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SPX threatened to trade lower today, hitting a low around $2040 this morning, but then it recovered in the afternoon to close at $2049, down $3. SPX spiked upon the release of the Fed minutes at 2:00 pm ET, but dropped back to close roughly where it was before the announcement. RUT declined $13 to close at $1158. RUT has steadily trended lower since 11/12/14. This divergence has caught many analysts' attention, but SPX seems undeterred and just climbs higher, leaving RUT in the dust. Volatility remains flat with the VIX steady around 14% - not exactly low, but not very high either.
Trading volume remains low with 1.9 billion shares of the S&P 500 stocks trading today; the 50 dma = 2.2B. Trading on the NYSE rose 3%, but trading volume declined 2% on NASDAQ.
Housing starts declined a bit with an annualized rate of 1.009 million for October, down from September's 1.038 million. Building permits ran in parallel with 1.080 million, down from 1.031 million.
I sold an iron condor on GMCR, anticipating their earnings announcement; based on after hours trading, that trade looks like a winner. My December iron condor on SPX remains fully hedged and stands at a net loss of about 4% (the hedges are working).
I may not get my blog written tomorrow since I will be traveling to Las Vegas for the Traders Expo. You can hear my talk on the internet version of the trading conference if you can't make it out to Las Vegas. But this is a good time to leave frigid Chicago.
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I ended yesterday's blog with these comments, "My rational analysis of the markets and the economy cause me to be more
pessimistic about the prospects of continued market highs. RUT's
declines of late appear to support that thesis. But every time I think I
have built a solidly reasoned case for the market's direction, the
market seems determined to prove me wrong." As predicted, SPX came out of the gate running and tacked on $10 to close at $2052. RUT came to life as well, gaining $6 to close at $1170. Today's close on SPX was a new all-time high, but RUT continues to lag behind its most recent September high around $1185. It doesn't have to make sense; it just is.
Trading volume was mixed with 1.9 billion shares of the S&P 500 trading, flat with yesterday and below the 50 dma. Trading increased 8% on the NYSE, but decreased 3% on NASDAQ. Volatility was essentially unchanged with the VIX at 13.9%.
The Producer Price Index (PPI) for October increased 0.2%, up a bit from last month's 0.1% decline. I keep wondering where inflation is hiding; a lot of money has been pumped into this economy.
I added to the hedges on my December position today. With the additional hedges, my December condor's current P/L at -6% should remain about constant if SPX continues higher. Everything tells me the market is going to pull back, but I can only play what the market gives me, and it continues to rise. The FOMC minutes will be released tomorrow; it is anybody's guess whether that could move the market. Sometimes analysts fix on a single word and it moves traders one way or the other.
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The rise in unemployment claims was blamed for today's slowdown in the market, but the signs have been there for several sessions. A period of sideways trading is natural and healthy for a market that has been on such a stellar run higher for the past several weeks. SPX closed at $2039, with a one dollar gain, but RUT traded off by $11 to close at $1175. It appeared as though RUT had broken out above its September highs yesterday, but today's trading firmly pulled it back below that resistance level.
Volatility rose with the VIX gaining about three quarters of a point to 13.8%. Trading volume remains low, but rose a bit from yesterday's levels with 2.1 billion shares of the S&P 500 stocks trading (but the 50 dma = 2.2B). Trading volume increased 7% on the NYSE and trading on NASDAQ rose 6%.
Weekly unemployment claims rose twelve thousand to 290 thousand from last week's 278 thousand. Continuing unemployment claims rose by 36 thousand to 2.39 million claims. JOLTS job openings decreased by 118 thousand to 4.74 million in September.
Guesses continue to come in, speculating about tomorrow's big event. The winner gets a free book!
Final hint: it is the origin of my nickname.
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SPX's price trend is clearly flattening, but it is still rising, just at a slower rate. Consider today's price action. SPX opens at $2038, trades down to $2034 and then up to $2043, and then closes at $2041, up nearly $2 on the day. This certainly isn't the large gains of a couple of weeks ago, but it just steadily rises. RUT's price trend is marked in its contrast with SPX. RUT has traded downward for the past three days, closing today at $1164, down $10. Should we ignore RUT's divergence? I don't think that would be wise.
Volatility opened higher this morning with 14.7% on VIX, but ended the day at 14.0%, about three quarters of a point higher than Friday's close. So volatility isn't very high, but it hasn't settled into very low levels after the October correction.
The markets have been trading at low volumes for the past several sessions, with 1.9 billion shares of the S&P 500 stocks trading today. Eleven trading sessions have passed since the trading volume of the S&P 500 exceeded the 50 dma. Trading on the NYSE declined 2% today and trading on NASDAQ decreased 4% from Friday's levels.
The New York Fed's Empire manufacturing index for November reported a result of 10.2 on their survey, up significantly from October's 6.2. Industrial production declined from September's +0.8% gain to a negative 0.1% loss for October. Capacity utilization declined a bit from 79.2% to 78.9% in October.
My rational analysis of the markets and the economy cause me to be more pessimistic about the prospects of continued market highs. RUT's declines of late appear to support that thesis. But every time I think I have built a solidly reasoned case for the market's direction, the market seems determined to prove me wrong. We'll see.
BTW, the answer to Friday's "big event" in last week's blogs: it was Prince Charles' birthday. He and I are the same age. That is the source of the nickname, Duke. The first blog reader with the correct answer has opted for a free copy of my forthcoming book, Time Is Money, which should be on Amazon before year-end.
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The markets continued their low volume, sideways to slightly higher march today. SPX lost one dollar to close at $2038 and RUT gained $7 to close at $1186. Interestingly, NASDAQ also broke out higher today. Both RUT and the NASDAQ composite have been trading sideways since Halloween, while SPX continued higher. That comparative price action has suggested a consolidation of prices was beginning for the markets, but today's price action reversed with SPX slowing and RUT and NASDAQ gaining. Trading volume bumped up today with 1.9 billion shares of the S&P 500 trading, but this remains well below the 50 dma. Trading volume increased 10% on the NYSE and increased 7% on NASDAQ. Volatility was nearly unchanged with a tenth of a point increase to 13.0%.
We didn't have any economic news of any significance today. CSCO announced earnings after the close and beat estimates. But their weak outlook is giving some traders second thoughts. That may weigh on NASDAQ stocks tomorrow.
Many of you have been messaging me with guesses about the "big event" coming on Friday. Hint: it is shared between two countries.
