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The non-farm payrolls report, aka, the jobs report, was released before the market opened this morning, and it appeared to be roughly in line with expectations with +192 thousand jobs and the unemployment rate remaining unchanged at 6.7%. The S&P futures rose a bit and the market opened an hour later with the S&P 500 up about $7, hitting its high for the day at $1897 around 10:30 am ET. Then the other shoe dropped. All of the broad market averages began a steady decline for the balance of the day. SPX closed down $24 at $1865. But RUT was much weaker, closing at $1153, down $28. Early indicators were for a significant increase in trading volume with a 32% increase on the NYSE and a 29% increase on NASDAQ. But volatility didn’t increase as much as one might expect, with the VIX closing at 14.0%, up 0.6 points.
This raises the question: Is this the long awaited correction or is it just the expected round of profit-taking after such a strong bull market? I am inclined toward the latter view for the following reasons:
SPX lost 1.3% today, but RUT lost 2.4% - small caps were being sold preferentially.
SPX lost 1.3% today, but NASDAQ lost 2.7% - high tech winners and momentum stocks like NFLX were being sold preferentially.
SPX took a large loss today, but didn’t even attempt to challenge strong support levels at $1840 and $1850.
RUT hit $1150 as its intraday low today, well above the recent pull back low and the support level set by the late December high.
VIX was up less than one percentage point and closed just under 14% - the big institutional traders aren’t hedging very strongly, if at all.
IBM closed today’s trading at $192, only down one dollar in this market.
Today was full of red ink, but RUT has been trading weaker than the rest of the market for the past couple of weeks; it never did approach its all-time highs earlier this week as SPX was setting records. RUT has been showing us weakness in the small cap space; but the question remains whether the small cap sell-off leads to more general market correction. I am encouraged by VIX remaining low today and stocks like IBM showing relative strength. We'll see.
Enjoy your weekend.
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SPX set a new all-time high yesterday and set another high today, rising $5 to close at $1891. RUT rose $4 to $1193. As I noted yesterday, RUT is lagging its big brother; for RUT to set a new high, it will have to trade above about $1210, still another $17 higher. So RUT has returned to the middle of its previous trading range, but SPX is in rarefied air. The VIX was unchanged today at 13.1%.
Trading volume dropped off today with 2.0 billion shares of the S&P 500 stocks trading. Trading declined 5% on the NYSE and increased 2% on NASDAQ. Trading volume in the S&P 500 has only exceeded to 50 dma twice since the beginning of March. We are trading higher, but cautiously.
ADP released their estimate of private payroll changes for March today at 191 thousand new private jobs. The other positive news was an increase in factory orders of 1.6% in February, as compared to the one percent decrease in January. That, of course, was good news for the market and helped continue the rally. It seems like the only thing that might slow this rally would be a dismal jobs report on Friday. For now, it's full speed ahead.
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The markets have been like a ultra-fast hockey match and my neck is getting tired trying to follow it back and forth. That is a little facetious because many of my trades benefit from this sideways trading range. SPX has looked pretty solid lately, but RUT's decline was a bit worrisome. But the markets were happy with Yellen's comments today and so all is well - but, really, did you learn anything new? All we can do is watch for a break-out in either direction and trade accordingly. SPX gained $15 today, closing at $1872. All of that gain was accomplished in the first thirty minutes of trading; then SPX just chopped sideways for the rest of the day. But RUT applied some big-time salve today, regaining $21 of recent declines, closing at $1173.
Volatility dropped off a bit (but it never rose very much) with the VIX closing at 13.9%, down a half point.
Now that we have Yellen's testimony behind us, we are looking forward to Friday's jobs report. But it is becoming clear (to me at least) that this market is most likely going to find a reason to trade higher regardless of the actual data in the jobs report. I can hear the cynics out there saying that this is exactly the way the market behaves just before it goes over the cliff. Maybe, but I don't think the economy is that bad. I don't think it is good by any means. And I am amazed at how the media have all donned rose colored glasses since Obama entered office. Remember the continuous stream of negative news stories about three dollar gasoline when Bush was in office?
I think this is an excellent environment for the classic diagonal bull call spread. And if you add a put, I think it is pretty safe from the possible correction event.
The bottom line: watch for SPX to break $1840 on the way down or breaking $1885 to make new all-time highs. In the meantime, play sideways to slightly bullish trades.
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The markets appear to have broken through the upper resistance levels to set new highs today; I will feel more confident about that statement if we hold these prices tomorrow. SPX closed up $13 at $1886, eclipsing earlier closes this year at $1878 and even the intraday highs around $1884. RUT followed suit with a large increase of $16 to close at $1189, but remains far from its earlier highs around $1209. Much more damage was done to RUT from March 24th to the 27th. RUT fell completely out of its consolidation trading range whereas SPX managed to hold support levels.
Volatility continues to fall with the VIX losing almost a full point to close at 13.1%.
Part of the market's enthusiasm probably came from the ISM manufacturing survey that rose in March to 53.7 from 53.2 and construction spending increasing 0.1% in February versus January's 0.2% drop. These aren't huge numbers by any means, but the sum effect of recent comments from Yellen and assurances that the Fed has the market's back are being taken as very bullish. It is hard to argue with that viewpoint. When I drive around my area and see the large number of vacant storefronts and evaluate the "real" unemployment data, I believe that tells a different story. We may be able to argue about the underlying economics, but I can't ignore the obvious bullish nature of this market.
The Apr 1100/1110 put spreads I entered on 3/24 have boosted my April iron condor to a gain of $3,440 or +22% on the capital now at risk (I closed the Apr 1270/1280 call spreads on 3/24). I opened my May position with the 1060/1070 put spreads on 3/28 and that position is now up 7%, so May is off to a good start. The question now is whether this market will ever pause long enough for me to sell May call spreads.
So now we continue to watch to see if this bull can continue. I may be skeptical, but I have to play what I see.
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The broad markets continue to basically trade sideways. SPX toyed with support at $1840, but bounced back and closed at $1849, down $4 on the day. RUT also lost $4, closing at $1151. But RUT has traded much weaker than SPX. RUT has sliced down through $1182, the high set in January, then through $1165, the high from December, and finally broke through the 50 dma at $1163. Today's candlestick on RUT had moderately large upper and lower shadows, suggesting some indecision between the bulls and bears. As long as support holds on the broader market as represented by $1840 in SPX, this may be a sign that RUT is beginning to find a bottom.
Trading volume was up a bit, but mixed today with 2.5 billion shares of the S&P 500 stocks trading. Trading also rose in the NYSE by 8%, but trading volume declined 7% on NASDAQ.
Initial unemployment claims dropped by ten thousand to 311k and continuing claims decreased by 53 thousand, so that is encouraging. The third estimate of fourth quarter GDP came in a little higher at 2.6% (why can't we wait until we get it right and announce it once?). Pending home sales dropped 0.8% in February, a further decline from January's -0.2%.
The situation in the Ukraine doesn't appear to be improving, so I suppose that could push the markets lower. But if the stalemate continues, the markets may simply move on - hard to predict.
