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SPX dipped down to $2046 last Thursday, and then down to $2048 today before recovering to close at $2060, down $8. RUT closed essentially unchanged at $1252 (down one dollar). SPX has a solid support level at $2040 that goes back to the correction low in mid-March, so that is the line in the sand that many analysts are watching. We have two data points that suggest support is holding at $2040, but with this market's volatility, that could change at any moment. That mid-March correction low on the NASDAQ Composite was $4850 and that is where NASDAQ's intraday low hit today before recovering. RUT is trading even more strongly; its March high was $1243 and its low today was $1240. The small and mid-cap indexes are trading more strongly than the blue chips (SPX); that gives me some confidence that the market is finding support here. The fact that the VIX actually declined two tenths of a point, closing at 15.1%, appears to support this more positive interpretation. Trading volume picked up today with a 2% increase on the NYSE and volume was up 5% on
NASDAQ. As of 5:00 pm CT, trading volume for the S&P 500
stocks was not yet available.
ADP's private employment report cam in a little weak at +189 thousand jobs, down from last month's +214k. But the correlation between ADP's report and the non-farm payrolls report, due Friday morning, has been sketchy. The ISM manufacturing index came out at 51.5, for March, down a bit from February's 52.9. Construction spending improved in February with a smaller decline at -0.1%, up from January's -1.7%. This set of economic data isn't strong, but it doesn't support a rationale for the market to turn downward either.
My May iron condor on RUT at 1110/1120 and 1330/1340 stands at a net gain of 7% today and is delta neutral at about one dollar per contract.
With the markets closed on Friday, we may see some reduction in trading volume tomorrow. One would think that might also be accompanied by some lazy sideways trading, but all historical norms are trashed by this market.
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Today was another one of those days. Just when we think the market is bouncing back, it trades off. SPX opened this morning at $2084 and traded sideways through early afternoon. If the market had closed around 1:45 pm ET, we would have had a flat day, but then it simply traded off into the close, losing $18 to close at $2068. RUT lost $5, closing at $1253 and the VIX moved up almost one point to 15.3%. The VIX struck me as behaving somewhat benignly on a 1% drop in SPX; maybe we are all becoming accustomed to this whipsawing price action. Trading volume was mixed with slightly higher trading volume in the S&P 500 stocks at 2.0 billion shares (up from 1.9B yesterday), and a 15% rise in volume on the NYSE; but trading volume was flat on NASDAQ.
The Case Schiller housing price survey reported an annualized rise of 4.6% for January, up slightly from December's +4.5%. The Chicago PMI reported at 46.3 for March, up from 45.8. And the Conference Board consumer confidence survey rose to 101.3 from 98.8. I saw a couple of news headlines for today's markets, claiming the market dropped on mixed economic data - really?
The markets will be closed on Friday, but the jobs report will be issued anyway, so that could be interesting. Layering on that report will be the possibility of another shoe dropping over the weekend in the Greece/Euro Zone negotiations. We may see traders taking off more vulnerable positions this week, and we may see the VIX move a bit higher as traders seek protection from events over the long weekend.
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SPX opened weakly this morning and traded down to $2046 by 10:15 am ET. Then it recovered and traded up to $2067 (the 50 dma) by 2 pm ET, and closed at $2056, down $5. RUT closed down $2 at $1232. The VIX rose four tenths of a point to close at 15.8%. Trading volume was flat today with 2.3 billion shares of the S&P 500 stocks trading hands. Trading volume on the NYSE was unchanged, but was down 9% on NASDAQ.
We are becoming accustomed to these "mini-corrections". In March, SPX pulled back by 3.6% to a low on March 11th at $2040. In a matter of only a couple of weeks, we are back testing that support level. Today's price action, with the push down to $2046 followed by a bounce was reassuring for me. Perhaps the market is beginning the process of finding support at or close to $2040. One could interpret today's price action on SPX as bouncing off support near $2040 and then recovering to bounce off resistance at the 50 dma. In any case, I think we are observing a nervous market, trying to find its way. But tomorrow brings another revision to 4Q GDP; that could reassure the market or push it over the edge. Welcome to the brave new world of markets heavily influenced by central bank activity. It has never been easy to interpret the reasons for market trends, but it has become nearly impossible. I enjoy old westerns and today's traders are behaving like cattle during a thunderstorm out on the prairie. Will the next news event spark a stampede like yesterday's market rout?
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Once again, the market takes a little tumble, but then it rockets back higher. The "buy the dip" game is still working like a charm. SPX tacked on $25, closing at $2086 and RUT followed suit with a $17 gain, putting that small cap index at $1258. Volatility contracted a bit more with the VIX closing at 14.5%, down six tenths of a point. Trading volume was pretty flat with 1.9 billion shares of the S&P 500 stocks trading. Trading volume contracted 3% on the NYSE, but rose 5% on NASDAQ.
SPX gapped open this morning and never looked back. RUT gapped open even more strongly, so small caps are again leading the way - a bullish sign.
Pending home sales surprised analysts with a 3.1% gain in February, up from a positive 1.2% gain in January. Tomorrow brings the Chicago PMI report.
On Friday I closed my April iron condor position on RUT at 1110/1120 and 1310/1320 for a debit of $0.38, resulting in a net gain of $108 per contract or +12.6%. This brings our year to date gains for the Flying With The Condor™ service to +11.2%.
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This morning's market looked weak, but didn't appear like anything serious was happening. However, it was as though the market sprung a slow, but steady leak that just continued to pull it lower all day. Before we knew it, we were looking at serious losses. SPX lost 1% or $30 to close down at $2061, and RUT even took it on the chin more strongly, closing down at $1234, down $30, but this was a 2.4% drop on RUT. The NASDAQ composite traded more like RUT, losing 2.4% or $118 to close at $4877. All of the major market indexes have been trading weakly for the past three days, but today was a significant shift. As one might expect on a day like this, trading volume spiked up with 2.3 billion shares of the S&P 500 companies trading. Trading volume rose 9% on the NYSE and increased 37% on NASDAQ. Volatility popped up with the VIX increasing almost two points to 15.4%.
The only economic data reported today was durable goods orders for February, which were down 1.4%, a turnaround from the 2.0% gain in January. The market's extreme reaction to this data point reinforces what I have been saying for some time. The unprecedented quantitative easing and extremely low interest rates for a prolonged period of time have created a unique market environment. Wall street veterans have nothing in their past market experience to draw upon; this is new for veterans and newbies alike. No one feels like they know how this will play out. We haven't been here before. Consequently, we have a nervous market that sells to protect profits first and asks questions later. I think this is largely the cause for the V-bottoms and price volatility we have been experiencing for the past couple of years.
My April iron condor on RUT at 1110/1120 and 1310/1320 stands at a net gain of 11% if closed today, and the May position that we just opened last week is already up 4%. I have been nervous about the downside lately and have allowed myself more safety margin when selling the put spreads. On days like today, that feels good.
I close with the two questions on all traders' minds:
1) Where will this correction bottom?
2) Will the bulls buy this dip strongly just as they have for the past two years and create one more V-bottom?
