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Equity and index options expire tomorrow at midnight. Many of you may think that today was expiration, but the options contract is a binding legal contract and the brokers need time to make all of the cash transfers and equity purchases and sales before the contracts expire. SPX settled at $2050.07 and RUT settled at $1097.85. I closed our SPX Mar 2050/2060 call spreads yesterday for $1.00; allowing them to enter expiration would have saved us some money; settlement at $2050.07 means one contract would have resulted in a $7 debit whereas we spent $100 to close one spread. But we would have been taking a big risk. Sometimes the difference between the Thursday close and settlement is large. It averaged $9 for SPX last year but ran as high as $23. If you are interested, download my SPX and RUT settlement spreadsheet.
SPX closed at $2050 today, up $9. RUT also continued to run, closing up $10 at $1102. Volatility continued to contract with VIX losing half a point to 14%.
SPX has now put the 200 dma in the rear view mirror. The high at $2078 from December 29th is the next resistance level. I am inclined to think the Fed induced euphoria will end by then. For example, here is a sobering stat: FactSet reports that the estimated profit margin for the first quarter for the S&P 500 is 9.3% - the lowest since 4Q 2012. If we exclude energy companies, it rises to 10% and that is the lowest since Q1 2014. Either way, that doesn't look like the economic strength one expects behind a bull market.
Enjoy your weekend. The tulips are sprouting outside. But we are expecting snow this evening. Let me go check why we are living here...
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I admit to having greatly underestimated this bullish run. I keep studying the basic economic data, looking for the strong growth the market seems to imply. But I have made the mistake of discounting the role of the Fed and near zero interest rates. The market loves the Fed. The major indices opened weakly this morning, but it didn't take long for the bulls to reassert themselves. SPX ran up $13 to close at $2041 while RUT gained $17 to close at $1091. Volatility continues to contract with the VIX dropping to 14.4%. Trading volume rose again today with 2.6 billion shares of the S&P 500 companies trading. Trading volume on the NYSE rose 17% and trading on NASDAQ rose 11%.
Initial unemployment claims came in at 265 thousand this week, up slightly from last week's 258 thousand. Continuing unemployment claims rose from 2.227 million to 2.235 million. The JOLTS job openings report cited 5.541 million job openings for January, up from 5.281 million. The Philadelphia Fed manufacturing survey increased to 12.4 for March, up dramatically from February's -2.8.
I closed the March SPX condor today in the Flying With The Condor™ service for a gain of 7.5%. That brings our year to date performance to -2.3%. As of today's close, SPX is finally positive for the year, up 0.1%. We are still working off our February loss.
SPX has now cleared the 200 dma and is above the bearish trend lines drawn from the November and December highs. The next resistance level is the high of $2078 from December 29th. I still find it hard to rationalize new highs in the market above $2078 (12/29/15) and $2103 (12/1/15). But I have been wrong so far...
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The markets continued to trade in low volume and largely sideways today as traders await the announcement from the FOMC tomorrow afternoon. SPX traded down as far as $2005 before recovering to close at $2016 for a $4 loss today. RUT didn't recover, closing down $18 at $1067. Volatility was flat with the VIX unchanged at 16.8%. Trading volume was flat with two billion shares of the S&P 500 companies trading, identical to yesterday's volume. Trading volume rose 2% on the NYSE and also rose 5% on NASDAQ.
Retail sales reported a decline of 0.1% for February, but that was an improvement over the -0.4% decline in January. What is everyone doing with their savings at the gas pump? The PPI for February declined 0.2%, down from a 0.1% increase in January. The Empire manufacturing survey (New York Federal reserve) increased to 0.6 in March, up from last month's -16.6.
Economic data continue to be pretty weak. It doesn't seem likely that the Fed will increase interest rates at this meeting, but who knows? I don't think we will see much movement in the market between now and 2 pm ET tomorrow.
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After Yellen and the FOMC announced they were not raising interest rates, the market rallied. Free money wins once again. SPX ran up $11 to $2027 and RUT rallied $8 to close at $1075. Volatility pulled back with the VIX losing almost two points to 15.1%, the low for the year. Trading volume popped upward with 2.4 billion shares of the S&P 500 companies trading today. Trading rose 17% on the NYSE and trading increased 5% on NASDAQ.
Today's rally puts SPX firmly above the 200 dma, but can this rally continue? The economic data aren't what one would call booming.
The CPI reported a drop of 0.2% for February. This continues to amaze me. A flat CPI is completely opposite my own experience in the marketplace. Are your grocery bills flat or declining?
Housing starts increased to 1178k, but building permits fell to 1167k. But both numbers are positive for the real estate market. Industrial production decreased 0.5% in February after a 0.8% increase in January. And capacity utilization decreased to 76.7% in February. Do these numbers look like a booming economy?
Often, the day after the Fed announcement presents a market reversal as analysts think through market implications. We'll see. For now, it's time for the rose colored glasses.
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The markets were quiet today as traders begin to anticipate the FOMC announcement on Wednesday. The prevalent opinion of the Fed watchers is that no interest rate hike is on tap, but many observers are worried.
SPX backed off three dollars to close at $2020 and RUT closed down $3 at $1084. Volatility rose a bit as traders begin to hedge positions; the VIX closed at 16.9%, up about 0.4 points.
There were no significant economic data reports today. The PPI, CPI, industrial production figures, capacity utilization, and weekly unemployment claims come later in the week, but the gorilla in the room is the announcement from the FOMC Wednesday afternoon.
Trading volume was down today with only two billion shares of the S&P 500 companies trading today. Trading volume declined 14% on the NYSE and was down 18% on NASDAQ.
If the Fed announcement is a non-event for the market, will the bullish run of the past several weeks continue? SPX is holding right at the 200 dma, and depending on how one draws the bearish trend line from the November, December and January highs, SPX is at or slightly below that trend line. Traders are watching for a break-out above that trend line to be confident that the bulls are back in charge. Otherwise, the conventional wisdom is that this has been a short-lived rally within a bearish trend. It is hard to predict the market's reaction to the Fed's announcement. Every word will be parsed.
