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Canaries are Singing...

By: Mark McMillan | Friday, June 6, 2014

6/6/2014 8:59:07 AM

Bears back is broken...

Recommendation: Take no action.

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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 saw a gap up open followed by an assault by the bears which allowed them to close the windows on the gap up open. In less than an hour, though, the bull would begin to buy vigorously and didn't let up through the session. By the close, the Dow and S&P-500 were at all time highs and the NASDAQ-100 was at a multi-year high. All three closed with fractional gains and remain above their 20-, 50-, and 200-Day Moving Averages (DMAs). In fact, all equity indexes we regularly monitor closed above their respective 20-, 50-, and 200-DMAs. The Semiconductor Index (SOX 614.30 +3.17) also added a fractional gain closing at a multi-year high and above its 20-, 50-, and 200-DMAs. The Dow Jones Transports (IYT 146.11 +1.12) added a strong fractional gain closing just under its all time high and remains above its 20-, 50- and 200-DMAs in an uptrend state. The Russell-2000 (IWM 114.78 +2.36) added more than two percent, the Bank Index (KBE 32.86 +0.43) added more than one percent, and the Regional Bank Index (KRE 39.70 +0.75) added nearly two percent. All three canaries are singing after finally pushing up definitively above their 50-DMAs which has been a struggle until Thursday. Even the Finance Sector ETF (XLF 22.65 +0.21) added nearly one percent. All equity indexes we regularly monitor are now in uptrend states as well. The Russell-2000 has a NEUTRAL BIAS and the two bank indexes have a BEARISH BIAS but have warned of a shift to a BULLISH BIAS. All other equity indexes have a BULLISH BIAS. Longer Term Bonds (TLT 111.59 +0.05) closed flat and remains below its 20-DMA but above its 50- and 200-DMAs. It maintains a tradings state but has indicated a possible change to a BEARISH BIAS. Trading volume increased but remained light with 629M shares traded on the NYSE. Trading volume on the NASDAQ increased to average with 1.900B shares traded.

There were five economic reports of interest released:

All three reports were released an hour or more before the open.

We are watching gold for a potential reversal in the Gold Miners Index (GDX 22.65 +0.37) added more than one percent as the price of Gold (GLD 120.66 +0.90) posted a fractional gain. Both closed below their 20-, 50-, and 200-DMAs.

Apple (AAPL 647.35 +2.53) rose fractionally. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 38.99 +0.04) 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 a tenth of one percent while the Euro fell two tenths of one percent.

The yield for the 10-year treasuries fell seven basis points to close at 2.54. The price of a barrel of crude oil closed down sixteen cents at $102.48.

The implied volatility for the S&P-500 (VIX 11.68 -0.40) slid more than three percent and remains well below its 200-DMA. The implied volatility for the NASDAQ-100 (VXN 13.66 -0.55) slid nearly four percent and remains well below its 200-DMA.

Market internals were bullish with advancers leading decliners 4:1 on both the NYSE and the NASDAQ. Up volume led down nearly 3:1 on both the NYSE and the NASDAQ. The index put/call ratio was all but unchanged falling -0.01 to close at 0.73. The equity put/call ratio rose +0.07 to close at 0.50. The ratio of new highs to new lows on the NYSE surged to over 15:1, which is the highest seen since April of last year.


Conclusion/Commentary

The canaries (the Russell-2000, the Bank Index, and the Regional Bank Index) all surged higher on Thursday to close above their 20-, 50-, and 200-DMAs. Last week, the short position on the Russell-2000 would have taken 3.4 days to cover, and we have seen nothing but light trading volumes until Thursday. This appears to be, at least in part, a short covering rally. It also suggests the rally is not yet over. We will maintain our long positions until we see clear signs of the next reversal.

 


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

 

Author: Mark McMillan

Mark McMillan
The McMillan Portfolio

Mark McMillan

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