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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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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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As I considered the price charts of the major indexes this weekend, I concluded that the markets were just treading water ahead of the Fed's announcement this week. But today's price action makes me worry that there is more in the works. On the positive side SPX closed at $1984, down only one dollar. It traded down below $1980 earlier today, but it recovered into the close. It appears that SPX is holding support in the $1985 area. But then the news gets much worse. RUT lost $14 to close at $1147 while the NASDAQ composite lost $49 to close down at $4519. Until today, NASDAQ had been holding up well, so this weak performance in the NASDAQ and RUT is alarming. Either the Fed announcement is irrelevant or something else is in play.
Underscoring these concerns was the behavior of the VIX today; in recent days, it has commonly spiked higher intraday, but then pulled back before the close. Today, it closed almost a full point higher at 14.1%, very close to its intraday high at 14.2%. So I'm not the only one a little concerned about this market. The divergence of SPX from RUT and NASDAQ was marked today. SPX actually traded into the black around 2:30 ET, but then slowly declined to close in the red by only one dollar. By contrast, RUT and NASDAQ didn't show any life all day; their charts were pretty steadily headed south.
Trading volume was lower today with 1.8 billion shares of the S&P 500 stocks changing hands. Trading on the NYSE declined 3% but trading volume rose 11% on NASDAQ (everyone was selling NFLX and TSLA).
The Empire manufacturing survey came in at 27.5 for September, up markedly from 14.7. Industrial production fell off 0.1% in August, a change from July's +0.2% gain. Capacity utilization was essentially flat in August at 78.8% (79.1% in July).
I will be anxiously watching the futures this evening and tomorrow morning to see if this weakness continues.
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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.
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Looking at today's market action reminded me of an old joke illustrating the difference between optimists and pessimists. Both fell off the top of the skyscraper, but an observer heard the optimist as he flew past saying, "So far, so good".
SPX lost $12 to close at $1986 and RUT also lost $12 to close at $1161. But both indexes closed today near lows that were hit intraday several times this week. So, the proposition that we are just consolidating sideways and blowing off some of the bullish steam remains feasible. But the doomsday scenario folks are plentiful. And October, the month of crashes, is coming up shortly. Volatility rose a bit today with the VIX closing at 13.3%, up a half point. So today's drop didn't cause any panic, but we'll see what next week brings.
Have a great weekend.
