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I didn't expect any sustained trend in the markets until we get past the FOMC announcement next week, but this week's trading has been steadily downward. The S&P 500 has lost 2% of its value in the past three days. SPX closed today at $2048, down $16 and RUT lost $14 to close at $1146. The VIX moved up two points to close at 19.6%. RUT broke through its 50 dma yesterday and SPX broke its 50 dma today. RUT found support at $1140 in October and November, so I am watching to see if that level holds once again. The analogous support level on the SPX chart is $2020. SPX traded over a wide range today, trading as high as $2080 by about 10:30 am ET, but then trending downward until early afternoon.

There wasn't any significant economic data reported today. Oil prices, fears of a global recession, and anticipated interest rate hikes seem to dominate traders' concerns. Bernanke was surprised by the market's swift reaction when he mentioned raising interest rates a couple of years ago. I still find it a bit surprising if a 25 basis point interest rate hike will send this market over the cliff. At a minimum, we can expect some significant market volatility next week. But when I look at the market's price action since last Thursday, I have to wonder, "more volatility?"

I think it will be prudent to look closely at your positions and decide whether you want to carry them into the FOMC announcement.

Worldwide markets declined today with concerns that lower commodity prices were signaling weakening economies around the world. When coupled with news of a slowing economy in China, a bleak picture emerged. SPX closed down $13 at $2064 and RUT lost $5 to close at $1159. Trading volume in the S&P 500 rose slightly from yesterday to 2.6 billion shares. Trading increased 5% on the NYSE, but decreased 2% on NASDAQ. Volatility spiked higher with the VIX closing up nearly two points to 17.6%.

SPX dropped as far as $2052 this morning but then recovered and chopped sideways into the close. It appeared as though SPX found support at its 50 dma at $2049. RUT didn't decline as much as SPX, so one could take that as a positive sign. But RUT definitively broke through its 50 dma and didn't recover that level in today's trading.

Traders are still obsessed with the Fed announcement next week, although the consensus appears to be that they will start to raise interest rates at this meeting. Is this recent market weakness a result of that expectation?

In summary, the market is limping along weakly, but the bulls are still buying the dips. It seems unlikely that a strong trend in either direction will materialize until after the Fed announcement next week.

Let's recap: SPX drops $30 on Thursday; SPX gains $42 on Friday and then drops $15 today. If we were at the carnival, we might be feeling a bit nauseous. SPX closed at $2077, down $15 and RUT traded down even stronger, closing at $1164, down $19. As one would expect, volatility rose a bit with the VIX closing up a point at 15.8%. Trading volume in the S&P 500 companies was down at 2.5 billion shares, down from Friday, but still above the 50 dma. Trading declined 7% on the NYSE, but increased 2% on NASDAQ.

We didn't have any significant economic data released today.

RUT has been trading more bearishly than the SPX for the past several months. It corrected more strongly in August and broke that support level in late September, whereas SPX did not reach the support level created by the August flash crash. SPX bounced back strongly in October and appeared to threaten the previous all-time highs from the summer months, but RUT remained well off of the previous highs. That trend continued today with RUT dropping 1.6% while SPX only declined 0.6%. RUT found support at its 50 dma today but SPX remains more than $30 above its 50 dma. The small cap stocks, typical of the Russell 2000 Index, tend to lead the markets higher in bull markets and lower in bear markets. RUT's recent bearishness may be a warning sign.

The wrestling match with my December iron condor on RUT is nearing its end this week (assuming we close Friday in advance of expiration week). After four different adjustments, the position stands roughly at break-even today, and looks likely to be closed for a small gain on the order of 2-3% this week. The January position on SPX at 1850/1860 and 2210/2220 stands at a net gain of 9%. The Flying With The Condor™ service will end the year with a track record of something on the order of +43-45%.

Unfortunately, this price volatility is likely to continue until the FOMC meeting and announcement next week, and perhaps for some time after that announcement as the market sorts out the effects of an interest rate hike (assuming that is in the works). Analysts have been steadily downgrading earnings estimates for the S&P 500 companies for the fourth quarter, down 3.4% in the first two months of the quarter. This is one more headwind for the market as we move forward. A resumption of the strong bullishness of 2013-2014 appears less and less likely.

