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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 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.
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The bears appeared to be in control for a short time this morning. SPX traded as low as $1945 before recovering to close at $1957, down only $2. RUT followed suit, closing down $2 at $1181 after hitting an intraday low at $1172. Volatility is unchanged with the VIX closing at 11.6%. Yesterday I was surprised at the market overlooking the first quarter GDP debacle; this morning it appeared some traders had second thoughts, but it didn't take long for the bulls to reassert themselves. Shorting this market is dangerous work.
Initial unemployment claims were essentially unchanged this week with 312k, down from last week's 314k. But the continuing unemployment claims increased from 2.56 million to 2.57 million.
My July iron condor on SPX started 5/21 with spreads at 1760/1770 and 1950/1960. I hedged with Aug 1050 calls on 6/2 and closed the hedges on 6/11 for a net gain of $1,200. I closed and rolled the 1950/1960 calls to 2000/2010 on 6/6. Today I closed the 1760/1770 put spreads for a dime. This position is now roughly at break-even. I will sell new put spreads and push the position back into a profitable state either tomorrow or next week.
The last three days of price action appear to be establishing the area of $1945 to $1950 on SPX as support. Unless the bears can hold a close below that level, the bullish trend must be assumed to be unchanged. Perhaps a sideways consolidation is the most bearish price action possible in this market. But be careful, it could all change in a blink of the eye. Large and fast price fluctuations have become the new normal.
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Not much was going on in the markets today. SPX closed down one dollar at $1960, but traded throughout the day in a very narrow six dollar range. A little more action was happening with the small caps with RUT trading down to $1185, before recovering to close up $3 at $1193. The NASDAQ composite had solidly broken out to new highs last week and continued that push higher today, gaining $10 to close at $4408, another all time high. Can NASDAQ pull the blue chips higher? Volatility is roughly flat with a rise of three tenths of a point on the VIX at 11.6%. Trading volume returned to normal after Friday's activity associated with the Russell rebalancing. Trading volume in the S&P 500 came in at 1.8 billion, a half million shares below the 50 dma. Trading declined 15% on the NYSE and dropped 31% on NASDAQ.
The Chicago PMI may have thrown a little cold water on the market today, coming in at 62.6 for June, down from last month's 65.5. Pending home sales spiked up 6.1% in May, a big improvement from April's 0.5% increase. Economic data abound the rest of the week with the ISM manufacturing and services indices, the ADP private employment report, construction spending, factory orders, and, finally, the big daddy of economic reports: non-farm payrolls on Thursday morning (the exchanges are closed on Friday).
For now, it appears the bulls and bears are pretty evenly matched with SPX trading largely sideways for the past couple of weeks. Many analysts have been expecting a pullback or correction, but so far, no amount of bad news has been able to give the bears the upper hand. All we can do is trade what we see.
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Wow! First quarter GDP was revised downward to an annualized rate of -2.9%. I was surprised by the first estimate at -1.5%, but I assumed the revisions would take it back higher. It seems like the FOMC's downward revision of GDP for this year to +2.3% might have been too optimistic. If the GDP number wasn't enough, durable goods orders declined 1.0% in May, down from the positive 0.8% gain in April. But the bulls just shrugged it all off and traded higher from a just a few minutes after the open. Ignoring such a dreadful GDP report is truly amazing!
It is true that bull markets often behave just this way, continuing higher even in the face of negative news. But unfortunately, it never ends well. The euphoria will end, but it is hard to predict when or what will trigger the run on the exits. In the meantime, all you can do is trade what you see.
SPX opened at $1949 and traded lower for all of two minutes (two candlesticks on the one minute chart), but then it was higher all day long, closing at $1960, up $10. RUT closed up $9 at $1183. The VIX dropped a half point to close at 11.6%. Trading volume was mixed, but basically flat from yesterday, with 2.0 billion shares of the S&P 500 trading. Trading volume rose 6% on the NYSE, but dropped 13% on NASDAQ.
Unemployment claims will be reported tomorrow and the Michigan consumer sentiment report issues Friday. And the bears continue to hibernate...
