Canaries Breaking Out!
6/18/2014 9:03:05 AM
While major indexes are restrained, other indexes sport big gains...
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Long DIA at $161.48 as of December 19, 2013
Long QQQ at $85.99 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 modestly lower open followed by a rise into positive territory for the first hour followed by a forty-five minute sell-off that tested toward the open prices. From there, it was generally a grind higher through the rest of the session but with small moves in both directions late in the session. This left all three major indexes with relatively modest fractional gains and in trading states. The Semiconductor Index (SOX 635.49 +4.57) added a strong fractional gain as did the Dow Jones Transports (IYT 144.78 +0.65). The Russell-2000 (IWM 116.97 +0.82) added a strong fractional gain but the Bank Index (KBE 33.43 +0.56), the Regional Bank Index (KRE 40.32 +0.70), and the Finance Sector ETF (XLF 22.723 +0.23) all added more than one percent. All three canaries and the semiconductor index are in uptrend states and the transports and finance sector could shift to uptrend states if this move higher continues on Wednesday. All equity indexes are trading above their 20-, 50-, and 200-Day Moving Averages (DMAs) and all have a BULLISH BIAS. Longer Term Bonds (TLT 111.54 -0.89) posted a fractional loss and closed even with its 50-DMA. It is below its 20-DMA and above its 200-DMA. It will shift to a NEUTRAL BIAS on Wednesday unless something significant happens. It maintains a trading state. Trading volume eased even more with a very light 552M shares traded on the NYSE. Trading volume on the NASDAQ increased to a below average 1.788B shares traded.
There were four economic reports of interest released:
- Housing Starts (May) came in at 1.001M versus an expected 1.028M
- Building Permits (May) came in at 991K versus an expected 1.050M
- CPI (May) rose +0.4% versus an expected +0.2%
- Core CPI (May) rose +0.3% versus an expected +0.2%
All the reports were released an hour before the open.
We are watching gold for a potential reversal in the Gold Miners Index (GDX 24.12 +0.14) gained one half of one percent closing on its 200-DMA as the price of Gold (GLD 122.28 -0.16) eased slightly remaining just above its 20-DMA.
Apple (AAPL 92.08 -0.12) eased slightly. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 39.44 +0.01) closed flat closing just below its 200-DMA. It has regained all but thirteen cents of its recent high, and just paid a one dollar dividend so has really just achieved a new multi-month high. It is in an uptrend state. 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 $0.98 and one dollar for total dividends issued of $1.98. The stock fell back to just below its 200-DMA. 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 a quarter of one percent while the Euro fell a like amount. The dollar continues to hover below its 200-DMA. The Euro is plumbing the depths at its recent lows. It closed well below its 200-DMA.
The yield for the 10-year treasuries closed up six basis points at 2.66. The price of a barrel of crude oil closed down fifty-four cents at $106.36.
The implied volatility for the S&P-500 (VIX 12.06 -0.59) fell five percent. The implied volatility for the NASDAQ-100 (VXN 13.51 -0.19) slipped a bit more than one percent. Both remain below their 200-DMAs.
Market internals were bullish. Advancers led decliners 8:5 on the NYSE and by 2:1 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 3:1 on the NASDAQ. The index put/call ratio rose +0.15 to close at 93. The equity put/call ratio closed flat (up +0.01) to close at 0.49.
All three canaries (the Russell-2000 and the two bank indexes) have now shifted to uptrend states. While the major indexes added only modest gains, the other leading indexes and the financials added nice gains. Most equity indexes are poised to make new all time or multi-year highs at this time. We thought it would be difficult for the bulls to make much headway but the bears have yet to cover short positions and the short squeeze may be just around the corner. We remain long equities at this time.
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to firstname.lastname@example.org.