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I noted yesterday the apparent trading channel of $2040 to $2090 for the SPX. The bulls pushed the market higher today and SPX closed up $9 at $2091. So SPX is right at that resistance level that has been so resistant for the past few weeks. But RUT pulled back $4 to close at $1259. So I am not convinced we have seen a break-out just yet. An open and close above $2090 tomorrow would be encouraging, but the true confirmation of the bullish trend continuing would be a break-out to a new all-time high above $2117. Some of the large banks and Goldman Sachs will be announcing earnings next week. Perhaps that will give the bulls the ammo they need to push higher. We'll see.
Watching the market trade higher on increased volume would be a bullish sign - one that didn't occur today. Trading in the S&P 500 stocks was flat with yesterday at 1.9 billion shares, below the 50 dma. Trading volume was flat on the NYSE and only increased 3% on NASDAQ. Traders are not concerned about the bottom falling out anytime soon; the VIX dropped another point to 13.1% today.
The weekly unemployment claims report was a mixed bag today. Initial claims rose 14 thousand to 281 thousand, while continuing claims dropped 23 thousand to 2.3 million. No significant economic data is due out tomorrow; will it be a slow day in the markets or will it surprise us? My guess is that traders will sit on the sidelines waiting for the earnings announcements scheduled for next week.
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SPX displayed some extreme volatility just after the FOMC minutes were released this afternoon, but then it settled to about where it was before the announcement. SPX closed at $2082, up $6. RUT traded up $9, closing at $1263. Volatility dropped almost a full point with the VIX closing at 13.98%. Trading volume was modestly higher with 1.9 billion shares of the S&P 500 stocks trading. Trading on the NYSE was up 10% and volume was up 7% on NASDAQ.
SPX is locked in the trading channel from $2040 to $2090. One could place the upper end of the range at $2120, the high from early March, but resistance at $2090 is proving strong; SPX has been unable to hold $2090 several times over the past few days.
Many Fed observers were anxious to understand from the March minutes why the FOMC removed the adjective, patient, from the announcement discussing timing of the expected interest rate hikes. I think they were disappointed. It seems that the committee simply wanted to be free to address that question at each meeting based on the data. Once again, trying to read the tea leaves proved frustrating.
Alcoa reported mixed results on earnings after the close with the stock trading down a bit after hours. Perhaps most significantly, Alcoa raised their forecast of global aluminum demand from +7% to +9%. That is an encouraging economic data point since aluminum is used in many different industries.
Tomorrow brings the latest unemployment claims data; we don't have any significant economic data due for the balance of the week. The earnings reports more likely to move the markets begin next week with J.P. Morgan, Goldman Sachs, and others.
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When I saw that anemic jobs report on Friday, I thought the worst about today's market open. And the futures were down early this morning, although not as badly as I feared. The markets indeed opened lower, but it didn't last long. Those poor bears were frustrated once again as the bulls bought the dip. SPX closed up $14 at $2081 and RUT added $5 to close at $1261. Interestingly, the VIX was flat at 14.7%. Trading volume was up with two billion shares of the S&P 500 stocks trading. Trading volume rose 5% on the NYSE and increased 6% on NASDAQ.
We start the earnings announcement cycle this week. Normally Alcoa is considered the opening of earnings season, although it won't be the first announcement this quarter. But it will be closely watched as always since aluminum plays a key role in so many industries. Many analysts are expecting a mediocre series of announcements because of the effects of a strong dollar on the multinationals. It is true that we have had a record low number of positive earnings guidance announcements this quarter and a relatively high number of companies guiding negatively. We'll see. More importantly, will it matter to the market?
I read an interesting note about our government's unemployment rate calculation today. If the labor force participation rate were the same today as it was in 2007, our current unemployment rate would be 10%. As people have given up on looking for work, that reduces both the numerator and the denominator of the calculation. Ten per cent unemployment fits my sense of the labor market; I know far too many people that have been out of work for a year or more. We have yet to recover from this recession. In fact, we are setting a record for the slowest economic recovery in history. Maybe we should try capitalism.
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SPX had traded up for the past two days and spent almost all of today's trading session in the black, but then dove in the last twenty minutes of trading to turn in a $4 loss, closing at $2076. RUT traded in a similar pattern, except that RUT fell out of bed just before 2:00 ET and lost $7 to close at $1253. So why did the market sell off this afternoon? As usual, determining a clear answer is difficult at best. Some analysts think traders began to look forward to the FOMC minutes being released tomorrow and Alcoa's earnings after the close tomorrow. My answer is more basic. I don't know anyone who is comfortable with this bull market; we know it is largely artificial and built on the Fed's unprecedented experiment. As a consequence, Joe Trader has some nice gains, but is very nervous that the party will end abruptly and perhaps badly. Hence, he sells whenever he even sees a twitch he doesn't like.
Trading volume was down today with 1.7 billion shares of the S&P 500 stocks trading. Trading on the NYSE declined 11% and was down 6% on NASDAQ. Volatility has remained nearly flat for the past three days with the VIX around 14.8%. It is interesting that this afternoon's sell-off didn't raise volatility even a few tenths of a point.
The only economic data released today was relatively positive with the JOLTS job openings report at 5.133 million for February, up from 4.965M.
My May iron condor on RUT at 1110/1120 and 1330/1340 stands at a net gain of 9% today and is delta neutral at a position delta of -$1.30 per contract. We still have 37 days left in this position, but it is developing nicely.
It will be interesting to see how earnings season plays out. The expectations are pretty low, due to the expected effects of a strong dollar. Perhaps the relative weakness in the market for the past month has that disappointment priced in.
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The major market indexes traded higher today, but on weaker volume than normal. I suppose many traders took the day off to extend the long weekend. SPX gained $7 to close at $2067 and RUT closed at $1256 for a gain of $4. Volatility contracted with VIX losing less than half a point to close at 14.7%. Trading volume fell off with 1.8 billion shares of the S&P 500 stocks trading. Trading volume declined 13% on the NYSE and dropped 15% on NASDAQ.
The Challenger job cuts came in at +6.4% for March, but that was actually a big improvement from the +20.9% report for February. Initial unemployment claims dropped to 268k from last week's 288k, and continuing claims also decreased to 2.33 million. Factory orders grew 0.2% in February, but that was a welcome change from the 0.7% decline in January.
The non-farm payrolls report will be issued tomorrow morning, but the markets will be closed. I will be watching the S&P futures early Monday morning to get a feel for the impact, if any, on the markets.
Enjoy your long weekend.
