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Incredible as it sounds, we received the worst unemployment report in decades this morning, and the market rallied. Traders are reasoning that the Fed will not dare accelerate their reduction of the quantitative easing programs, given such bad news. So the party continues.
The non-farm payrolls report, aka the jobs report, came out this morning and shocked everyone. Only 74 thousand new jobs were reported; economists were expecting over 200 thousand. The unemployment rate dropped to 6.7% because another 340 thousand people left the work force. The labor participation rate hit 62.8%, the lowest level since 1978. That's sobering because I suspect a good number of you weren't even born yet in 1978. The effects of ObamaCare can be seen in the average work week hours declining to 34.4. More and more companies are avoiding the high cost of ObamaCare by converting full time employees to part time.
SPX declined to its low of the day at $1832 around 11:30 am ET, but then recovered those losses to trade sideways until the last hour of trading, when SPX rallied to close at $1842, up $4. RUT tracked its big brother, closing up $6 at $1165. Volatility declined with the VIX dropping almost three quarters of a point to 12.2%.
This morning, I thought my January iron condor was out of the woods, or if I had a problem, it would be to the downside after that terrible jobs report. As the markets rallied this afternoon, I thought it prudent to close my 1175/1185 call spreads for $1.80. Assuming the put spreads expire worthless, this will result in a loss of $1,100 on 20 contracts, or -9.6% on capital at risk.
It almost seems like this market is bulletproof. That is ominous. But I will try to forget about all of that and enjoy the weekend with family.
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One of the traditional Wall Street historical measures is to predict the new year's market performance based on the first five days of January's trading. SPX started the year at $1846 and closed today at $1837. I am not a big fan of these stock almanac type of patterns, but I can't ignore them either. However, this year's first five days is more weak and sideways than bearish. It is certainly true that last year's first five days of trading did correctly predict a strong market, although with unprecedented price volatility.
SPX closed unchanged at $1837 and RUT was also unchanged at $1157. Trading volume was up a bit with 2.4 billion shares of the S&P 500 trading today. Volume increased 4% on the NYSE and increased 3% on NASDAQ. SPX traded to its low of the day at $1831 shortly after the open and then strengthened. The Fed minutes were released this afternoon and it seemed like the market slowly declined thereafter to nearly match the low about thirty minutes before the close; but a rally in the last few minutes brought SPX back to unchanged on the day.
My Jan RUT iron condor stands at a net P/L of -$1760 on 20 contracts or -10% with position delta = -$150 and position theta = +$440. The 1175/1185 call spreads remain squeezed, but the theta decay is helping more each day as we near expiration. I might manage to collect a small gain after all.
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Markets traded down today on increasing volume, but support levels aren't being broken; so one has to concede that control remains with the bulls, at least for now. SPX lost $5 to close at $1827, while RUT traded down $9 to $1147. Trading volume popped upward with 2.1 billion shares of the S&P 500 stocks trading today; the 50 dma = 2.0B. Volume increased 15% on the NYSE and increased 36% on NASDAQ. But one has to take these increases with a grain of salt, since we are coming off the low volumes of the holidays. Volatility declined slightly with the VIX closing down 0.2 points at 13.6%.
Economic data were mixed today with the ISM services index coming in at 53.0 for December, down from 53.9. But factory orders increased 1.8% in November, which was greatly improved over the half percent decline in October.
It is difficult to confidently say the bears have finally taken control of this market as long as support on SPX at $1810 continues to hold. But consider this: SPX broke out above resistance at $1810 (set back in late November and early December) on December 20. SPX then traded to a high of $1849 on 12/31. SPX has now given back $22 or 56% of that gain. We have a strong support level at $1810 that remains intact, but the bulls have given up a lot of previous gains at this point. It is enough to at least increase one's caution. Even more caution may be generated when you look at the RUT chart. RUT closed today at the late November high of $1147. RUT is already knocking at the door of its support level that is parallel to SPX's $1810. Small caps lead the bull market higher, but they also lead the bear market lower.
My Jan iron condor on RUT now stands at a net P/L of -$2,240 on 20 contracts or -13%, with position delta = -$29 and position theta = +$388. This position is now almost perfectly delta neutral with two weeks to go; as one can see from the theta/delta ratio, time decay is now strongly favoring the position. The danger to this position would be a large sudden move in either direction. A little sideways meandering would be ideal.
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The S&P 500 Index finally turned in a positive number for the new year, rising $11 to close at $1838. RUT followed suit with a ten dollar increase to $1158. Trading volume expanded with 2.2 billion shares of the S&P 500 stocks trading today; trading volume increased 11% on the NYSE but was flat on NASDAQ.
Volatility continued to decline with a little more than a half point drop to 12.9% on the VIX.
Today's gains were significant; SPX recovered about half of its losses since the first of the year in one day. Support at $1810 remains the level to watch for a pullback, while a break above resistance at $1850 would suggest a return to rally mode for the bulls. RUT has been trading in a more narrow range, bouncing off support at $1147; but it couldn't hold its high today at $1160. One of the market measures I watch is the difference between new highs and new lows on the NYSE. While that indicator was steadily declining toward the end of 2013, it appears to be rebounding the last two days. It almost seems as though the market hears all of the CNBC gurus predicting correction and is determined to defy the conventional wisdom. We'll see.
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The holidays, plus a snow storm, conspired to keep the markets churning largely sideways on low trading volume. SPX lost one dollar to close at $1831. RUT, by contrast, gained $5 to close at $1156. Trading volume dropped from yesterday's already low number to 1.7 billion shares of the S&P 500 stocks. Trading volume on the NYSE decreased 11% and also decreased 4% on NASDAQ. Monday should give us a better clue as to this market's direction.
Volatility pulled back by about half a point on VIX, ending the day at 13.8%.
There were no economic data reports of any consequence.
Enjoy the balance of the holidays. It's back to work on Monday!
