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Yesterday looked like the start of another run to the top of the trading range, but the market threw a surprise at traders today. Maybe more correctly, China threw traders a curve ball when they devalued the yuan. That has caused some analysts to think there may be more weakness in China's economy than previously thought. Industrial production and retail sales data come out for China tonight, so tomorrow's market could get hit again. SPX closed down $20 at $2084. RUT gave back $12, closing at $1211. The VIX tacked on one and a half points to close at 13.7%. Trading volume was up from yesterday with 2.2 billion shares of the S&P 500 stocks trading. But that only takes S&P volume back to the 50 dma. Trading on the NYSE increased 2% and trading volume on NASDAQ was up 8%.
Some analysts are convinced that this market is on the verge of tipping over into a severe correction, but their rationale isn't convincing. The argument basically boils down to "it's been too high for too long". I am more inclined to think we are stuck in the trading range until the Fed announces the first interest rate hike.
However, it is prudent to be cautious in the meantime. I nibbled at some SPX puts today, but I'm not risking much. This market is just too fickle and unpredictable.
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Buying the dip worked once again! The markets opened up strongly today after posting a lot of red ink last week. SPX gained $27 to close at $2104 and RUT closed up $16 at $1223. Volatility contracted with the VIX dropping a full point to 12.2%. But don't confuse this with a strong bullish move. Trading volume declined with 2.0 billion shares of the S&P 500 stocks trading. Volume was flat on the NYSE and declined 12% on NASDAQ. So the low trading volume, sideways trading continues. One of these days, buying the dip will not work...
There wasn't any significant economic data reported today to account for the bounce higher. The main economic news expected this week is a continuation of earnings announcements, although most of the popular names that inspire speculation have already reported.
I closed my September iron condor position last week for a 20% gain. I only have the put spreads in play so far for the October position, but they stand at a net gain of 2.5% today. If the market can trade back closer to the upper edge of the trading range, I will sell the call spreads to complete the October iron condor position. The Flying With The Condor™ service stands at a net gain of 38% for the year.
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This market keeps teasing us. Some days, it plunges and all of the "sky is falling" folks come out of the woodwork. Then it rallies and the bulls speculate about new all-time highs. Today started out more bullishly, but then weakened and the major indexes ended the day slightly underwater. SPX lost $5 to close at $2093. RUT closed at $1229, down $3. Volatility rose about three tenths of a point to 12.8%, remaining close to the lows for volatility this year.
Trading volume remains close to the 50 dma with 2.2 billion shares of the S&P 500 companies. Trading volume on the NYSE dropped 2% and volume declined 1% on NASDAQ.
The only economic data today were factory orders, up 1.8%, a nice improvement from the 1.1% decline last month. Tomorrow brings the ADP private jobs data, a warm up for Friday's jobs report.
A common discussion these days concerns what the market's reaction will be when the Fed finally decides to raise interest rates. Will all of this sideways trading avoid a big drop when interest rates rise? Probably not. If nothing else, we will see the high frequency algorithms drive a knee jerk reaction downward. In the meantime, we wander sideways and my condors are doing well; my September position is up 21% and October is up 5%.
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ADP's report on private payrolls disappointed analysts today with 185 thousand jobs for July, down from last month's 229k. There isn't a perfect correlation with the non-farm payrolls report that will be issued by the Labor Department Friday, but it often serves as an early warning. However, SPX seemed encouraged this morning, opening and running up to $2113 before pulling back to close at $2100, up $7. RUT traded in a similar pattern, and gained $3 to close at $1232. Both indexes effectively regained what they lost yesterday.
Trading volume picked up a bit with 2.4 billion shares of the S&P 500 trading. Trading volume was up 8% on the NYSE and up 15% on NASDAQ. Volatility contracted a bit with the VIX losing about half a point to close at 12.5%.
So are we feeling more bullish? Or is this just the same old ebb and flow we have been watching all year?
The ISM Services survey reported today at 60.3, up from 56.0. According to the ISM surveys, both manufacturing and services have continued to expand with manufacturing contracting a bit, but services surging forward.
With the market appearing rather undecided and fragile, I am concerned about being very exposed to the jobs report Friday. It is hard to predict how that data will impact this market. Perhaps the market will continue to tread water until we get the FOMC announcement on interest rates.
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SPX took us on a wild ride today, trading down below its 50 dma to $2095 (yesterday's open), but then recovering to close unchanged at $2109, within pennies of yesterday's close. RUT tacked on $2 to close at $1232, but RUT remains well below its 50 dma. Volatility continued to contract with the VIX dropping about a half point to 12.1%.
Trading volume fell back down to the 50 dma with 2.1 billion shares of the S&P 500 companies trading. Trading volume dropped 10% on the NYSE, but increased 2% on NASDAQ.
Initial unemployment claims increased by 12k this week to 267k, and continuing claims grew by 46k to 2.26 million. The first estimate of second quarter GDP came in at +2.3%, while the first quarter number was revised upward to a positive 0.6%. All of these revisions don't inspire confidence.
Investor's Intelligence surveys investment advisers every week and reported that this is the fifth week in succession that bullish advisers number less than 50%. Bearish advisers have grown to 39%. If you are contrarian by nature, this should tempt you to sell the farm and buy stocks. Or do you think the advisers know something you don't? Maybe they just realize we are entering the worst two months of the year for stock market gains. According to the Stock Traders Almanac, August is the worst performing month of the year for the Dow and the S&P 500 for the years 1988 to 2014, and September is a close second.
My September iron condor on RUT is now up 22%.
The Chicago PMI and consumer sentiment reports tomorrow. Today's market action seems to reinforce the range bound nature of this market.