Monday's market was flat; Tuesday's market rallied, and Wednesday's market gave back all of yesterday's gains. SPX lost $23 to close at $2080 and RUT lost $12 to close at $1192. Volatility contracted with the VIX closing at 15.9%, down 1.2 points.

ADP's private employment report came in at +217k for November. the FOMC's beige book, the minutes from the last meeting, were released this afternoon and seemed to be generally upbeat about the country's economic growth. Janet Yellen spoke today and reiterated that theme of modest, but positive progress and anticipated we would see inflation make its way closer to the Fed's target of 2% in coming months. Her comments about future inflation rates were curious since both the CPI and PPI have been steadily tracking near zero for a long time. In summary, the beige book and Yellen's remarks lead analysts to expect an interest rate hike to come out of the FOMC meeting December 15-16.

It seems as though the market contracts every time Yellen or other members of the FOMC say anything that could possibly be interpreted as leading to an interest rate hike. Would a quarter point change make any significant difference? I doubt it. And interest rate hikes in the past have generally been met with bullish markets, not bearish markets. But one could correctly argue that this low interest situation is unlike anything in this country's economic history. It will be interesting to see the eventual outcome of this drama.

The market has bounced back strongly today. I hedged my Dec position Friday "just in case", so this bounce causes me to look over my shoulder once again. Do you ever feel the market is just watching you trade and is determined to move the other way? Just because I am paranoid doesn't mean the market isn't really after me...

SPX closed at $2053, up $30. RUT closed up $10 at $1156. I am in Chicago for some meetings, so I don't yet have all of the trading volume data, but preliminary numbers look to be down about 10% from Friday. Volatility pulled back about two points with the VIX closing at 18%.

We are still well positioned with our December iron condor on SPX, but we have gobbled up a lot of our potential gains with multiple adjustments.

Some of you may have noticed my web site was down last night. The hackers found me once again. But we are back up and believe we have plugged the holes. This is just a cost of doing business on the internet. Tune in tomorrow to see if this market is really bouncing or just toying with us.

It is hard to believe that this is the same market that gained 12% just last month. SPX closed down $29 today at $2046. RUT also closed down, with a 23 point loss to $1155. Volatility jumped over two points with the VIX at 18.4%. Trading volume was up across the board with 2.5 billion shares of the S&P 500 stocks trading (up to the 50 dma). Trading volume rose 9% on the NYSE and increased 7% on NASDAQ.

Initial unemployment claims were flat with last week at 276k. Continuing unemployment claims increased by five thousand to 2.174 million. This was the only significant economic data reported today, so what sparked this push lower? Some analysts cited sliding oil prices. Others are worrying about the FOMC raising interest rates in December. I also read about an IMF (International Monetary Fund) report that apparently speculated about an extended period of low global economic growth. The concern about interest rates appears to be more widespread, but I'm not sure why. Past history doesn't support the idea of the market tanking when the Fed raises rates, and certainly not after a quarter or half point rise in rates, which is probably what we will see in December. The bottom line is that I'm not sure what changed to turn this market on its head. I was surprised at the strength of the rise in October and now I am surprised by what is becoming a significant down draft. Perhaps I am being too honest here, but predicting this market's turns appears to be beyond my abilities.

SPX and RUT both closed at their lows for the day - a worrisome sign. RUT landed on the 50 dma. We'll see if that acts as support. The area on RUT from $1140 to $1170 was a congestion area for RUT in October; perhaps it will hold as support if the 50 dma is broken.

My December iron condor on SPX in the Flying With The Condor™ service is delta neutral at this point (less than $1 per contract), but we have rolled spreads twice and hedged once, so that has diminished our potential gains. We stand at -13% on this position. Unless this downturn gets truly ugly, we should be OK since our put spreads are about $100 OTM.

We'll see what tomorrow brings...

 

The old adage, "Count to ten before you respond", is what comes to mind with the current market. The market is bleeding off some of the excesses of the past few weeks. After record gains in October, we are grinding slowly sideways and slightly downward. SPX closed down seven dollars to $2075. RUT lost ten dollars to close at $1178. Volatility rose a bit with the VIX rising almost a full point to 16.1%. Trading volume fell off with 2.2 billion shares of the S&P 500 stocks trading today. Trading volume dropped 1% on the NYSE and declined 16% on NASDAQ.

