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The markets opened higher this morning, but the bears came to the table early and drove the markets lower. SPX hit its low for the day around noon ET and then recovered a bit to close at $1973, down $4 on the day. RUT traded weaker than SPX (as usual), closing down $12 to $1154. For SPX, this remains well above support in the range of $1950 to $1960. RUT traded down through support at $1156 and the 50 dma at $1950 and bounced back to close just below the $1156 support level.
The VIX moved up slightly, about a tenth of a point, to close at 12%. Retail sales for June increased 0.2%, down from May's +0.5%. The Empire manufacturing survey moved up significantly for July to 25.6 from June's 19.3. Tomorrow brings the Fed Beige Book (minutes from the last FOMC meeting) and PPI.
Tomorrow's trading in RUT will be interesting; will RUT lead the market lower or bounce back higher?
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SPX closed up $3 today at $1968 and RUT traded down two dollars to close at $1160. Volatility pulled back a bit with the VIX losing a half point to close at 12.1%. SPX lost almost one percent of its value this week (0.8% to be precise). The broad support range of $1950 to $1960 was reaffirmed with SPX dipping into that range three times this week. Trading volume fell off significantly today - did I miss the memo of today being a holiday? Only 1.6 billion shares of the S&P stocks traded today. Trading was down 15% on the NYSE and declined 10% on NASDAQ.
The small cap stocks fared much worse than their blue chip cousins this week, with RUT losing 3.7% of its value. The support level at $1155 held; that support level was established in mid-April when RUT bounced back upward, only to be pulled back lower in May. RUT's 50 dma is at $1150, so this is a strong support area for RUT. The NASDAQ composite fared a little better than RUT, but still worse than SPX, closing the week down 1.4%. In many ways, this week seemed to be a replay of the pullback in RUT and NASDAQ from early March until mid-May. The SPX largely traded sideways while RUT and NASDAQ took it on the chin.
This divergence between the small cap stocks and the blue chips has many analysts worried. The small caps historically lead the bull charges, but also lead the bearish corrections. When traders are very bullish, they begin to invest in higher risk stocks to make the larger gains. And when traders start to worry, they seek protection in the blue chips. The question remains: are the small cap stocks the leading indicator for a correction? I find that question sufficiently worrisome that I left my hedges in place over the weekend, in spite of a relatively quiet and flat day in the markets.
We'll see... Enjoy your weekend.
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All of the major market indices traded downward today. In fact, the NASDAQ composite, Russell and the S&P 500 all gapped open lower this morning and continued lower through most of the morning. But all of the indices recovered some of their losses before the close. I think traders were just taking some profits off the table before Alcoa led off the earnings announcement cycle this evening. SPX lost $14 to close at $1964 and RUT closed at $1172 for a loss of $15. Volatility only picked up modestly with the VIX closing at 12.0%, up less than three quarters of a point. The initial reports from the Alcoa earnings announcement appear to be positive, so perhaps this two day slide will end tomorrow (or at least not accelerate). Trading volume popped up with two billion shares of the S&P 500 stocks trading today. This was one of the rare days where trading volume was above the 50 dma (just five times since the first of May).
RUT and the NASDAQ traded down more strongly than SPX. In addition, all of the indices bounced back somewhat in afternoon trading. Closing at the lows of the day would have been very bearish. SPX bounced off support at $1960. RUT traded down to $1169 in late June before heading higher to challenge its all-time high just a few days ago. Today's intraday low on RUT was $1167. For all of those reasons, I didn't join the "sky is falling" crowd today, but that didn't stop me from hedging my RUT July condor position - better safe than sorry. I can afford the insurance. We'll see if I need that insurance.
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The S&P 500 index opened higher this morning and then chopped sideways until after the FOMC minutes were released at 2 pm ET. Then SPX strengthened a bit more to close at $1973, up $9. RUT traded weaker all morning, saw a little boost after the Fed minutes, but then gave most of it back by the close, ending at $1174, up $2. Trading volume declined markedly from yesterday with 1.8 billion shares of the S&P stocks, equal with the 50 dma. Trading decreased 12% on the NYSE and declined 20% on NASDAQ.
So what changed today? We had two strong down days and now a weakly up to sideways day. But what was the impetus to drive markets down in the first place? And what slowed the slide today? The standard answer on most financial news media was that traders took confidence from the FOMC minutes detailing the end of quantitative easing in October - really? No news there. That makes me wonder what happens when we get another weak economic report. This market has ignored all bad news for quite some time.
The only thing I can conclude is that a large number of traders are nervous and anxious to protect their gains by selling at the least bit of negative news, an ugly rumor, or even a frown from the boss. If those nervous nellies are encouraged by reading the Fed minutes, heaven help us when the next piece of bad news hits the wires. Maybe the crazy guy with the sign, The End is Near, is onto something.
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The futures predicted a weaker start this morning, but I wondered if the weak start would hold. It seems like the bulls have been very successful at recovering and pushing higher nearly every day. But that wasn't the case today. SPC closed down $8 at $1978, a reasonably modest decline, but RUT took it on the chin, dropping $21 to close at $1187. The NASDAQ composite also fell off significantly with a loss of $34, closing at $4452. Trading volume gains and losses are deceptive after a holiday weekend because the last day before the holiday is frequently a shorter trading session, and that is augmented by a large number of traders on holiday. Trading in the S&P stocks came in at 1.6 billion shares, up from Thursday's weak number, but well below the 50 dma at 1.9 billion shares. Trading volume rose 1% on the NYSE and rocketed up 71% on NASDAQ.
There wasn't any significant economic data reported today. The minutes from the last FOMC meeting will be released on Wednesday.
It seems like all indicators continue to be bullish for the market. In my opinion, we have a very weak economy, but the slight improvements we are seeing are being lauded everywhere. So today's pull back probably isn't anything more than a temporary slowing in the overall bullish trend. But I remain cautious. Trade bullishly, but protect yourself.
