Portuguese Bank Concerns Bring Out The Bears...

By: Mark McMillan | Fri, Jul 11, 2014
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7/11/2014 9:02:41 AM

Buyers step in after gap down open...

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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.
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Equities saw a large gap down open followed by buying in the early and mid session with some softness in the afternoon giving back some of the intraday gains. The NASDAQ-100 actually reached positive territory before all three major indexes settled back with fractional losses of less than one half of one percent. The three canaries, the Russell-2000 (IWM 115.25 -1.24), the Bank Index (KBE 33.00 -0.20), and the Regional Bank Index (KRE 39.79 -0.39) were harder hit than other equity indexes but they are still the only ones that we regularly monitor to closed below their 20-Day Moving Averages (DMAs). All equity indexes we regularly monitor closed above their 50- and 200-DMAs and all are in trading state with a BULLISH BIAS. Longer Term Bonds (TLT 112.86 +0.03) closed flat maintaining its position above its 20-, 50-, and 200-DMAs, maintaining a trading state and maintaining a NEUTRAL BIAS. Trading volume was almost exactly the same as on Wednesday with a light 569M shares traded on the NYSE. Trading volume on the NASDAQ was also light with 1.652B shares traded.

There were three economic reports of interest released:
• Initial Jobless Claims for last week came in at 304K versus an expected 311K
• Continuing Jobless Claims 2.585M versus an expected 2.567M
• Wholesale Inventories (May) rose +0.5% as expected

The first two reports were released an hour before the open while the last report came out a half hour into the session.

The big event of the day was worry that the second largest bank in Portugal might fail. This concern was caused when a company linked to the bank missed some fixed income debt payments. Given that contagion can occur when one bank fails, leading to further collapse, European bourses sold off hard. This caused a gap down open for U.S. equities of more than one percent.

Apple (AAPL 95.04 -0.35) posted a fractional loss. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 38.10 -0.49) fell more than one percent. It remains 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 trading 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 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 less than two tenths of one percent while the Euro fell two tenths of one percent. The dollar continues to trade below its 200-DMA while the Euro failed to break up through its 200-DMA.

The yield for the 10-year treasuries fell two basis points to close at 2.53. The price of a barrel of crude oil rose sixty-four cents to close at $102.93.

The implied volatility for the S&P-500 (VIX 12.59 +0.94) rose eight percent. The implied volatility for the NASDAQ-100 (VXN 14.13 +0.91) rose seven percent.

Market internals were bearish. Decliners led advancers 2:1 on the NYSE and by 3:1 on the NASDAQ. Down volume led up volume 3:1 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio fell -0.02 to close at 1.06. The equity put/call ratio rose +0.13 to close at 0.67.


With an overall modest decrease in light volumes, the set-up for the bears was refused. The bulls bought on the gap down open and the bears didn't follow-through. While market internals were absolutely bearish, this looks like a failed attempt to drive prices lower. While we are not out of the woods yet, the bulls didn't blink, yet. We were able to exit our long position in QQQ at $94.96 recording an 11.8% profit. We were unable to exit our positions in DIA and SPY as our limit orders were not executed. We will remain long DIA and SPY as we monitor trading on Friday.


We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to mark@stockbarometer.com.



Mark McMillan

Author: Mark McMillan

Mark McMillan
The McMillan Portfolio

Mark McMillan

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