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Markets appear to be hitting resistance and hesitating. Next week may show us the new direction: either a break-out to resume the bullish trend or continued weakness and possibly a serious correction. SPX lost $4 to close at $1836 while RUT gained $3 to close at $1165. SPX traded weakly sideways to slightly higher most of the day, but weakened around 2 pm ET. Then SPX fell out of bed during the last 30 minutes and closed at its lows for the day. Volatility remains relatively low at 14.7% on the VIX. Trading volume was unusually flat for options expiration with 2.3 billion shares of the S&P 500 stocks trading, only slightly above the 50 dma. Trading volume was unchanged on the NYSE and up 8% on NASDAQ.
RUT settled at $1167.71 and SPX settled at $1841.85. RUT settlement was not an issue for me this month since I had closed my Feb put spreads on January 24th as the market started its pull back and then closed my Feb call spreads on February 3rd as the market started bouncing back so strongly. The net result was a 7% gain in what I considered a tough month.
As I study the charts, it looks like we are hitting our heads on resistance. We may see the tipping point next week - a resumption of the bullish trend or perhaps a sideways consolidation pattern. Some analysts are still calling for an even more serious correction, but that seems less likely given this strong recovery from the lows on February 5th. We'll see.
Have a great weekend.
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I just returned from the International Traders Expo in New York. It was a great conference and it gave me the opportunity to meet many of you. Thank you for making the effort to contact me. However, the downside was that I was so busy that I didn't write a single blog while I was in New York. Well, I'm back. Is the bull market back as well?
SPX closed today at $1840, up $11. It was another of the now familiar reversal days, where all of yesterday's decline was recovered in just one day. RUT also surged higher, gaining $13 to close at $1162. But the price action of the past four days is interesting; SPX seems to be having difficulty breaking through $1840. Just after the first of the year, SPX was trading in the range of $1830 to $1840, before breaking out to set a new high on January 15th, and then beginning the correction that ended over 6% down on February 5th. But it has been straight up since then. RUT has been trading in a similar pattern, attempting to break out above $1162. Trading volume was pretty flat today with 2.3 billion shares of the S&P 500 stocks trading. Trading volume fell 6% on the NYSE and increased 2% on NASDAQ. So trading volume doesn't really help us validate today's upward move.
Markets opened weakly this morning based on the HSBC China purchasing managers' index falling to a seven month low at 48.3 for February. But then traders latched onto the Markit private manufacturing survey with a positive report of growth in U.S. manufacturing. I am a little skeptical of a survey I have never heard of suddenly causing the market to pop upward. Other economic data released today was weak to poor. Initial unemployment claims came in at 336k, down just three thousand, while continuing unemployment claims rose by 37 thousand. Even worse, the Philadelphia Fed survey came in at a -6.3 for February, down from a positive reading of +9.4 in January.
I continue to be tempted to take the contrarian view on TSLA. Fortunately, I have resisted the urge. It just continues to run higher. Maybe TSLA is the market indicator - we are heading higher whether or not it makes sense.
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After four intense days straight up, the markets took a breather. SPX was unchanged at $1819 while RUT tacked on another $3 to close at $1133. SPX delivered a classic doji candlestick, the sign of indecision. This often suggests that the bulls and bears are approximately equally matched; this could be a tipping point to break higher or lower, or it could presage a period of sideways consolidation. The good news for the bulls is that the break-out above the 50 dma appears to be solid. RUT came within a couple of dollars of its 50 dma intraday but pulled back to close lower.
Trading volume fell off with 2.2 billion shares of the S&P stocks trading; trading on the NYSE dropped 10%, but trading volume on NASDAQ edged up 2%.
There wasn't any market moving economic data today. Treasury reported that we are going broke at a slower rate (the deficit, or the increase in debt, is lower four months into the fiscal year). I suppose that's good news.
If you are looking for a return to the strong bull market of 2013, I think that signal will be SPX breaking out above the previous high at $1850. We are a long ways from that happening, but a three day spurt like we had recently would do the trick. But before I rule out further declines, I would like to see RUT solidly above its 50 dma. My best guess is for some sideways consolidation trading, but my crystal ball is a little smudged.
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The markets opened lower this morning but then continued their strong bounce back higher with SPX gaining $11 to close at $1830 and RUT closing at $1148, up $15. Volatility was essentially flat with the VIX coming in at 14.1%, down two tenths of a percentage point. Trading volume was mixed today as the market spurted higher. Trading volume dropped 1% on the NYSE and increased 11% on NASDAQ. As of 5:30 pm ET, the S&P 500 volume data was not available.
If you are looking for economic data to account for this bullishness, you will search in vain. Initial unemployment claims rose eight thousand to 339 thousand, but continuing unemployment claims dropped off by eighteen thousand. Retail sales for January declined 0.4%, even greater than the 0.1% decline in December - since we aren't allowed to mention Christmas any more, maybe everyone stopped buying gifts.
SPX is now about $20 from its all time high and RUT solidly broke out above its 50 dma at $1139. GOOG, NFLX, PCLN, TSLA, and FB all achieved all time highs today. Of these stocks, I think TSLA and FB are the most significant because their fundamentals just don't support these price levels. But that is one of the characteristics of a strong bull market - it doesn't have to make sense; just buy; it's going higher.
Needless to say, this market bounce worries me. SPX corrected 6.1% at its intraday low on February 5th, but that was only on Wednesday of last week and SPX has gained $92 from that low. Could we be setting up the classic head and shoulders reversal pattern? On the other hand, we repeated this same pattern several times last year, with a pull back of 4-5% and then a quick reversal back to make a new high. But I remain cautious. Maybe this time is different?
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SPX easily broke through the 50 dma and closed at $1820, up $20 on the day. The 50 dma also coincided with resistance set by the highs back in late November and early December, so breaking that level so convincingly was significant. RUT gained $10 to close at $1129. Volatility continued to decline with the VIX closing at 14.5%, down almost a full percentage point. Trading volume increased today, further underscoring the upward move. About 2.3 billion shares of the S&P 500 stocks traded today. Trading on the NYSE increased 11% and trading volume on NASDAQ increased 10%.
RUT corrected more strongly than SPX, so it is still well below its 50 dma at $1139. From peak to trough, RUT corrected 8.4%, as compared to a 6.1% correction on SPX.
FOMC Chair Janet Yellen made her official debut with Congress today and generally portrayed herself as in line with Bernanke's policies; she didn't appear to be signaling much change to the current path of the Fed. She said that the current slow reduction in the Fed's stimulus programs will likely continue, barring no significant economic deterioration.
Now the question is whether the markets will simply run back up, break through the earlier highs, and continue the bull market run? That seems unlikely, given the weakness of the economy, but there I go again with rational analysis. This sharp "V" pattern of a sudden market decline followed by a sharp recovery reminds me of the several pullbacks of 2013. Last October, SPX dropped 5% in 15 trading days; the current decline took 14 days. In October, it only took six days to recover all of those losses. Today's close on SPX represents a recovery of 73% of the losses in this pullback in only four days. This just proves once again that it is hard to keep up with this volatile market (price volatility, not implied volatility). If you feel like this market is jerking you around, you aren't alone.