No significant economic data were reported today.

RUT is trading roughly at the high hit after the retest of support in mid-September. RUT is a long ways from its recent high in June, around $1296. By contrast, SPX traded within twenty points of its June and July highs before this most recent pull back. The significant point is that the small caps are not following the blue chips higher. Could they be leading the market lower? I don't think they are forecasting a bearish trend. I think this market is held up by Fed QE and low interest rates, but held down by weak economic data and a global economic slowdown.

We may be stuck in a sideways range until the next Fed meeting in December.

The jobs report was surprisingly good this morning with 271 thousand jobs and a slight reduction in the unemployment rate, down to 5.0%. However, the Labor Force Participation Rate sunk to a new low as people continue to give up on looking for work. The markets opened weaker after the jobs report, presumably because traders fear this will result in an interest rate hike in December. However, SPX strengthened as the day wore on, closing down one dollar at $2099. RUT actually traded stronger than SPX for a change, rising $9 to close at $1200. But RUT remains relatively low as NASDAQ and SPX near their all-time highs. RUT must grow 8% before it can reach the high set in June. But SPX and the NASDAQ Composite are only one percent off of their highs.

The VIX pulled back almost a point to 14.4%. Trading volume increased today with 2.6 billion shares of the S&P stocks trading. Trading volume rose 10% on the NYSE, but rose only 1% on NASDAQ.

SPX is nearing its all-time high around $2130, but the economic data and the results of the latest cycle of earnings announcements don't appear to be sufficiently positive to push the market to new highs. And the markets appear to be slowing down as we move closer to those highs. As I wrote on Wednesday, another V-bottom has now been entered into the record books. SPX gained over 12% in October!

Enjoy your weekend.

SPX backed off a bit today, trading down $7 to close at $2102. RUT was essentially flat, down one dollar at $1190. I was surprised to see volatility bump up a full point today with the VIX at 15.5%. Trading volume was flat with 2.4 billion shares of the S&P 500 stocks trading today. Trading on the NYSE was down 1% and trading volume increased 4% on NASDAQ.

The NASDAQ Composite is now at the high set in June and about one percent off of the all-time high set in July. SPX is about thirty points off of its all-time high set in June and then reaffirmed in July. RUT has been the laggard. RUT has not even made it back up to the 200 dma. Ever since the correction low was retested in late September, SPX has been on an incredible run, up $228, or 12% in about a month! Even more surprising, this run has occurred in the midst of almost nonstop news of China's slowdown, evidence that we can't trust China's numbers, and the global economic slowdown that is bound to follow China's decline. Apparently, the Fed's support is a more powerful tonic for the markets.

This strong recovery off of the correction books one more V-bottom, a phenomenon that once would have been considered unusual, but no more. SPX is now running along the upper edge of its Bollinger band, so we may be starting to see some moderation in the upward push of the past month.

The ISM services index reported 59.1 for October, up from September's 56.9. ADP reported private employment today at +182 thousand, down a bit from last month's 190k. The Non-Farm Payrolls Report, aka the jobs report, will be issued Friday morning before the market open.

Our Dec iron condor on SPX at 1870/1880 and 2160/2170 is being squeezed; I have hedged the trade with Jan 2140 calls. We'll see if that is enough to hold off the bulls.

The markets continue their climb higher, seemingly without an sign of slowing. It is hard to see the economic drivers; everyday, we have mediocre economic data being reported and more evidence of a global economic slowdown. Don't get me wrong. I am not preaching recession, but this isn't a booming economic recovery either. SPX tacked on another six dollars to close at $2110. RUT closed up $5 at $1192. Volatility rose a touch with the VIX closing at 14.5%.

RUT finally has traded above its mid-September high. It has lagged behind SPX but seems to be working to catch up now.

Both RUT and SPX are running right along or even outside the upper edge of the Bollinger bands. So we are stretching the probabilities here. But the market can do what I don't consider rational for much longer than I think probable. But it sure seems as though we are overdue for a little bit of a pause.