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The markets gapped open higher this morning, but stalled in the afternoon as traders began taking profits. SPX gained $5 to close at $1137 while RUT gained $11, closing at $1142. In spite of the afternoon pullback, traders seemed to relax a bit with the VIX losing almost two points to close at $14.2%. Friday's strong day trading higher, followed by a gap open higher today certainly seems to suggest we have found the bottom of this correction. But the sell off in the afternoon is a bit concerning. The resistance level to watch on SPX is around $1950. A close above $1950 would be the strongest confirmation that the correction was over. But we are in options expiration week, and that can be a very volatile week for both stock prices and the implied volatility of the options.
If we view the small caps as the "canary in the coal mine", then RUT's relative strength for the last several trading sessions is a strong signal for a correction bottom. Both SPX and RUT gapped open higher today, but if we look at the magnitude of the move since Friday's open, RUT is up 2% whereas SPX is lagging behind a bit with a gain of 1.4%.
No economic news of any consequence was issued today. In fact, outside of retail sales reports on Wednesday, it looks like a pretty light week for economic news, at least the economic news more likely to move the market. Friday brings the Empire manufacturing survey, capacity utilization data, industrial production, PPI and Michigan consumer sentiment data. Those are all important economic indicators, but they rarely move the market.
Maybe this market is most vulnerable to fears emanating out of events in the Ukraine and the Middle East, but that is impossible to predict. Even a solid sideways day tomorrow would be a welcome relief.
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This is a dicey market, and not for the timid. I have been watching the area of $1900 on SPX for its ultimate support; those are the highs from early April and mid-May. Yesterday's market appeared to be heading to challenge that support level, closing at $1910. SPX opened this morning and traded weakly sideways and gradually strengthened through the morning and really took off around 1 pm ET, running upward into the close and closing at $1932, up $22, only a few cents off the high for the day. RUT also traded higher, closing at $1131, up $12. Volatility pulled back a bit with the VIX dropping almost a full point to 15.8%.
Trading volume dropped off today with 1.8 billion shares of the S&P 500 stocks trading. Trading volume declined 6% on the NYSE and 5% on NASDAQ.
There wasn't any significant economic data released today to drive the market. Most of this week's price action was generated by global events in the Middle East and the Ukraine. The lack of predictability or even rationale for those events makes the market even more dangerous than usual.
Well, the weekend is here and I have a long list of chores around the house. It will help me relax and forget the market for a couple of days. Enjoy your weekend.
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The markets opened weaker this morning, but then began a steady climb higher, with SPX closing at $1939, up $14 and near its high for the day at $1943. RUT gained $10 to close at $1125. Trading volume fell off from Friday with 1.9 billion shares of the S&P 500 stocks trading today; this is right at the 50 dma. Trading volume declined 21% on the NYSE and dropped off 18% on NASDAQ. Volatility pulled back with VIX closing at 15.1%, down nearly two points on the day.
There were no significant economic reports today, so why the big turnaround? Some analysts attributed it to the excellent earnings announcement from Berkshire Hathaway. The problem with that analysis is that Berkshire reported Friday. It took traders all weekend and up until about 11 am ET this morning to figure this out? I don't think so. We need a financial network where the talking heads aren't afraid to say, "I don't have a clue".
Let's recap the past few days. The Fed announcement Wednesday afternoon was a non-event - same old story; no news there and the market basically trades sideways. Then the market gaps open lower on Thursday and the S&P 500 loses about 2% of its value in one day. Why? Were traders afraid of the jobs report coming Friday? The jobs report wasn't stellar, but it was still a 200k plus number. But the market opens weakly on Friday and doesn't really go anywhere. The market opens this morning and wanders sideways and lower. And then it starts climbing to close near its highs for the day. Why? I don't know.
If I sound a little frustrated, it's true. I hedged my August condor positions Thursday. As the markets were trading weakly this morning, I decided to close half of my August put spreads to limit my downside risk and I left the hedge options in place just in case something crazy happened tomorrow morning. But then the market rebounds so strongly that I have to sell my hedge options lest I take too large a loss on them. Now I will be fortunate to nurse my August position to a small gain or a break-even. I admit that risk management that gets you out near break-even is good risk management. But that doesn't mean I feel good about it. This is a frustrating business. The next time some guru is telling you how he understands this market... Well, I will leave that to your discretion.
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The markets looked modestly weak at the outset this morning, but from about 11 am ET on, the market just continued to deteriorate with the most damage occurring after 1:30 pm ET. But the good news (stretching a little) is that the markets managed to recover some of the losses, so they didn't close at the lows of the day, as they did last Thursday. SPX lost $19 to close at $1920 and RUT closed down $3 at $1122. Since RUT has been trading much weaker than SPX for the past few months, perhaps today's stronger performance in RUT is another positive sign. The VIX tacked on almost two points to close at 16.7%. This level of volatility still strikes me as relatively low if we are really on the verge of collapse, as some would suggest.
Trading volume popped back up today with 2.2 billion shares of the S&P 500 stocks trading. Volume rose 15% on the NYSE and increased 14% on NASDAQ.
Factory orders for June came in 1% higher, an improvement from May's 0.6% decline. The ISM services Index reported out at 58.7 for July, up from 56.0. Before the market opened, several reporters said analysts were watching for the ISM number to see if the market would stabilize. Apparently, the improved ISM number wasn't enough. Some observers conjecture that increased tensions in the Ukraine were behind the afternoon weakness.
Today's close on SPX represents a pull back of 3.4% from the recent highs. This places us in the neighborhood of the April 4% pull back, but a little over half of February's 5.7% pull back. Since we seem to be struggling for an explanation of this spell of market weakness, I am inclined to think we will see a weaker pull back, but we'll see. If someone starts shooting down planes again...
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Traders were anxiously waiting for something from the Fed that might move the markets this afternoon, but after some gyrations back and forth the markets ended virtually unchanged on the day. SPX closed unchanged at $1970 and RUT moved up $5 to close at $1147. SPX remains in the sideways trading channel of the past several weeks. RUT spent part of the day beneath the 200 dma, but managed to close above it.
The VIX traded up above 14% intraday, but closed unchanged at 13.3%. Trading volumes were mixed with 2.2 billion shares of the S&P 500 stocks trading, down slightly from yesterday, but still above the 50 dma. Trading increased 10% on the NYSE and decreased 10% on NASDAQ.
The big economic news was the first estimate of second quarter GDP at +4.0%, much higher than economists expected after such a dismal first quarter. ADP's private employment report came in at +218k, down from last month's 281k. That could suggest a weaker number from the Fed's job's report Friday morning, but the correlation of the two reports in the past is not very good. The FOMC announcement didn't offer any new insights. If the tapering continues, all quantitative easing programs should be removed by year end. Unless inflation spikes up, interest rates will remain low.
My August condor on SPX is doing well, as one might expect with the sideways trading of the past few weeks. That emboldened me to add a September condor on SPX, but I gave myself plenty of safety margin on the downside. Virtually all indicators are bullish, but I still worry about a correction. The divergence between SPX and RUT is troublesome to me. We'll see.
