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After such a huge run last week, it wasn't too surprising to see the markets tread water a bit today. SPX lost $3 to close at $1962, and RUT declined $1 to close at $1117. SPX opened weakly this morning and traded as low as $1951 before recovering to close near its high for the day. That trading action tells me the bulls are still in charge of this market. Volatility was unchanged today, with the VIX closing at 16.0%. Trading volume was mixed with an 8% rise on the NYSE, but an 11% decline on NASDAQ. The trading volume on the S&P 500 stocks was not yet available as I write this a bit earlier than usual (I have an appointment shortly).
The only economic data today was pending home sales, up 0.3% in September, an improvement over the one percent decline in August. Durable goods orders and the Case Schiller housing price reports will be issued tomorrow, and we get the FOMC announcement Wednesday afternoon.
My November iron condor on SPX stands at a net gain of 7% with the Nov 1810/1820 put spreads remaining open. I closed the call spraeds when the market hit its lows week before last. Our maximum return on the November condor is 13%, and that looks pretty safe at this point. I took that opportunity of a low market to open the SPX Dec 1810/1820 put spreads; that position stands at a net gain of 4%. I will be entering the call spreads to complete the December position soon.
We may see another slow day in the markets tomorrow as traders wait to hear from the Fed. Presumably, QE ends this month. But maybe the FOMC will surprise us with something. Or traders will spook themselves based on a minor word change in the announcement. Stay tuned.
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The Canadian terrorism scare didn't last long. The bulls were buying with both hands as the market opened this morning. Apparently, the "buy the dip" strategy is on again. SPX gained $24 today, closing at $1951. RUT gained $20 to close at $1116. This puts SPX solidly above its 200 dma at $1908; the bulls are once again in charge of this market. SPX spurted upward at the open this morning and traded somewhat higher in the early afternoon, but then pulled back to close near where it was about an hour after the open. The VIX dropped off another point and a third to close at 16.5%. Trading volume was down with 2.2 billion shares of the S&P 500 stocks trading today. Trading volume was unchanged on the NYSE and down 2% on NASDAQ.
The report of initial unemployment claims came in at 283k, up from last week's 266k. Continuing claims fell by thirty eight thousand to 2.35 million.
As volatility unwinds and SPX trades higher, the put spreads remaining in my November iron condor position are moving into the black once again, now up about 5%. If the bulls slow down, I might add some new call spreads, but that doesn't look likely.
Maybe it's time to start working that list of bullish stock candidates?
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The bulls were clearly in charge today, with the S&P 500 Index gaining $37 to close at $1941.28. To make it even more positive, SPX opened $5 higher this morning at $1909 from yesterday's close at $1904. We call this a gap up, and it is generally regarded as very bullish. Trading volume was also higher today with 2.5 billion shares of the S&P 500 stocks trading. Trading volume rose 14% on the NYSE, but was only up a modest 2% on NASDAQ. Unlike recent months, RUT has also jumped on this bull's bandwagon, gaining $18 to close at $1113. Volatility contracted again today with the VIX losing two and a half points to close at 16.1%. So all signs are indicating a return to the bull market trend. What a turnaround from last Wednesday!
Today was another light day for economic data. Existing home sales came in at an annualized rate of 5.17 million for September, up from last month's 5.05M. The Consumer Price Index (CPI) reports tomorrow, but that normally isn't a market moving event.
As I wrote yesterday, traders expect prices to retest a support level after bouncing, so I have been concerned that the markets might take another plunge before resuming the bullish trend. The markets have simply headed straight up since last Wednesday - a remarkable run. Maybe we have seen the end of this correction. However, I remain on alert. I still smell the singed hair from last week. My hedges worked, but that was still scary.
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Yesterday, I titled my blog, "Is It Safe To Come Out Now?", and today I answer myself (I talk to myself all the time). One could blame today's weakness on the terrorist attacks in Canada. But some analysts were expecting a continuation of the bearish down trend or were at least expecting a test of the support levels before heading higher. Today's drop satisfies both groups. SPX opened and traded higher this morning until the terrorist news hit the wires. SPX closed the day down $14 at $1927. RUT traded down $16 to $1097. The VIX lost about two and a half points yesterday, but gained almost two points back today. It remains a nervous market. Trading volume was flat to slightly down with 2.4 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 1% and trading volume on NASDAQ was unchanged.
The Consumer Price Index (CPI) reported a slight increase of 0.1% for September, up from the 0.2% decline in August.
Both the SPX and RUT traded higher this morning before the terrorist attack news hit, so I am less concerned about this pull back. RUT's price action formed a bearish engulfing candlestick, known as an outside day in bar charts. By itself, that is a bearish reversal signal, but requires confirmation.
The bottom line is this: this recent market weakness is purely technical in nature. The markets became a bit frothy and now that is being corrected. The economic data and the earnings announcements thus far are not painting a bearish picture. I continue to think that traders are very nervous because of the Fed involvement in the markets; it is unprecedented and therefore makes traders nervous. It is hard to predict the future when you have no history with which to judge the present situation. That Fed presence and its unwinding, coupled with institutions sitting on gains from the last two years, make for an itchy trigger finger.
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SPX has now traded higher for three consecutive days following the severe downdraft last Wednesday. SPX closed today at $1904, up $17. RUT also traded higher, gaining $13 to close at $1095. VIX is now back down to 18.6%, losing over three points today. But I remain nervous. This market has been trading nervously for the past two years. Look back at the number of sudden drops over a week of trading sessions, only to be followed by a recovery straight up over just a few days. At least we had the fiscal cliff concerns in January of last year. I'm not sure what is causing this market to be so nervous. But the fact of the matter is that it doesn't take much to start a selling spree. So I am cautious.
Trading volume fell off from expiration Friday, but that decline is also evidence of some calming after last week's panic. Trading in the S&P 500 stocks dropped to 2.1 billion shares. Trading declined 26% on the NYSE and dropped 24% on NASDAQ.
My November iron condor on SPX is back to break-even and will continue to move into the black as volatility contracts. Those puts are now $80 OTM, but I still worry. One of the things that concerns me is a retest of support. Normally, when a stock or index declines and then appears to bounce back higher, it trades back down and tests that support level before trading higher. But it is true that the SPX hasn't displayed that behavior with the rapid pull backs of the past couple of years. So maybe it will just trade higher and not look back. One thing's for sure - this isn't a time to take my eye off the ball.
