The Markets Take a Rest...

By: Mark McMillan | Thu, May 29, 2014
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5/29/2014 9:15:29 AM

Get ready for more volatility soon...

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Stock Market Trends:

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.

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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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 opened relatively flat then struggled to move higher before dipping modestly into late morning before attempting to rally. The rally actually was successful into late afternoon before the final forty-five minutes saw steady selling. This left the major indexes with relatively modest fractional losses. All three closed above their 20-, 50-, and 200-Day Moving Averages (DMAs) and the Dow maintained its trading state while the NASDAQ-100 and S&P-500 maintained their uptrend states. The Dow Jones Transports (IYT 144.71 +1.03) added most of one percent and the Semiconductor Index (SOX 597.66 +0.58) added a modest gain. The Russell-2000 (IWM 112.99 -0.59) slipped to close even with its 50-DMA but remains above its 20-, and 200-DMAs. The Bank Index (KBE 31.85 -0.13) and the Regional Bank Index (KRE 38.33 -0.27) also suffered fractional losses closing below their 50- and 200-DMAs but above their 20-DMAs. All three remain in trading states. The Finance Sector ETF (XLF 22.18 -0.05) remains above its 20, 50-, and 200-DMAs in an uptrend state. Longer Term Bonds (TLT 114.76 +1.40) added more than one percent to close at a new recent high and near the upper boundary of the uptrend channel it has been in all year. It closed above its 20-, 50- and 200-DMAs. It shifted to an uptrend state and looks shortable here on a reversal sign. Trading volume dropped to very light with 616M shares traded on the NYSE. Trading volume on the NASDAQ dropped off and remains below average with 1.749B shares traded.

There was a single economic report of interest released:

The report was released hours before the open.

We are watching gold for a potential reversal in the Gold Miners Index (GDX 22.04 -0.37) slipped more than one percent as the price of Gold (GLD 121.20 -0.65) fell fractionally. Both closed below their 20-, 50-, and 200-DMAs.

Apple (AAPL 624.01 -1.62) fell modestly. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 37.54 -0.02) closed flat. It is in an uptrend state. 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 nearly three tenths of one percent and the Euro fell a like amount.

The yield for the 10-year treasuries fell ten basis points to close at 2.44. The price of a barrel of crude oil fell -$1.39 close at $102.72.

The implied volatility for the S&P-500 (VIX 11.68 +0.17) rose one percent and remains well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 14.04 +0.32) rose two percent but remains well below its 200-DMA.

Market internals were mixed with advancers leading decliners 11:10 on the NYSE while decliners led advancers 8:5 on the NASDAQ. Down volume edged up volume on the NYSE while up volume edged down volume on the NASDAQ. The index put/call ratio fell -0.06 to close at 0.93. The equity put/call ratio rose +0.03 to close at 0.56.


Wednesday saw what we expected, which was "we think it is likely that equity prices take a rest here, for at least a session or two." There was not a large move made by any equity index, well, nothing more than fractional moves to be specific. All three canaries declined as did the major indexes but the Dow Jones Transports closed with a strong fractional gain and the semiconductor index closed with a modest gain. This suggest that the rest period will likely be short leading to greater volatility soon. We will maintain our long positions for now.


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Mark McMillan

Author: Mark McMillan

Mark McMillan
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