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After large gains on Wednesday, the markets stalled on Thursday and many began to question whether the
bullish rally was going to regain its previous steam (including me). But
today’s strong push higher has probably run over the few remaining bears. SPX
closed up $9 at $1818, another all-time high. Every time I write about a new
all-time high, I get more concerned about a correction. But shorting this
market or any of the market “darlings” has been painful so far.
RUT has traded more bearishly than SPX for
several weeks. Thursday was classic example, with SPX trading flat while RUT
gave back half of its gains from Wednesday. But the music changed today! RUT
gained $21 to close at $1146, just one dollar below its all-time high. RUT
moved
higher
by almost 2% whereas SPX moved up only one half of a percent. Trading volume was off the charts today with 3.2 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE was up 80% and up 67% on NASDAQ - wow! A bullish market plus options expiration conspired to stimulate a flood of trading.
Third quarter GDP was revised upward to 4.1% today and that surprise may have driven some of the bullishness. I will be interested to see if the markets can follow through next week or if we will continue to see the "on again, off again" trading of the last three days.
Enjoy your weekend. Men: the time is nearing to begin your Christmas shopping, but don't jump the gun. You still have a few days.
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Everyone was waiting on the Fed announcement and Bernanke surprised the market by announcing they are beginning to scale back the quantitative easing programs now. Not many analysts expected that. The initial market reaction was what one might have expected; the market traded down. But then it reversed and turned into a huge rally before the day was over with an increase of $30 on SPX, closing at $1811. RUT gained $15 to close at $1134. Volatility pulled back markedly with the VIX dropping almost two and a half points to 13.8%. As one might expect, trading volume shot upward with three billion shares of the S&P 500 stocks trading. Trading volume spiked upward 32% on the NYSE and increased 19% on NASDAQ.
Bernanke announced they would reduce the stimulus programs by ten billion dollars per month and will consider further decreases based on economic data. He speculated that the QE program may be completely phased out by the end of 2014. The Fed's assurance that interest rates will remain low may have reassured the markets, but that isn't new, so I am unsure why the market took off so strongly. Once again, the market has a way of giving us the unexpected.
Housing starts came in at 1091k for November, up over two hundred thousand, but building permits dropped thirty two thousand to 1007k.
Some are saying this is the expected Santa Claus rally. I suppose we will see. The size of this market increase seemed inexplicable on the basis of any of the economic data. Earlier this year, any discussion of the Fed reducing their stimulus was met with a market sell-off. Perhaps the interpretation this time is that the economic recovery must be much better if the Fed is taking this action. I will be interested to see if any follow through occurs tomorrow and Friday.
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Just when you think you have the market figured out, it will surprise you. After weak trading for most of the last week, I thought the most likely course would be quiet trading until the FOMC announcement on Wednesday. But the S&P 500 Index (SPX) opened up very bullishly this morning and hit its high for the day about 30 minutes later. It closed the day at $1787, up $11. RUT rallied upward by $13 and closed at $1120. Trading volume bumped upward with 2.2 billion shares of the S&P 500 stocks trading today. Trading on the NYSE increased 4% and trading volume increased 21% on NASDAQ.
It appears that the Fed watchers have decided nothing will be said about starting to reduce the FOMC's stimulus programs on Wednesday and so the buying spree may safely continue. However, it is interesting that the VIX actually moved up a third of a point to 16% today in an up market. So the markets may be trading upward, but many traders are feeling at least a little bit nervous.
The Empire manufacturing survey came in at +1.0 for November, up from the -2.2 report from October. Industrial production increased 1.1% in November and capacity utilization increased to 79% in November from the previous month's 78.2%. All in all, the economic data reported today were pretty good, but not sufficient for this strong market rally. I think market action now is almost always about the Fed.
I only have the RUT Dec 1030/1040 put spreads still open from the Dec condor. I will decide whether to close them on Wednesday before the FOMC announcement. The 1040 options are now four standard deviations OTM, so they are very safe in ordinary times, but with the Fed meeting...?
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Here we are again, waiting on the FOMC announcement. The Standard and Poors 500 Index (SPX) dropped off $6 to close at $1781, while RUT dropped $1 to close at $1119. Trading volume was flat to down with 2.1 billion shares of the S&P 500 stocks trading, slightly down from yesterday. Trading on the NYSE declined 1% and trading decreased 5% on NASDAQ. Volatility has been steadily increasing each for the past several sessions, from 13.5% on December 9 to today's close at 16.2%. This suggests that the big institutional traders are a little concerned about the market's reaction to the FOMC announcement tomorrow afternoon. And I am concerned after watching the VIX steadily rise each day; it even rose yesterday when the market rallied!
That was a significant part of my reasoning in closing the remaining 1030/1040 put spreads from my December condor. These spreads were over four standard deviations OTM, so they appeared safe and most likely would expire worthless this weekend. But I decided it made more sense to confirm a nice gain and stand aside until the dust settles. This completed the close of our December iron condor spread on RUT with a gain of $3,530 on 20 contracts or +25.6%.
The Consumer Price Index (CPI) issued today with a flat, unchanged reading for November. CPI and PPI have been turning in flat numbers for several months, but this doesn't seem consistent with my personal daily shopping. I don't have any structured data, but it certainly seems like many of my food staples have been rising in price.
Buy your popcorn and settle in for the FOMC show tomorrow afternoon. Will the Fed make noises about reducing quantitative easing and cause the market to tank? Or is that news already priced into the weak sideways trading we have been seeing? Or will the oft predicted market correction be triggered as everyone tries to lock in their gains for the year? Or will the Fed assure everyone that the party will continue? It should be interesting...
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Trading volume fell off today and the market averages didn't move much when all was said and done. SPX closed unchanged at $1775 and RUT gained $4 to close at $1107. Volatility continues to inch higher with the VIX gaining two tenths of a point to close at 15.8%. Trading in the S&P 500 dropped off to 1.9 billion shares. Trading volume on the NYSE dropped 14% and trading on NASDAQ declined 15%. SPX continues to hover in that support range of $1770 to $1780 while RUT appears to be tracking along its 50 dma at $1106.
The only economic news was the PPI report for November, declining 0.1%.
I closed the remaining 1150/1160 call spreads in my December iron condor position on RUT. This results in a current P/L of +$3,430 on 20 contracts or 21% on capital at risk. I will close the 1030/1040 put spreads next week before the Fed announcement. Who knows where that announcement may take the market?
Enjoy your weekend.
