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If you listen to the talking heads and gurus on CNBC, you would think that today's huge rally on the report of a reduced unemployment rate was very predictable. The reality is much different. The Non-Farm Payrolls report, aka the jobs report, cited 230k new jobs and a reduction in the unemployment rate to 7.0% from 7.3%. You might have reasonably thought that would revive the talk of the Fed tapering their stimulus programs and resulted in a market sell-off. After all, earlier this year, we had a rather sudden market pullback when members of the FOMC dared to even discuss the future possibilities of tapering at a time when the unemployment rate was quite a bit higher than it is now. It's the old marketing hype game: Sound confident as though this was all obvious and predictable and your loyal followers will increase in number. Unfortunately, it works.
At a recent trading conference, I picked up a handout from one of the speakers. He plotted the future price charts for the major stock indexes, gold, silver, and several prominent ETFs - about 8-10 in total. I placed that handout on my desk and marked the actual prices on each of the charts each month. At the end of three months, he was not only wrong on every chart, he wasn't even close. But he is selling subscriptions to his services.
SPX gained $20 to close at $1805, erasing about three of the past five days of declines. RUT was more subdued, rising $9 to close at $1131. Predictably, volatility decreased with the VIX coming in at 13.8%, down 1.3 points. SPX is now within striking distance of its recent intraday high of $1814, but the corresponding recent high for RUT was $1147, or $16 higher than today's close. So the high beta stocks were not leading today's big rally. That is why I didn't immediately run out and buy into a lot of bullish plays today. I will wait to see how next week develops.
The University of Michigan consumer sentiment report came out today with an increase from the previous result of 75.1 to 82.5 for Dec. But one has to be wary of these surveys. Just last week, the Conference Board's survey of consumer confidence didn't increase; it declined.
My Dec iron condor on RUT stands at a net P/L of +$1,350 or +8.5% with delta = -$81 and theta = +$180 (on 20 contracts). It will be interesting to see if this market rally follows through next week. I am doubtful.
Have a great weekend.
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Today's markets could not decide which way was up. SPX opened down and then quickly reversed to move into the black. But then SPX traded down steadily until early afternoon when it began to recover, closing at $1793, only down $2 on the day. RUT followed suit, trading as low as $1112 before recovering to close at $1121, down $2. All of this back and forth occurred on higher trading volume, with 2.4 billion shares of the S&P 500 trading today. Volume increased on both the NYSE and NASDAQ, +5% and +4%, respectively.
As you might expect, volatility also reflected this back and forth price action, moving as high as 15.7% and as low as 14.2%, before closing at 14.7%, up two tenths of a point on the day.
ADP's private employment report came out today with 215k new jobs. Some analysts are now wondering if this is an early indicator of a positive jobs report on Friday. But ADP has a spotty record of correlation with the jobs report. New home sales increased 90k to 444k in October. The ISM services index decreased to 53.9 for November from October's 55.4.
So where is that Santa Claus rally? Have we already gained too much this year and we will therefore spend the next couple of weeks consolidating those gains? Or is this just another minor pull back that the bulls will take as a buying opportunity and push on to new highs?
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Markets tumbled today as reports of Black Friday sales began to come in, and the early reports were weak. SPX was actually flat on the day with about 30 minutes to go into the close, but dropped $5 in that last half hour, closing at $1801, down $5. RUT behaved a bit differently, trading steadily lower as the day progressed, and hit its low of the day just a few minutes before the close at $1129, down $14. The fact that RUT traded off so much more strongly than SPX is a bearish sign, but one data point doesn't define a trend, or, in this case, a correction. Looking at the percentage increases in trading volume from Friday is meaningless because of the holiday, but the absolute trading volume in the S&P 500 stocks came in today at 1.9 billion shares, well below the 50 dma at 2.1B.
Volatility increased about a half point with VIX closing at 14.2%. The ISM manufacturing index came in at 57.3 for November, up from the previous month's 56.4. Construction spending for October increased 0.8%, an improvement over September's 0.3% decline. All in all, more mediocre economic data.
I hedged my Dec iron condor with the RUT Jan14 1135 calls over the holiday weekend just in case the bullish trend continued strongly this week as traders returned from the holiday. I sold those calls this morning. The position stands at a net P/L of -$180 or -1% with position delta = -$173 and position theta = +$199 on 20 contracts.
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Markets traded down again today, but this time on higher trading volume. SPX closed at $1795, down $6 while RUT closed at $1124, down $5. As one might expect, volatility is rising with the VIX closing up about a third of a point today at 14.6%. VIX broke 15% intraday. Russell's price action was particularly negative with a gap open downward this morning. Trading in the S&P 500 stocks increased to 2.2 billion shares, above the 50 dma at 2.1B. We haven't seen many S&P 500 volume numbers above the 50 dma recently. Trading on the NYSE increased 10% and trading volume on NASDAQ increased 8%. A gap open toward the downside plus higher volume combine for a significant bearish signal. However, we have seen this market reverse several times this year as the bulls suddenly took over control and pushed higher.
Economic data was sparse today. Some market analysts speculate the market weakness is due to concerns about the Fed tapering stimulus sooner rather than later. But if the markets had surged higher, I am sure they had the answer in the other coat pocket.
My Dec iron condor on RUT stands at a net P/L of +$1,680 or +12% with position delta = -$141 and position theta = +$141 on 20 contracts.
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Today was probably the beginning of the trader exodus before the holiday. But they were buying as they walked out the door. SPX traded unchanged, closing at $1803, but RUT surged upward $10 to close at $1135. Volatility is unchanged with the VIX steady at 12.8%. Trading volume remains below average, but was up slightly with 2.1 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE increased 12% and increased 3% on NASDAQ. The net result was a mixed bag, with SPX trading flat and RUT setting a new all-time high.
Traditionally, the period between Thanksgiving and New Year's has been bullish. This year, it seems most analysts are predicting at least a minor pull back, if not a serious correction. So it will be interesting to see if the market shows any weakness after traders return next week. For now, it all looks very bullish.
Building permits issued for September and October were released today at 974k and 1034k, respectively. The Case Schiller housing price index turned in another hot month with prices increasing on an annualized basis of 13.3%. The Conference Board's consumer confidence index dropped again in November to 70.4 from the previous 72.4.
We will probably see trading volume drop off significantly tomorrow and the exchanges will close early on Friday, so most traders won't be back until Monday.
Do you have your turkey? (I know you have him. I meant the one for dinner Thursday.)
