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The jobs report came in with 288 thousand jobs and the unemployment rate dropped to 6.3%. The market popped on the news; SPX jumped very close to all-time highs at $1891 within the first 45 minutes of trading. But then we looked closer at the numbers, and the market pulled back.
SPX closed down $3 at $1881, but RUT gained $3 to close at $1129 (RUT is still trying to dig out of its hole). The VIX contracted a bit more to 12.9%. Trading volume also dropped with 1.9 billion shares of the S&P 500 stocks trading. Trading volume fell 6% on the NYSE and dropped 10% on NASDAQ. The underlying reason for the declining unemployment rate is what has driven it lower for the past several years - the Labor Force Participation Rate continues to fall. With this report, it hit a 36 year low at 62.8%. The true unemployment rate continues steady at about 11%.
So why didn't the markets collapse as so many have been predicting for so long? First of all, corporate America has figured out how to cut people and other costs and continue to make money in the midst of this recession. And let's stop kidding ourselves; this is a recession. Millions of people are not only out of work, they have given up looking for work. Food stamps recipients are at all time highs. Secondly, the Fed is still supporting this market through quantitative easing and extremely low interest rates. This provides a floor for the market, but it doesn't give traders much reason to be very bullish.
My May iron condor on RUT at 1060/1070 and 1210/1220 stands at +3% with delta = +$49 and theta = +$149 on 20 contracts. Now that we are down to the last two weeks, theta will start to really kick in for this position. We would be even more profitable if not for repeatedly hedging our put spreads. My June iron condor on RUT at 1040/1050 and 1220/1230 is already at +5% with delta = +$9 and theta = +$75 on 20 contracts. This position is nearly perfectly delta neutral.
Enjoy your weekend. Unfortunately, we are still dealing with 40 and 50 degree weather here in Chicago. And I received my property tax bill today; remind me. Why do I live here? Inertia?
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The FOMC announcement after its meeting has become even more prominent and scrutinized since the beginning of quantitative easing. Today was no exception with lots of special programming on CNBC and every guest being quizzed about the Fed and the tapering of the QE program. The announcement was a yawn - same ole, same ole. The tapering continues at the rate of a ten billion dollar reduction after each fed meeting and interest rates will remain effectively at zero for the foreseeable future. Many thought this morning's shocking GDP number for the first quarter, +0.1% as compared to the fourth quarter +2.6%, might cause the Fed to blink. But they chalked it up to winter storm effects and moved on.
The markets were basically trading sideways before the announcement and nothing really changed after the announcement. SPX gained $6 to close at $1884 and RUT also gained $6, closing at $1127. The VIX dropped about a third of a point to 13.4%. SPX has been testing resistance at $1885 for several sessions now, so I will be watching for that break-out to confirm a bullish trend. On the other hand, RUT has been testing support at its 200 dma at $1113 for several sessions. I will be surprised to see SPX break through $1885 and begin to challenge the 2014 highs. This market's recent price action just seems to be choppy and sideways. The Fed should continue to serve as a base of support for the market, but it may be difficult to generate a new leg upward until the fall. The old "Sell in May" Wall Street adage may be starting early this year.
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During the month of March, SPX hit up against resistance around $1882 several times before breaking through on April 1st and set its closing high for the year the next day. Now it appears that $1882 to $1885 is again proving to be resistance for SPX to break out to new highs. SPX gained $3 to close at $1879 today, hitting $1884 intraday and pulling back. RUT lost $3 to close at $1144, well below the 50 dma at $1167. In terms of support and resistance, RUT is in "no man's land", unless you count the two day bounce back upward that ended April 9th at $1160. RUT continues to trade much weaker than SPX; it corrected deeper and has not bounced back with the strength we have seen in SPX.
Trading volume bumped up a bit today with trading in the S&P 500 stocks reaching the 50 dma at 2.3 billion shares. Trading volume increased 4% on the NYSE and increased 21% on NASDAQ. Probably much of NASDAQ's volume was in AAPL, NFLX and AMZN.
Durable goods orders increased 2.6% in March, up from February's 2.1% increase. Unemployment claims were a mixed bag this week with an increase of twenty four thousand in initial claims to 329k. But continuing unemployment claims dropped by sixty one thousand to 2.7 million.
Maybe the "Sell in May" historical trend has started early?
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These wild intraday market rides are becoming commonplace. But I am not becoming accustomed to these swings. SPX traded over $26 or 1.4% from today's high to today's low. RUT was even wilder with a 2.3% swing today. Amazingly, SPX closed for a $6 rise at $1869 after breaking down through its 50 dma at $1859 and trading as low as $1851 before recovering to close higher. RUT traded weaker than SPX once again and closed down $6 at $1117. RUT traded down through its 200 dma at $1112 and below its low from the last pull back. That wasn't a pretty sight; I was contemplating major surgery, but then it turned back higher. It takes a strong stomach to watch these extreme price swings. I was surprised to see that the VIX remained steady at 14%, unchanged on the day. Apparently those large institutional traders have nerves of steel.
Trading volume matched these huge price swings with 2.8 billion shares of the S&P 500 stocks trading; the 50 dma is at 2.3 billion and Friday's volume was 2.2 billion shares. Trading increased 20% on the NYSE and increased 12% on NASDAQ.
The only economic news of any import was the pending home sales report for March, which came in at an annualized rate of +3.4%, up significantly from the previous month's -0.5%. Most traders are watching for the announcement from the FOMC on Wednesday and Friday's jobs report. Today should have been a slow trading day as traders waited for those events, but it was wild - so what will happen when we have some real news? And I have long since given up predicting what will move this market. Will a strong jobs report unleash the bulls or the bears?
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The old saying goes, "Markets take the stairs up but the elevator down." For the last 18 months or so, we need to revise that saying to: "Markets now use the elevator in both directions." Consider the last pull back. SPX lost $75 or 4% in 7 trading sessions, but had recovered $64 or 85% of those losses in just 6 trading sessions (through yesterday). Today, SPX finally decided to take a breather, giving up $4 to close at $1875. RUT has been on a hot streak higher as well, but it lost about twice as much as SPX and has recovered only about half of that loss through yesterday's close. Today, RUT also cooled a bit, losing $9 to close at $1147. Volatility has remained about flat with the VIX steady at 13.3%.
New home sales tumbled for March, dropping from an annualized rate of 449k to 384k. This was in contrast to yesterday's flat numbers for existing home sales.
This earnings season has been modest thus far, not enough to get the bulls or the bears too fired up. But with the Fed continuing to pump money into the market and hold interest rates down, one has to give the nod to the bulls. It would be nice to see some significant improvement in the jobs market; we get the weekly unemployment claims tomorrow, but that number has a lot of noise in it and requires several sessions to confirm a trend. Lately, it has been moving roughly sideways - not worse, but not significantly better either.
Will AAPL push the market higher tomorrow? It looks pretty strong in after hours trading.
The period of May though October has historically been a pretty flat, sideways market. Most of the market's gains have come in the November through April period. Could we be seeing the beginning of a sideways, choppy summer or do we have some more upside zip left in this market?
