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The Standard and Poors 500 Index (SPX) made a new all-time high today, closing at $1988, up $1. This is the third day in succession that a new all-time high has been achieved (based on closing prices). In short, it remains a strong bull market. RUT is trading weaker with a close down $2 to $1156. RUT seems to be just trading along its 50 dma as SPX marches higher, but SPX's climb higher is slowing a bit.
Trading volume on the S&P 500 stocks was also above its 50 dma for the third day in succession. So these are the classic new highs on higher trading volume. Volatility is relatively low with the VIX at 11.8%, but it rose a bit today (about three tenths of a point).
Today's economic news was positive with initial unemployment claims declining 19 thousand to 284 thousand and continuing claims dropping by eight thousand to 2.50 million. New home sales declined modestly in June to an annualized rate of 442k from 406k in May.
I have not met anyone who is cheerfully trading this bull market. It seems that very few students of the market are comfortable with this bull market, including me. But what can you do? You have to trade what you see. I am having good luck with diagonal call spreads. The short call premium gives you a little breathing room in case of a pull back. I am also adding a put to some of these positions, rendering it similar to a collar trade. We may not see much action in the markets tomorrow. Next week brings a lot of economic data and more likelihood of some larger price moves one way or the other.
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SPX came out of the gate pushing higher this morning and basically traded sideways the rest of the day. SPX closed up $10 at $1984, just shy of its all-time high of $1985 on July 3rd. RUT has been weaker than SPX lately, but matched SPX's enthusiasm today, gaining $10 to close at $1156. As one might expect in the midst of all of this bullish euphoria, the VIX declined about six tenths of a point to close at 12.2%. I readily admit that I don't see the economic underpinning for this bull market at these levels, but you have to play what you see (but I suggest you hedge yourself just in case).
The Consumer Price Index (CPI) was reported today at +0.3% for June, down slightly from the +0.4% the previous month. The annualized rate of existing home sales was 5.04 million in June, up from May's 4.91 million.
Apple is down fifty cents in after hours trading following its earnings announcement. I think that's the smallest move after an earnings announcement from Apple I have ever seen. Apple is now a boring blue chip stock...
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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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If Friday wasn't sufficiently convincing, today's market action confirmed the strong hold on this market by the bulls. SPX opened this morning and traded lower, hitting $1966 around 11 am ET. But support is in the $1950 to $1960 range; it didn't even challenge support. SPX recovered most of those losses, closing at $1974, down $5 on the day. RUT closed at $1147, down $5. Volatility rose a bit with the VIX tacking on a quarter point to 12.8%.
No economic news of any significance was scheduled for today. CPI and existing home sales come out tomorrow.
There are certainly plenty of solid economic reasons for this market to not be this strong, but...
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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.
