumer Credit (Mar) came in at $17.5B versus an expected $16.1B
The first three reports were released an hour or more before the open. The final report came out with one hour remaining in the session.
For nine sessions in a row, 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 nine 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 23.81 -0.47) slid two percent. The price of Gold (GLD 124.17 -1.81) slid more than one percent after opening on its 200-DMA and selling off the entire session. Both indexes closed below their respective 20, 50-, and 200-DMAs.
Apple (AAPL 589.04 -5.37) lost 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 35.46 +0.52) added 1.5% and looks set to have a confrontation with its upper Bollinger Band. It closed above its 20- and 50-DMAs but is well 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 rose almost imperceptibly while the Euro slipped a tenth of one percent. 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 2.59. The price of a barrel of crude oil rose +$1.27 to close at $100.77. The U.S. government reported a drawdown of 1.781M barrels of oil last week.
The implied volatility for the S&P-500 (VIX 13.40 -0.40) fell three percent remaining well below its 20-, 50, and 200-DMAs. Implied volatility for the NASDAQ-100 (VXN 17.40 +0.31) rose another two percent. It is still below its 20- and 50-DMAs but well above its 200-DMA.
Market internals were mixed with advancers leading decliners 2:1 on the NYSE while decliners led advancers 5:4 on the NASDAQ. Up volume led down volume nearly 2:1 on the NYSE while down volume led up volume 2:1 on the NASDAQ. The index put/call ratio rose five basis points to close at 0.76. The equity put/call ratio fell -0.01 to close at 0.67.
There was a tremendous turnaround in the equities markets as buying began after many equity indexes were down more than one percent. The fact that almost all equity indexes finished in positive territory on heavier volume shows that the bulls are still in the game. We are still concerned over the performance of equities of late. However, Wednesday's significant reversal allows the bulls to alter the near term direction of the market and we will give them a chance to do so. We would still like to shift to short positions but would like to do so after a rally attempt.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.