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The markets took another leg down today with the S&P 500 dropping $33 to $2002, just above the 50 dma and below the high set back in September. SPX also closed at its low for the day. A close below the 50 dma on Monday will be significant. RUT behaved even more bearishly, gapping open lower and closing at its low for the day, down $15 at $1152. Trading volume spiked higher with 2.4 billion shares of the S&P 500 trading today. Trading increased 13% on the NYSE, but only increased 3% on NASDAQ. Closing at the lows and trading in higher volume are two strong signs of a serious trend, in this case, a bearish trend. On the other hand, a look at the price chart confirms strong support around $2000 on the S&P 500, so there is a good chance we will see it bounce next week.
It was easy to hear the talking heads today blaming market woes on the falling price of oil. To my mind, this is more grasping at straws to explain market behavior. Unless you happen to be in the oil business, lower oil prices are good for most industrial sectors and certainly put more money in consumers' pockets. Market analysts of all stripes have been telling us the market had gotten ahead of itself for some time. It was time for a breather.
But that doesn't explain this market behavior. Price volatility has been extreme for most of the past two years; we have experienced sudden and severe pull backs, followed by vertical ascents to take us right back where we started in short order - how does that make any sense? Did the economy collapse and rebound in just a few trading sessions? Take the last plunge for an example. SPX dropped $192 or 9.5% in 19 trading sessions (9/19 to 10/15). It only required 12 sessions to bounce back and fully recover that loss, and in fact, climbed even higher from there. I'm not naive. I know many emotional and political factors influence the markets, but fundamentally, we expect basic economics to ultimately drive the capital markets. Stockholders want a return on their investment and they project cash flow to analyze those prospects. How does this make any sense?
In any case, this drop was helpful for my SPX December iron condor, taking the pressure off the remaining 2080/2090 call spreads (rolled half to 2100/2110), but less helpful for the 1840/1850 puts spreads in my SPX January condor. We have a big weekend ahead of us with our Christmas party tomorrow evening. If you are in the Chicago area, you're invited! Drop me an email for the address.
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The markets traded lower Monday and
Tuesday, but bounced significantly before the end of the trading session and gave traders hop for the next day. But
that wasn’t true today. SPX, RUT and the NASDAQ composite all closed at or near
the lows of the day. SPX closed at $2026, down $34. RUT dropped $26 to close at
$1162, and NASDAQ lost $82 to close at $4684. It seems like yesterday that
analysts were speculating about NASDAQ breaking $5000.
As one might expect, volatility popped up significantly today with the VIX
closing at 18.5%, up nearly four points in a single trading session.
Trading volume was also up, with 2.4 billion shares of the S&P 500 stocks trading. The 50 dma is 2.2B; trading in the S&P rose slightly above the 50 dma yesterday and rose a bit higher today. Trading on the NYSE rose 4%, but fell 8% on NASDAQ – not sure what that was about.
As always, the talking heads were searching for answers for the market’s drop; the consensus appears to be lower oil prices. Lower oil prices hurt tar sands and oil shale producers, but they help everyone else.
I think a better answer is simply that
this strong bull market needed a rest. $2015 marks the September high on SPX
and is the next support level. But today's trading seemed more serious than just "taking a breather". We'll see... Where did Santa Claus go?
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I was surprised we finally had a bit of a pullback in the markets, but it was very brief. SPX gained everything it lost yesterday, closing at $2067, up $13 (it lost $14 yesterday). RUT wasn't quite so strong with a gain of $14 to close at $1168. Volatility backed off a bit with the VIX losing almost one and one half points to close at $12.9%. Trading volume dropped off a bit from yesterday with 2.1 billion shares of the S&P 500 stocks changing hands. Trading volume on the NYSE dropped 12% and declined 3% on NASDAQ.
The only economic data today was a report on construction spending, up 1.1% for October, a nice improvement after the 0.1% drop in September.
My December iron condor on SPX remains hedged to the hilt and thus far, that is holding the net loss (assuming we closed today) to about -5%. I have not sold the put spreads for the January position; I considered it yesterday, but thought we might see more weakness before the market resumed its march higher.
The FOMC's Beige book will be released tomorrow. We may have some volatility surrounding that announcement.
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This time of year is historically bullish, e.g., the Santa Claus rally and so on. But we are in a tiring bull market. SPX was up over 30% last year and has climbed even higher this year, now up 12% year to date. It is only natural to expect some slowing, sideways consolidation trading. Traders will refer to the market "taking a breather" and so on. On Monday, it looked like a pull back or correction was starting, but the bears could not take advantage of that down day and the bulls took the reins back. When you think about it, even in October, once the bulls took control, we traded straight up - what a run! So the bulls are clearly in control, and this is their time of year, so they have historical trends on their side. On the other hand, this bull is tired; it has been a long run. Maybe this conflict of the historical bullish season of the year coupled with a tired market that needs to consolidate explains this market. Anyway, it's a thought.
SPX pulled back a bit, closing down two dollars at $2072. RUT dropped back $6 to close at $1173. Volatility remains pretty low with the VIX closing at 12.4%. Trading volume has remained pretty low for the past six weeks or so; volume on the S&P stocks has run below the 50 dma pretty consistently throughout November. Today was no exception with 1.9 billion shares of the S&P 500 trading (the 50 dma = 2.2B). Trading volume dropped 6% on the NYSE and increased 1% on NASDAQ.
The Challenger job cuts report came in 21% lower in November - much better news than October's 12% increase. Initial unemployment claims came in at 297k this week, down 17k. Continuing claims rose 39 thousand to 2.4 million. The unemployment data jump around a lot, but the trend is clearly downward, but at a slower than desired rate. Tomorrow's jobs report will be interesting, given a market that seems a bit nervous. Monday's weak retail sales news from the holiday weekend caused a sell-off, but it didn't last. The bulls came roaring back.
It seems like many of the guests on CNBC have been predicting a correction all year, but betting on the bulls has continued to be the winning play. We'll see...
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I hope you all had a wonderful Thanksgiving.
We have become accustomed to the markets rising every day, so what's going on? SPX clipped off $14, closing at $2053 while RUT traded even more weakly, gapping open lower and closing at $1154, losing $19 on the day. One would expect trading volume to pick up from the holiday-shortened session Friday, but trading in the S&P 500 stocks actually bumped up to 2.3 billion shares, popping up over the 50 day moving average, at 2.2 billion shares. Trading volume rose 19% on the NYSE and rose 78% on NASDAQ. The VIX gapped open higher this morning and closed one full percentage point higher at 14.3%.
The ISM manufacturing index reported today at 58.7 for November, a drop from October's 59.0. Today's market weakness appeared to be primarily driven by the weak retail sales over the Thanksgiving holiday, coming in 11% lower than last year. There were also weaker economic reports from China and Europe, raising the specter of a global economic slowdown. the Fed's Beige book comes out Wednesday, amid reports that the FOMC members are worried about deflation; if that is explicitly addressed in the minutes, we could see additional market weakness. Of course, this week's economic news builds up to the jobs report Friday.
