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The markets opened this morning and decided to test us with SPX breaking support at $1980 in the first hour of trading. But then the "buy the dip" crowd took over and away it went. SPX closed up $16 at $1998 and even RUT was up with a close at $1129, gaining $10. Volatility dropped off by more than it spiked up yesterday with VIX closing at 13.5%, down 1.4 points today. Trading volume was pretty flat with two billion shares of the S&P 500 trading today. Trading rose 6% on the NYSE and dropped 4% on NASDAQ.
So what are we to think about this market? Is the bull still alive or not? There are certainly many signs of slowing; many measures of value and sentiment seem to be nearing extremes. The percentage of NYSE stocks that are above their 200 dma dropped to 53% today. This is a lower percentage than either the August or the February corrections. SPX is being carried higher by a decreasing number of stocks - this is what analysts are talking about who mutter about weak market internals.
New home sales reported at an annualized rate of 504k for August, up from 427k in July. Tomorrow brings the weekly unemployment claims.
Be careful out there.
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The sky is falling! The doom and gloom folk are filling the air waves and the print media. SPX closed today at $1983, down $12. But the close on September 15th, a week ago yesterday, was at $1984, so let's not panic just yet. SPX is still within the trading channel of the past few weeks. The 50 dma is at $1976, so that is a good "line in the sand" to watch.
RUT is continuing to trade much weaker than SPX, and that does concern me. RUT closed at $1119, down $11. RUT hit a low of $1115 on August 1st, the most recent pull back in the markets, so today's close is nearing that recent low. RUT has also traded much more bearishly this week, gapping downward at the open both yesterday and today.
The NASDAQ composite has also fallen significantly during the last three trading sessions, but has held up much better than RUT. NASDAQ closed at $4509 today, down $19 on flat trading volume. Similar to SPX, today's close on NASDAQ was close to its close on 9/15 at $4519.
Trading volume doesn't appear to support the sky is falling case; two billion shares of the S&P 500 stocks traded today and that was flat with yesterday and only slightly above the 50 dma at 1.87 billion shares. Trading on the NYSE was down 2% and trading volume on NASDAQ was down 2%.
Volatility is starting to move higher. The VIX closed today at 14.9%, up 1.2 points.
My iron condor positions are holding up well. The Oct SPX position is up 11% with short puts at $1870. The Nov SPX position is up 7% with short puts at $1820. I allowed extra safety margin for these positions and that is paying off.
I will be watching this market closely, but I think it is early to get too excited. I am taking the opportunity to look for stocks that are holding up well in this down draft. IBD moved to "Uptrend Under Pressure" yesterday.
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It seems like the market has developed a pattern of developing extreme anxiety before the Fed announcement and then nothing happens. We find ourselves wondering what were we anticipating? Is that all there is? SPX closed at $2002, up $3 and RUT gained $3 to close at $1154. Volatility is unchanged with the VIX at 12.7%. Trading volume was up modestly with 1.9 billion shares of the S&P 500 stocks trading. Volume rose 3% on the NYSE, but fell 5% on NASDAQ.
The consumer price index, CPI, came in at -0.2% for August, but that
doesn't match my everyday experience. None of my food or fuel
expenditures are lower.
The FOMC announcement was essentially unchanged from previous meetings. The reduction of the quantitative easing program continues ten billion dollars at a time and will be eliminated in about two months. There was no new language about increasing interest rates - that seemed to be the key point worrying the collective market. SPX shot upward after the FOMC announcement, coming within a few cents of matching the intraday high at $2011 set on September 4th. But then it pulled back to close at $2002. Don't let your guard down. The volatility following the Fed announcement in the past has extended into the next trading session. The tendency of this market is definitely bullish, but it remains very nervous.
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After setting another all-time closing high yesterday at $2011, SPX decided to take a breather. SPX opened at $2013 and ran as high as $2019 before pulling back to close down one dollar at $2010. RUT, as usual, traded much more weakly, closing down $12 at $1147. It looks like traders are unloading their small cap stocks at every opportunity. Volatility is flat with the VIX unchanged at 12.1%. trading volume spiked up with quadruple witching to 3 billion shares of the S&P 500 stocks. Trading on the NYSE was up 107%, probably aided by Alibaba's IPO. Trading volume rose 64% on NASDAQ.
The risks of holding a European style index option into expiration was demonstrated today. SPX closed Thursday at $2011, and opened this morning at $2013. But the settlement price came in at $2022. That may have surprised some traders who were short those $2020 calls, thinking they had plenty of room when the market closed Thursday. I keep a spreadsheet of closing prices versus the settlement price for RUT and SPX. The average change between the Thursday close on SPX and its settlement price for 2014 is now $6.82; it was $3.68 last year, but 2014 brought two surprises, one in March with a $21 gap upward and today's $11 gap. As of my writing this blog, RUT's settlement price has not yet been posted, but the average change between the Thursday close for RUT and its settlement price for 2014 through August is $4.85.
My Oct iron condor on SPX at 1860/1870 and 2080/2090 stands at a net gain of 12%, and the Nov SPX iron condor at 1810/1820 and 2090/2100 is getting started, but is up 2%. If the bullish trend continues, I will close the October call spreads rather than give up any of the gains. But it certainly doesn't look like much is going to stand in the way of this bull. Of course, that is what everyone says just before the crash...
Enjoy your weekend.
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Talk about whiplash! Yesterday, SPX only lost one dollar and held support. But the NASDAQ composite lost $45 (1%) and RUT lost $14 (1.2%). That got my attention and I closed several of my directional trades. But today SPX roars back, closing at $1999, up $15, and RUT tacks on $4 to close at $1151. NASDAQ moved back into its trading range, closing at $4553, up $34. The strange part of these two days in the market is the upcoming FOMC announcement tomorrow afternoon. Normally, we would have seen a calm sideways market as traders waited for that announcement, but not so this time. I'm not sure what that means. At a minimum, it shows how nervous traders are, anxiously jumping on and off the bandwagon at the slightest news or rumor.
Trading volume rose a bit with 1.8 billion shares of the S&P 500 stocks trading. Volume rose 13% on the NYSE, but dropped 4% on NASDAQ.
Volatility popped up about a point yesterday, but the VIX lost 1.4 points to close at 12.7% today. The only economic news was the PPI, flat at zero change, so that helps calm the inflation fears. Maybe that caused traders to be less concerned about the Fed moving up their time table for increasing interest rates.
So the Fed watch continues. It will pay to be cautious as this saga unfolds.
