The Bulls Fight Back...

By: Mark McMillan | Thu, Jun 26, 2014
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6/26/2014 8:55:44 AM

On worse than expected news, bulls drive equities higher...

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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: 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 gap down opened followed by immediate buying. Volume was quite similar to Tuesday, with a little less NYSE volume and a bit more NASDAQ volume. The final half hour saw some of the gains given back but it was enough for all equity indexes we regularly monitor to post gains. This was enough for the Dow to close back above its 20-Day Moving Average (DMA). The Finance Sector ETF (XLF 22.75 +0.02) shifted to a trading state leaving only the NASDAQ-100 maintaining its uptrend state with all other equity indexes in trading states. All equity indexes closed above their 20-, 50-, and 200-DMAs as the Dow Jones Transport Index (IYT 146.38 +1.44) added nearly one percent. The Semiconductor Index (SOX 630.86 +2.36), the Russell-2000 (IWM 117.75 +0.99), the Bank Index (KBE 33.31 +0.19), and the Regional Bank Index (KRE 40.12 +0.28) all posted fractional gains. All equity indexes remain with a BULLISH BIAS. Longer Term Bonds (TLT 112.87 +0.29) rose modestly. It is now above its 20-, 50-, and 200-DMAs. It has a NEUTRAL BIAS and shifted to an uptrend state. Trading volume rose modestly remaining light with 653M shares traded on the NYSE. Trading volume on the NASDAQ fell to below average 1.708B shares traded.

In addition to the crude oil inventory report, there were five economic reports of interest released:
• MBA Mortgage Index for last week
• Durable Goods Orders (May) fell -1.0% versus an expected +0.4% rise
• Durable Goods Orders (May) fell -0.1% versus an expected +0.4% rise
• GDP - Third Estimate (Q1) fell -2.9% versus an expected -1.8% fall
• GDP Deflator - Third Estimate (Q1) rose +1.3% as expected
All five reports were released an hour or more before the open.

Apple (AAPL 90.36 +0.08) rose modestly. It had 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 39.19 -0.38) fell nearly one percent, rising since its gap down open but still closing 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 fell nearly one tenth of one percent while the Euro rose two tenths of one percent. The dollar continues to trade below its 200-DMA as the Euro approaches the bottom side of its 200-DMA.

The yield for the 10-year treasuries fell three basis points to close at 2.56. The price of a barrel of crude oil rose forty-seven cents to close at $106.50. The U.S. government reported a 1.742M barrel rise in crude oil inventories last week.

The implied volatility for the S&P-500 (VIX 11.59 -0.54) fell four percent. The implied volatility for the NASDAQ-100 (VXN 12.54 -0.07) was nearly unchanged. Both measures are still well below their respective 200-DMAs.

Market internals were bullish. Advancers led decliners 9:4 on the NYSE and by 9:4 on the NASDAQ. Up volume led down volume 2:1 on the NYSE and by 7:3 on the NASDAQ. The index put/call ratio rose +0.22 to close at 1.14 equity put/call ratio fell -0.03 to close at 0.49


Just as Tuesday was all about the reversal of optimism to pessimism, Wednesday was all about the reversal of pessimism to optimism. The difference was that Tuesday started out with optimistic buying that lasted for an hour and a half before rolling over to a significant descent. Wednesday saw a lower open immediately met by buying that lasted, with modest pull-backs, throughout the session. Volume was similar on both days. This occurred after weaker than expected GDP data. It clearly shows that market participants are still, overall, bullish. Leading indexes outperformed the major indexes to the upside with bullish engulfing candlestick patterns occurring for many equity indexes. Until something changes, we will remain long.


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Mark McMillan

Author: Mark McMillan

Mark McMillan
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