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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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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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The day started very positively on the back of several positive economic reports. But the major indices started losing strength around 11 am ET and just continued to decline, closing near their lows for the day. SPX closed down $13 at $1950, barely higher than its low for the day at $1948. RUT traded in a similar pattern, losing $12 to close at $1173. Trading volume popped up with 2.0 billion shares of the S&P 500 stocks trading today; the 50 dma = 1.9B. Trading volume rose 13% on the NYSE and increased 15% on NASDAQ.
This morning the Conference Board's measure of consumer confidence hit its highest level since January 2008 at 85.2. New home sales rose 18.6% in May to an annualized rate of 504k, up from 425k. The Case-Schiller housing price survey turned in a positive 10.8% increase for April, but that was a decline from March's +12.4%. This economic data bolstered the case for the bulls during this morning's trading session, but then it seemed like it slowly fell apart. I am inclined to think many traders were primed to take their profits, and ran for the exits as the market hit new highs. But several market analysts attributed the market's weakness to the continuing crisis in Iraq.
The question for tomorrow's open is whether the selling spreads.
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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...
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This bull market is getting a little long in the tooth, but the bulls remain in charge. Even bad economic news is discounted. The bears have been unable to take advantage of any bad news. Perhaps a large part of the bulls' case is simply the Fed support. As long as billions of dollars are being pumped in every month, it is hard to make the bear case. In addition, one has to consider investment alternatives; where can you put your money to work? It could be argued that equities are the only game in town.
SPX traded slightly down essentially all day, but recovered to close unchanged at $1963. RUT lost $3 to close at $1185. Volatility remains low and unchanged with the VIX coming in at 11.0%, up only a tenth of a point. As one might expect after quadruple witching on Friday, trading volume fell off with 1.7 billion shares of the S&P 500 stocks trading today. But if one excludes Friday's spurt, 1.7B is back in line with recent months, running just under the 50 dma. Trading volume on the NYSE fell 56% from Friday and NASDAQ dropped off 31%.
The only significant economic news today was the annualized rate of existing home sales for May at 4.89 million, up from April's 4.66 million. Tomorrow brings Case-Schiller, consumer confidence, and new home sales. Wednesday brings the third revision of first quarter GDP. A surprise in GDP could move the market, but this bull market completely ignored the first estimate of a negative 1.5% growth. I remain cautious, but one has to play this market from the bullish side until we see it crack.
