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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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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.
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You could have made a lot of money this past year or so, simply by buying the dips on the major market indexes. And it happened once again this morning. One of these days, it won't work, and then it gets ugly. SPX opened up weakly this morning and traded lower for about the first hour of the session, but then started higher and ended up gaining $7 on the day to close at $1996. RUT behaved similarly, only its low for the day broke its 50 dma. RUT closed up $6 at $1165. Volatility spiked upward this morning with the VIX moving over 14%, but then it settled back as the market recovered, closing at 12.9%, down 0.6 points.
No significant economic data were released today. We will see the weekly unemployment numbers tomorrow, but they aren't likely to move the market.
The SPX hit a peak near $1990 in late July and that level appeared to be holding as a solid support level until yesterday when SPX closed at $1988. When SPX opened and traded down to $1983 this morning, I think many traders paid close attention (I know I did). But then the same old "buy the dip" thing happened once again. RUT continues to trade more weakly than the broad market, as represented by SPX, and that concerns me. One can certainly make the case that some sideways chop for a few weeks will return most valuation measures back closer to historical averages. But I fear that one of these days, the bulls won't be there to buy the dip...
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The markets continue to hold up rather well. SPX traded off a few points this morning but then recovered quickly - buying the dip still works! SPX closed up $2 at $1997 and RUT gained $7 to close at $1172. Trading in the S&P 500 stocks dropped a bit at 1.7 billion shares (the 50 dma continues to decline). Trading volume on the NYSE increased 3% but volume declined 6% on NASDAQ. Volatility is flat with the VIX unchanged at 12.8%.
Initial unemployment claims came in at 315 thousand this week, up eleven thousand over last week. Continuing unemployment claims rose nine thousand to 2.49 million (essentially unchanged). This increase in initial claims is pretty small and well within the range of scatter week to week in this number, but the S&P futures traded off this morning after this report was released. SPX opened lower at $1993 and traded down to $1986 by about 10:30 am ET, but then the steady recovery began, and SPX rose the rest of the day, finally breaking into positive ground just 15 minutes before the close. The predictability of this "buying the dip" behavior is beginning to worry me. Whenever it becomes this obvious, the trading gods like to throw a wrench into the works...
I took advantage of the dip and sold my SPX Nov put spreads at a reasonable price; I sold the call spreads yesterday. It's early to enter November, but since I closed the September position early, I had capital laying around doing nothing. Don't you hate that?
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The markets opened down a bit and sunk lower until around 2pm ET when they started to rebound and recovered much of their losses before the close. SPX traded down to $1996 before recovering to close at $2002, down $6 on the day. RUT gained $2 to close at $1172. Volatility popped up over 13% on the VIX this morning, but settled to 12.7% by the close. Trading volume in the S&P 500 stocks was down a bit at 1.7 billion shares. Volume was up 9% on the NYSE, but up only 2% on NASDAQ. The last three trading sessions on SPX have included this pattern of trading lower, but then recovering to close either at a gain, as it did Friday, or to minimize the loss, as it did today. I find this significant because it suggests the presence of a large number of traders who are willing to buy the dips in this market. On the other hand, not many traders are willing to follow this market much higher. At higher prices, they tend to take their profits. Maybe it will just wander sideways, caught between these two groups of traders and blow off some of the overbought steam.
I have closed my September iron condor position to lock in a nice 13.5% gain early. The October condor stands at a gain of 11% as of the close today. I may close it early as well and enter a November position earlier than my normal practice. The advantage would be collecting a reasonable credit very far out of the money.
There aren't many significant economic reports scheduled this week. Given that, this sideways trading may continue. The wild cards are in the Ukraine and the Middle East.
