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SPX gapped open higher this morning and gained $31 to close at $1896. RUT was also rallying with a close at $996, up $24. Volatility contracted a little over a point with VIX at 24.1%. That contraction seemed smaller than the bounce in the markets, causing me to wonder if there is more downside to come. SPX closed at its high for today, a strong bullish sign. Trading volume was strong, but not much higher than Friday with 3.0 billion shares of the S&P 500 trading. Trading volume on the NYSE was flat and volume was up 7% on NASDAQ.
The Empire manufacturing survey issued a report today at -16.6 for February, not very good, but an improvement over January's -19.4. The FOMC minutes will be issued tomorrow. It is hard to predict what might come out of reading those tea leaves.
Today's strong run on SPX took it back to the middle of the Bollinger bands. Keep in mind that the last bounce higher in SPX only made it to $1940 before collapsing.
But, on a positive note, today's run higher was a breath of fresh air for those with underwater put spreads going into Feb expiration. But I took my losses last week rather than sit on pins and needles all weekend.
Now we sit and wonder, is the "sky is falling" crowd correct? Is this only a temporary respite?
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The markets opened strongly this morning and just kept on climbing the mountain all day. SPX closed at $1865, for a gain of $35, and RUT rose $18 to close at $972. A strong measure of the strength of a rally is the lack of profit taking. SPX just continued higher, closing precisely at its high for the day. That suggest that traders are expecting this rally to continue next week. Yesterday's markets were encouraged by comments from one of the OPEC countries appearing to be open to reducing oil production. That comment wasn't really relevant since it didn't come from the Saudis, but it caused oil to trade up yesterday and that trend continued today.
Let's consider that for a moment. We have been told that declining oil prices suggest weak industrial demand so stock prices should sell off. But when someone suggests that OPEC may cut oil production and therefore lower oil supplies, the stock market trades higher? An abundance of oil supplies has nothing to do with reduced industrial production. This point and several others illustrate how emotional and irrational this market has become. I was watching an interview this afternoon and when the interviewee assigned a low probability of an upcoming recession in the U.S., the talking head spoke over him and began to excitedly chatter on about the weak fourth quarter GDP number and so on. She seems to have forgotten that a recession is defined as two successive quarters of negative GDP growth. We have yet to have the first one. Sensationalism has invaded the financial media. Fear sells.
Retail sales increased modestly in January, up 0.2% and the University of Michigan consumer sentiment survey reported 90.7 for February, down from 92.0.
I would argue that we are seeing many signs on the charts of this market finding support. But the lack of rationality about the connection of oil prices to the U.S. stock market, and the excessively pessimistic financial press worry me. One could make a contrarian argument here for the bounce, but it seems as though the shrill cries from the "sky is falling" crowd are drowning out a rational discussion. Markets may easily go to extremes and stay there longer than expected; it is simply human nature.
I closed the remaining put spreads in my February SPX iron condor this afternoon. I can easily make the case for the bottom being behind us and this bounce continuing next week, but the excessive irrationality and wild swings back and forth worry me. So I closed Feb for a loss. We have already closed the January position for a nice gain; assuming our March position does well, we should be back to break-even shortly.
The markets will be closed Monday. Enjoy your long weekend.
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The markets swung back and forth today, but ended up essentially unchanged on the day. SPX lost one dollar to close at $1852 after trading as low as $1835 and as high as $1868. RUT declined $5 to $964. Trading volume contracted somewhat with 3.3 billion shares of the S&P 500 stocks trading, but this remains well above the 50 dma at 2.8B shares. Trading declined 10% on the NYSE and also dropped by 10% on NASDAQ. The lock step between oil prices and stocks prices seems to be weakening. As oil prices declined farther this afternoon, SPX began its climb higher. And oil ended the day at $28, down about $1.35.
Today was a slow day for economic data; JOLTS job openings came in at 5.607 million for December, up from 5.346 million.
So we are left with the big question: are we testing support here or just pausing before we fall off the cliff? The price action hints at that scenario, but we can't be sure until we see some strong bullish days. Yesterday's bullish recovery was encouraging, but today didn't present the follow through one would like to see.
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The markets were rallying reasonably strongly today, until Yellen spoke. SPX traded as high as $1882 before losing all of its gains to close unchanged at $1852. RUT was also unchanged at $963. Volatility contracted about three tenths of a point with VIX closing at 26.3%, but VIX was down to 24% before Yellen spooked traders with talk of negative interest rates.
Today's market action underscores why the Fed should have stayed out of this market. The painful adjustments would have been made and we would be long past the financial crisis. Instead we have traders anxiously perusing every word from anyone associated with the FOMC. More importantly, FOMC intervention has introduced great uncertainty because we have no historical basis to even guess the implications of the Fed's intervention. Free markets are comparatively easy to evaluate. External manipulations always have unintended consequences.
Trading volume in the S&P 500 stocks dropped back to the 50 dma today at 2.9 billion shares. Trading on the NYSE dropped 7% and trading on NASDAQ was flat.
SPX still appears to be holding support around $1850. RUT is behaving similarly at $960. So one could reasonably argue that we have seen the worst of the correction. But today's pull back demonstrates the fragility of this market. It could go either way. However, I don't see the economic drivers for a new recession. I think the doom and gloom crowd have been given the headlines too often. It sells papers, as they say.
Keep in mind that we have a three day weekend coming up. Global markets will be open Monday, so that always introduces the possibility of large moves in the U.S. markets Tuesday morning.
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What can I say? Scary? Roller coaster? Volatile? Impossible to rationalize? I have run out of words to describe this market.
The markets dealt us another one of those days, plunging like there was no bottom, but then recovering much of the loss in the last hour of trading. One of the lessons I am learning is not to panic early; wait until late in the day to hedge positions. Of course, I still closed several stock positions this morning, but I waited to see if hedging my condor put spreads on SPX and RUT was necessary.
SPX lost $27 when the dust settled, closing at $1853. SPX hit a low earlier today at $1828, very close to the low hit intraday on January 20th. RUT traded similarly, closing at $956, down $16. Today's intraday low on RUT was $956, very close to the January 20th intraday low. The price action in the markets certainly looks like a retesting of correction lows, but the constant drumbeat of "end of days" commentary is disconcerting. The implied volatility on SPX, the VIX, rose to 26% today - hardly panic levels. Normally, I would interpret this volatility as suggesting that the large institutional players aren't that concerned. But that doesn't match any of the financial commentary.
Trading volume was mixed with increased volume of the S&P 500 stocks trading at 3.9 billion shares vs. the 50 dma at 2.8B. Trading on the NYSE was down 8%, but higher by 12% on NASDAQ.
What is a trader to do? In short, hide. I still have a few positions open, but I am mostly in cash. I thought we were seeing the bounce January 20th, and I ventured out and took a hit. I will be far more cautious about getting back in the market.
There wasn't any significant economic data out today. Oil prices were down modestly. It's unclear what drove the intense selling this morning. Speculation of an imminent recession here in the states was common as were the usual worries about China.
Take two aspirin and go to bed. I'm going to study my thesaurus. You millenials will have to Google that.
