At a Crossroads...
5/15/2014 8:58:31 AM
Bears dictate light volume trading...
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 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 mixed open with the Dow opening just above flat. The NASDAQ-100 and S&P-50 both opened lower. All three moved lower in unison for the first hour of trading before trading slightly higher to sideways until around 2:00pm. All three then lurched lower and closed not far off their lows with fractional losses recorded for each of them. The NASDAQ-100 closed even with its 50-Day Moving Average (DMA) but remains above its 20- and 50-DMAs. The Dow and S&P-500 look like they are about to shift from their uptrend states to trading states but remain above their respective 20-, 50-, and 200-DMAs. The Semiconductor Index (SOX 576.80 -5.07) posted a fractional loss as did the Dow Jones Transports (IYT 140.21 -1.19). The Russell-2000 (IWM 109.62 -1.81) was hammered for a loss of 1.6% closing below its 20-, 50-, and 200-DMAs. The Bank Index (KBE 31.40 -0.59) closed most of two percent lower and the Regional Bank Index (KRE 37.58 -0.86) lost more than two percent. Both bank indexes closed below their respective 20-, 50-, and 200-DMAs. The Finance Sector ETF (XLF 21.97 -0.16) posted a fractional loss closing below its 50-DMA but remaining above its 20- and 200-DMAs. Longer Term Bonds (TLT 112.96 +1.21) added more than one percent. It closed just above its 400DMA after trying to breach that level for two weeks. TLT shifted to an uptrend state and closed above its 20-, 50-, and 200-DMAs. Trading volume remained light with 620M shares traded on the NYSE. Trading volume on the NASDAQ was below average with 1.738B shares traded.
In addition to the weekly crude oil inventory report, there were three economic reports of interest released:
- MBA Mortgage Index for last week rose +3.6% versus last week's greater than 5% rise
- PPI (Apr) rose +0.6% versus an expected +0.2% rise
- Core PPI (Apr) rose +0.5% versus an expected +0.2% rise
All three reports were released an hour or more before the open.
We are watching gold for a potential reversal in the Gold Miners Index (GDX 24.01 +0.26) gained just over one percent and the price of Gold (GLD 125.81 +1.21) gained nearly one percent. This was enough for gold to close just above its 200-DMA while GDX remains below its respective 200-DMA.
Apple (AAPL 593.87 +0.11) closed flat. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 35.52 +0.04) closed modestly higher. It remains above the support of its 20- and 50-DMAs. 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 and the Euro were essentially unchanged.
The yield for the 10-year treasuries fell eight basis points to close at 2.54. The price of a barrel of crude oil rose sixty-seven cents to close at $102.37. The U.S. government reported that crude oil inventories rose by 947K barrels last week.
The implied volatility for the S&P-500 (VIX 12.17 +0.04) was essentially unchanged and remains well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 15.16 -0.21) slipped one percent and remains below its 200-DMA. Note: It is highly unusual for implied volatility to fall when the index closes lower, especially when implied volatility is below its 200-DMA.
Market internals were bearish with decliners leading advancers 3:2 on the NYSE and by 3:1 on the NASDAQ. Down volume led up volume by 2:1 on both the NYSE and the NASDAQ. The index put/call ratio rose +0.36 to close at 1.25. The equity put/call ratio rose +0.11 to close at 0.72.
Wednesday saw the bears moving in sync from the open on a very light trading volume day. Prices began falling immediately and the canaries were singing a bearish tune. The Russell-2000, Bank Index, and Regional Bank Index all closed below their 200-DMAs but all three maintained trading states. Longer Term Bonds shifted to an uptrend state closing above their respective 20-, 50-, and 200-DMAs. What does it mean? Only the Regional Bank Index made a new low so we will be watching for volume confirmation of a move higher or lower on Thursday. Until then, we will maintain our long positions because the bulls have not yet given up, but buying has been scarce for two sessions.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.