The Bears Ambush The Bulls...

By: Mark McMillan | Wed, Jun 25, 2014
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6/25/2014 8:35:56 AM

Added volatility with mid-day reversal...

Recommendation: Take no action.

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Long DIA at $161.48 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: 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 traded on light to average volume, which is an increase over Monday. The trading range also increased dramatically as most equity indexes hit new all-time or multi-year highs intraday before reversing and closing with losses. This left all three major indexes posting fractional losses, with the Dow collapsing below its 20-Day Moving Average (DMA) and shifting to a tradings state. In fact, all equity indexes we regularly monitor shifted to trading states except for the NASDAQ-100 and the Finance Sector ETF (XLF 22.73 -0.15) which maintain their uptrend states. The only other Equity index to close below its 20-DMA was the Dow Jones Transport Index (IYT 144.94 -1.38) which posted a twenty-six cent dividend and was able to keeps its loss to less than one percent. The Semiconductor Index (SOX 628.50 -4.62), the Russell-2000 (IWM 116.76 -1.26), the Bank Index (KBE 33.12 -0.27), and the Regional Bank Index (KRE 39.84 -0.35) all posted losses with the Russell-2000 actually losing more than one percent, the only equity index we regularly monitor to do so. All remain with a BULLISH BIAS and are above their 50- and 200-DMAs. Longer Term Bonds (TLT 112.58 +1.13) rose one percent. It moved back above 20- and 50-DMAs and is still above its 200-DMA. It has a NEUTRAL BIAS and maintains a trading state. Trading volume rose modestly remaining light with 633M shares traded on the NYSE. Trading volume on the NASDAQ rose to an average 1.951B shares traded.

There were four economic reports of interest released:
• Case-Shiller 20-city Index (Apr) rose +10.8% versus an expected 11.6%
• FHFA Housing Price Index (Apr) was flat (+0.0%) versus March's +0.7% reading
• New Home Sales (May) came in at 504K versus an expected 440K
• Consumer Confidence (Jun) came in at 85.2 versus an expected 84.0
The first two reports were released a half hour before the open while the other two reports were released a half hour into the session.

Apple (AAPL 90.28 -0.55) fell fractionally. It has been falling since a 7:1 stock split on June 8th. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 39.57 -0.80) slid two percent lower closing just below its 200-DMA. The next target above remains $40.96, it's closing price on the last trading day of 2013. 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 nearly one tenth of one percent while the Euro was essentially unchanged. 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 fell three basis points to close at 2.59. The price of a barrel of crude oil fell fourteen cents at $106.03.

The implied volatility for the S&P-500 (VIX 12.13 +1.15) soared ten percent. The implied volatility for the NASDAQ-100 (VXN 12.61 +0.31) rose two percent. Both measures are still well below their respective 200-DMAs.

Market internals were bearish. Decliners led advancers 7:4 on the NYSE and by 5:2 on the NASDAQ. Down volume led up volume 7:2 on the NYSE and by 7:3 on the NASDAQ. The index put/call ratio rose +0.06 to close at 0.92 equity put/call ratio fell -0.02 to close at 0.52


Monday saw the bears probe the bulls on lackluster volume, and the bulls bought late in the day to force a basically flat close for the major indexes, but most other equity indexes closed fractionally lower. This is healthy for a bull market to work off overbought conditions and generally, the safest time to buy stocks is after a light volume pullback, preferably one that lasts a few days and doesn't do any real technical damage. So far, we do not have any warning signs that this will be more than that. Until we do, we will remain long.


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Mark McMillan

Author: Mark McMillan

Mark McMillan
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