Bears counter attack…
A few indexes struggle higher but most take losses…
Recommendation: Take no action.
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Stock Market Trends:
– 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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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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The major indexes gapped up at the open then struggled as they moved higher for the first half hour then rolled over and dove most of the rest of the session. While there was a bounce that started during the lunch hour, the final intraday bottom was made with 1.5 hours remaining. Equities most rallied into the close leaving the Dow and S&P-500 flat and with a large fractional loss for the NASDAQ-100. The Russell-2000 (IWM 117.20 -1.20) lost one percent and the Dow Jones Transports (IYT 137.30 -0.27) and the Finance Sector ETF (XLF 22.39 -0.04) posted modest losses. The Semiconductor Index (SOX 595.93 +0.99), the Bank Index (KBE 34.49 +0.06), and the Regional Bank Index (KRE 42.16 +0.05) all posted modest gains. This left only the NASDAQ-100 and Russell-2000 closing below their 20-Day Moving Averages (DMAs). All equity indexes we regularly report on are in uptrend states with the exception of the NASDAQ-100 and the Russell 2000(IWM 118.40 +0.53). Also, all of them have a BULLISH BIAS except for the NASDAQ-100 which has a NEUTRAL BIAS. Longer term bonds (TLT 107.74 +0.47) closed back above its 50-DMA but remains below its 20-DMA. It is in a trading state. It has a BULLISH BIAS but has warned of a potential change to a BEARISH BIAS. Trading volume was below average with 661M shares traded on the NYSE. Trading volume on the NASDAQ was average with 2.030B shares traded.
There were five economic reports of interest released:
- Challenger Job Cuts (Mar) fell -30.2% versus February’s -24.4%
- Initial Jobless Claims for last week came in at 326K versus an expected 320K
- Continuing Jobless Claims came in at 2.836M versus an expected 2.850M
- Trade Balance (Feb) fell -$42.3B versus an expected -$39.3B
- ISM Services (Mar) came in at 53.1 versus an expected 53.5
All reports were released an hour or more before the open except the final report which came out a half hour into trading.
We are watching gold for a potential reversal in the Gold Miners Index (GDX 24.07 -0.25) lost one percent while the price of Gold (GLD 123.92 -0.40) posted a modest loss.
Apple (AAPL 538.79 -2.86) lost about one half of one percent. AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.
Seadrill Limited (SDRL 34.96 -0.56) could not break above its 50-DMA and moved back toward the support of its 20-DMA. We believe the stock has bottomed and could pull back to the support of its 20-DMA or it may begin moving aggressively higher soon. 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 three tenths of one percent while the Euro fell four tenths of one percent.
The yield for the 10-year fell a single basis point to close at 2.79. The price of a barrel of crude oil rose sixty-seven cents to close at $100.29.
The implied volatility for the S&P-500 (VIX 13.37 +0.28) rose two percent which is still well below its 200-DMA. Implied volatility for the NASDAQ-100 (VXN 16.96 +0.59) rose most of four percent which is well above its 200-DMA.
Market internals were bearish with decliners leading advancers 3:2 on the NYSE and by 5:2 on the NASDAQ. Down volume led up volume by nearly 3:2 on the NYSE and by 2:1 on the NASDAQ. The index put/call ratio rose +0.39 to close at 1.01. The equity put/call ratio rose +0.08 to close at 0.59.
Thursday’s consolidation was expected. While the NASDAQ-100 and Russell-2000 were hit pretty hard, other equity indexes treaded water for the most part with the semiconductor index and both bank indexes actually recording gains. We believe that this was needed to work off some overbought conditions. Trading volume was relatively light. We reiterate that odds are against a top forming here. We are sticking with our idea that, “we are looking for a bit of a stall in bullish momentum as the overbought conditions get worked off and then a continuation to the upside.”
We hope you have enjoyed this edition of the McMillan portfolio. You may send comments to email@example.com.