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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.
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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.
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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.
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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.
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Markets opened this morning, gapping higher after yesterday's strong performance. SPX closed up $23 at $2075 and RUT closed at $1166, up $12. Volatility remained flat with the VIX unchanged at 14.5%. Trading volume remained above average but dropped from yesterday's highs with 2.8 billion shares of the S&P 500 stocks trading. Trading volume dropped 5% on the NYSE and was unchanged on NASDAQ.
There is no question that the bulls are firmly in charge of this market. The question in my mind is this: Are we returning to a strong bull market as we saw in 2013? Or is this more like earlier this year where the bulls aggressively bought every dip, but couldn't achieve a string of higher highs?
Evidence for a more constrained market posture comes from the Russell 2000 Index, made up of classic small cap stocks. These stocks lead bull markets higher and also are the first to be sold as the markets turn downward. RUT's chart is much weaker than SPX. When the markets bounced from the August 25 lows, they hit a high in mid-September before turning lower to retest support. SPX blew past those levels on October 7th, but RUT has yet to get back to those mid-September highs. Hmm...
Enjoy your weekend.
