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Concern about the Russia/Ukraine conflict appeared to cause traders to take profits and look for safety. SPX closed down $14 at $1846 and RUT closed at $1176, down $7. As one might expect, the VIX spiked upward two points to close at 16%. At these levels of volatility, the market is on alert for lower prices, but this is still well short of the 18%+ levels that characterize the early stages of pull backs and corrections. Trading volume dropped off from Friday with 2.2 billion shares of the S&P 500 trading. Trading declined 12% on the NYSE and declined even more on NASDAQ at -17%.
The ISM manufacturing index reported a gain from 51.3 to 53.2 in February, but construction spending slowed at +0.1% in January as compared to a +1.5% gain in December. No significant economic news is due tomorrow. Wednesday brings the Fed's Beige book, ADP employment numbers, and the ISM services index. The weekly unemployment claims numbers come out Thursday, and the jobs report comes out Friday morning.
Markets forecast the future, so it isn't any surprise that the news from Ukraine is causing some angst. Depending on the turn of events there this week, these economic reports may not be terribly relevant to the market. The fact that today's market drop was somewhat measured and occurred with lower volume are positive indicators. But each day will be a new market.
My March iron condor has been adjusted and repositioned several times; at this point I have put spreads at 1120/1130 and call spreads at 1200/1210. It is a tight position as we move into the last two weeks of the expiration month. Most likely I will be taking a loss this month; the several adjustments have taken their toll. But the game isn't over yet.
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I enjoy roller coasters and fast cars, but I really don't care for that type of excitement in my finances. SPX opened this morning and shrugged off the weaker GDP number and proceeded to climb all day, hitting its high at $1868 early in afternoon trading, but then plunged to its low of the day at $1848 just after 3 pm ET - a $20 drop in about 90 minutes! In the last 45 minutes of trading, SPX recovered much of the earlier loss and closed at $1859, up $5 on the day. RUT behaved similarly, but wasn't able to recover the afternoon losses. RUT closed down $5 at $1183. Volatility ran both up and down throughout the day, but ended unchanged with the VIX at 14%. Trading volume was up strongly with 2.5 billion shares of the S&P 500 stocks trading today. Trading volume rose 13% on the NYSE and increased 22% on NASDAQ.
The latest revision to the fourth quarter GDP number dropped from the earlier +3.2% to +2.4% - a big drop, but at least it is still in growth mode. The Chicago PMI came in flat for February at 59.8 and the University of Michigan consumer sentiment survey rose a bit in February to 81.6 from 81.2. Pending home sales increased 0.1% in January, a big improvement from December's 5.8% drop.
This market is certainly bullish on virtually any measure, but it remains nervous. The hesitation over the past couple of weeks before SPX was able to break out to new highs is one data point. Today's sell-off going into the weekend is a second data point.
I am going to put this week behind me and take my honey out to dinner. I recommend you do the same.
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As the shooting star suggested yesterday, the market largely traded sideways today with SPX closing down $2 at $1845 and RUT pulled back one dollar to $1174. Today's candlestick was a spinning top, which suggests indecision or a balancing of the bulls and the bears. Neither group is dominant.
Analysts appear to be in two camps. One the one hand, the bulls are touting all of the reasons for the bullish trend to resume and fully expect the markets to break out any day. The other camp is looking for what they regard as the overdue correction of 10% or more. For what it's worth, I believe the market is more likely to be bullish or, at worst, trade sideways as long as the Fed is actively involved. Those who are looking for correction after a +30% year in 2013 are forgetting about the Fed's both strong and unprecedented support of this market. Today's price action reaffirmed the strength of resistance at $1850 on SPX. I wouldn't be too alarmed on the downside until SPX broke its 50 dma at $1817 (and there is solid support at $1810).
Trading volume dropped off from yesterday with 2.3 billion shares of the S&P 500 stocks, right at the 50 dma. Trading dropped 6% on the NYSE and declined 2% on NASDAQ.
Interestingly, the VIX dropped a little over a half point to 13.7% in spite of the market being slightly down today and unable to hold its intraday highs yesterday. This suggests the large institutional traders remain confident that the overall bullish trend will hold and that position may be the high probability bet.
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This morning was puzzling. The index I consider most representative of the overall market, SPX, was only up one or two dollars but RUT (the small cap index) was up $16 at one point. SPX pulled back to close unchanged at $1845 while RUT lost about half of its intraday gains to close at $1182, up $8. Normally, one expects the small caps to lead bull markets higher, so seeing RUT gain strongly was clearly bullish. But, what is wrong with SPX? Why can't it break through resistance? In fairness, RUT ended the day right at resistance. So you could argue that RUT was pulled back in line. Trading volume was slightly higher with 2.4 billion shares of the S&P 500 trading. Trading was up 7% on the NYSE, but was down 1% on NASDAQ.
SPX has been trying to break out to new highs for the past two weeks, but so far they have been futile attempts. This week has been even more tantalizing for the bulls with highs at $1859, $1853 and $1853, respectively, on Monday through Wednesday. The closing high this year was $1848, but the market has been unable to hold highs above $1848. Analyzing the candlesticks on SPX yields a classic case of indecision, or an equilibrium between the bulls and the bears. Monday's candlestick was a shooting star, followed by a spinning top and today's doji. The longer a market trades sideways, the greater the probability of a fast, strong move when something finally trips the market. The market may behave like a coiled spring; when finally released, it takes off. It is also worth noting the resistance levels being suggested by the long upper shadows at $1853 to $1859. Each of those moves has added strength to resistance at $1848.
RUT has been trading more strongly than SPX with higher closes each day this week. In one sense, RUT is catching up to SPX. Whereas SPX rose from its low on February 5th and appeared to slow as it neared resistance about two weeks ago, RUT just returned to its previous highs today; today's close was one dollar higher than the highest close on RUT this year.
The report of higher new home sales this morning appeared to set off the bullish run; new home sales were up to 468k for January, as compared to 427k in December. But it is unclear to me why the rally was principally in the small caps.
Volatility rose almost one point with the VIX closing at 14.3%. This level of volatility is certainly not bearish, so the inability of the markets to shake off January and break out to new highs is not too concerning to the market - yet.
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The markets traded up strongly almost all day. The "almost" raises the question of whether this really was the break-out everyone was expecting to signal resumption of the bull market. SPX closed at $1848, up $11, and RUT gained $10 to close at $1175. SPX traded up all morning, hit its high for the day at $1859 around noon ET, and then slowly declined in the afternoon. But the last half hour of trading was tough, slicing $8 off of the index. RUT behaved similarly, hitting a high of $1180, but closing down $5 from the high. Neither SPX or RUT are displaying a textbook shooting star candlestick, but they certainly have the essence of the shooting star with a strong bullish run higher, ending with the bears pulling the price back down. Trading volume was higher today with 2.8 billion shares of the S&P 500 stocks trading. Trading volume rose 10% on the NYSE and rose a tepid 1% on NASDAQ.
I look to higher than average trading volume to confirm whatever price move occurred. Today's action is not so clear. Does the increased volume underscore the strong move higher or the pull back late in the day? The one thing that is clear is that this wasn't the clean break-out higher that bullish analysts were wanting to see.
There wasn't any significant economic news propelling this bullish run today, so one has to wonder what tomorrow will bring? At least for the last half hour today, the bears were making their case. But one has to give the benefit of the doubt to the bulls. After all, they have driven this market all the way back from the 6% correction on February 5th in only 12 trading days!
