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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.
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Today's market was typical of pre-holiday markets, with low trading volume and small price moves. SPX gained another $6 to close at a new closing high of $2073 and RUT gained $4 to close at $1191. Volatility is basically flat with the VIX at 12.1% (down one tenth of a point today). Trading volume on the S&P 500 isn't out yet, but trading was down 13% on the NYSE and down 11% on NASDAQ.
A host of economic data posted today with initial unemployment claims reported early due to the holiday with 313k claims, up from last week's 292k. Continuing claims dropped from 2.33 million to 2.32 million. Durable orders posted an improvement of 0.4%, a nice change from last month's decline of 0.9%. The Chicago PMI dropped off significantly to 60.8 from last month's 66.2. The University of Michigan consumer sentiment survey declined to 88.8 from 89.4. New home sales posted an annualized rate of 458k for October, up slightly from 455k.
There wasn't anything in this host of economic data that was particularly alarming or encouraging. Coupled with lightly staffed trading desks, the markets didn't really react.
Over bought indicators continue to build as this market heads higher. I don't see a correction in the immediate future, but it seems like we are overdue for some sideways cooling off. The markets will be closed tomorrow and only open for a half day of trading on Friday, so not much market movement is anticipated until everyone returns on Monday.
Happy Thanksgiving. Count your blessings - yes, even that crazy uncle.
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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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The Standard and Poors 500 stock index set a new all-time closing high today at $2069, up $6. It wasn't long ago that this would be news, but it almost seems like an everyday occurrence now. RUT came back to life today, gaining $15 to close at $1187. That is almost exactly where RUT closed on November 12th, and then traded downward from there while SPX continued higher. RUT remains well below its high March 4th at $1209.
Volatility continues to contract, albeit slowly. VIX closed down about a quarter point to 12.7%. Trading volume was higher Friday due to options expiration, so it wasn't surprising that trading volume fell back today with 1.8 billion shares of the S&P stocks trading. Trading dropped 27% on the NYSE and declined 16% on NASDAQ. Friday was the first time that S&P trading volume has been above the 50 dma since October 31st. We continue to see this market steadily march higher on low trading volume. This is surely the bull market no one believes in. I admit I don't understand it. Perhaps our premise that we can study the fundamentals and rationalize market price behavior requires reexamination? I would like to think I understand it...
There wasn't any significant economic news today, but tomorrow brings third quarter GDP, Case Schiller housing prices, and consumer confidence reports.
I spoke at the Traders Expo in Las Vegas last week. They recorded my talk and you may play the video on the Traders Expo e-show page.
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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.
