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The FOMC announcement and the first news conference for the new FOMC Chair, Janet Yellen was the big news today. The markets basically treaded water all day, waiting on the FOMC announcement. The announcement wasn't surprising: The reduction of Fed stimulus continues and interest rates will continue to be near zero for the foreseeable future. No really new news could be found there. But the news outlets focused on the markets' spike downward for a few minutes during Yellen's news conference. It was a tempest in a teapot, but I suppose it made for "exciting new commentary". I find it fascinating that many people apparently expect the Fed to predict where all economic data will fall, and on what date, and therefore what action the Fed will take at that time.
SPX dropped as low as $1850 this afternoon, but rebounded to close at $1861, down $11. RUT traded off by $9 to close at $1196. Volatility increased a bit with the VIX closing up a half point to 15.0%.
Trading volume rose with 2.1 billion shares of the S&P 500 stocks trading today, but it remains below the 50 dma of 2.4B. Trading on the NYSE rose 17% and volume increased 3% on NASDAQ.
SPX has hit highs of $1874 three times in the past five sessions and pulled back. That appears to be a moderately strong resistance level. But breaking out above $1880 would be the definitive signal of a resumed bull market. We remain at a tipping point for the markets.
My RUT Mar 1170/1180 and 1200/1210 iron condor remains on the edge; I am only trying to moderate the loss at this point.
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To my surprise, Putin played nice this morning and the markets were relieved and rallied almost non-stop all day. SPX gained $13 to close at $1872. RUT traded even more strongly, closing up $17 at $1205. But trading volume was weak with 1.8 billion shares of the S&P 500 trading (the 50 dma = 2.4B). As expected, volatility dropped off with VIX losing a little more than a point to close at 14.5%.
RUT's stronger behavior over the past few days seems to suggest the classic "risk on" trade is in play. Of course, that is fuel for those pointing to a bubble and a needed correction. But so far, those bears have been run over.
The real estate market continues to heal; housing starts for February came in flat at 907 thousand. Building permits surged from January's 945k to 1,018k in February. The Consumer Price Index (CPI) came in flat at +0.1%. That sure doesn't compute for me. It seems like all of my personal budget costs are higher, from food to fuel. But the CPI suggests prices have only risen 1% over the past 12 months. It isn't surprising that one of the articles in the news today was titled, "Feds Claim CPI Up Less Than 1%". I think we have lost faith in our government telling us the truth. Maybe like 6% unemployment?
Tomorrow's big market event is Yellen's first news conference. It is likely to continue the stock market's love affair with the Fed.
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I am late with yesterday's blog due to travel and other commitments.
In earlier blogs, I
noted the declines in the Russell 2000 Index (RUT) as SPX traded sideways or
higher, and said that could be the early warning signal of market weakness, or
the “canary in the coal mine”. Apparently, it was.
SPX tried to rebound Friday morning after Thursday's big drop, but couldn’t
manage to get back above $1850, closing down $5 at $1841. Friday’s intraday high
on SPX was encouraging, but the fact that bulls could not hold those highs is a
negative. Evidence for the bottom having been reached comes from RUT, closing higher by $5 at $1181. But traders have to be concerned about what may happen over the weekend
in the Ukraine.
The volatility index, VIX, has spiked higher over the past two days,
hitting its high for the week Friday afternoon at 18.2%. Perhaps more ominously,
VIX closed at 17.8%, near its high for the day, another sign of traders’
concerns going into the weekend.
Global markets were all down this week, so it isn't surprising for our markets to also reflect that weakness. One technical indicator stands out on the SPX chart: the MACD crossed zero moving downward on Thursday. This signal last triggered on January 7th, and that turned out to be a leading indicator for the correction that culminated with an intraday low on February 5th.
Forget about the Ukraine until Monday morning. Enjoy the weekend.
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Crimea votes to secede and Russia immediately recognizes the new country (with 20k troops on the border). And the markets rallied this morning - a little surprising. SPX opened this morning and hit its high for the day ($1862) within just a few minutes, but it didn't trade off much, closing up $18 at $1859. RUT gained $7 to close at $1188. Putin will speak to the Duma early tomorrow morning our time; that may be a market-moving event - hard to predict.
Most market analysts attributed today's rally to short covering. But it didn't fade away in late trading, so that may not be the full explanation. It seems to me that both the bull and bear camps have good cases to make. The bulls have the Fed on their side and can point to reasonable market P/Es. The bears have the "too far, too fast" argument for a correction, weak economic data, and, to counter the S&P P/E argument, the S&P 500 dividend yield is very low (average is 4.4% and we are at 1.9%). The Fed's stimulus programs may tip the scale for the bulls.
The Empire manufacturing survey reported 5.6 for March, up from February's 4.5. Industrial production increased in February from January's -0.2% to a positive 0.6%. Capacity utilization increased slightly in February to 78.8% from 78.5%.
Watch the S&P futures in the morning. I expect they will be moving, based on Putin's saber rattling or more conciliatory pose. Did you see the video of the Russian TV newscast with the anchor threatening to turn "the U.S. into radioactive ashes" with a photo of a mushroom cloud as a back drop? And you thought our right wingers were radical?
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When I checked the futures this morning, it looked like we
would see a modestly positive open, and that is exactly what happened. But that
positive note only lasted about an hour before the slide began. SPX hit a low
of about $1842 about 45 minutes before the close and then bounced a bit to
close at $1846, down $22 for the day. RUT closed off $15 at $1177. As you might
expect on a day like this, volatility spiked up almost two points, with the VIX
closing at 16.2%.
Trading volume spiked upward today, reaffirming the big bearish day. Trading in the S&P 500 stocks increased to 2.4 billion shares. Trading volume increased 10% on the NYSE and increased 12% on NASDAQ.
Today’s price action in RUT and SPX was the classic “outside day” on the bar chart or a
bearish engulfing pattern in candlestick analysis. Either way, this is a strong
warning of a possible move lower. RUT’s slow decline from March 5th through the 11th was indeed the “canary in the coal
mine”. Now the question is whether the bulls will just jump back in tomorrow
and drive the market higher as they have done so many times over the past year.
Take a look at the RUT chart and March 3rd in particular. The price action that day was very similar to today's, trading to an intraday low and then bouncing to close at $1176 (today's close was $1177). But then RUT shot up over $22 the following day. So I will be watching the markets very closely to see if we are really entering a correction or if the bulls are going to pull another whip saw on us.
