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After SPX closed at a new all-time high on Thursday, everyone was ecstatic. But SPX gave it back today, closing down $7 to $1562. It could have been worse; about 20 minutes before the close of trading, SPX traded as low as $1558, but rebounded a bit into the close. RUT traded down even more sharply with a $13 loss down to $939 (a 1.4% loss versus a 0.4% loss). Today's close put SPX firmly back into its former trading range, but RUT dipped a bit below its trading range, down as far as $935 before recovering to close right at the bottom edge of the trading range of the past three weeks. Surprisingly, trading volume sunk even further, with 1.9 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped off 22% and trading volume on NASDAQ decreased 7%. Maybe traders took Monday off to extend the long weekend.
The ISM Manufacturing Index reported out at 51.3 for March, a decline from February's 54.2. Analysts were expecting it to remain flat. Readings above 50 indicate that more manufacturers are expanding rather than contracting. The new orders portion of the ISM Index was even more disheartening with a decline from 57.8 to 51.3. Perhaps this news, together with fewer traders on the floors, contributed to today's pullback. It will be interesting to see if there is any follow through lower in tomorrow's markets.
VIX popped up nearly a full point to 13.6%; this modest increase in volatility doesn't support the idea of a big correction starting to take hold.
My Apr iron condor on RUT stands at a loss of 7% with position delta = +$32 and position theta = +$105. All in all, I am inclined to think this market will continue to trade within the range it has defined over the past three weeks. This Friday's jobs report may be an important signal. If the market continues sideways or higher on a mediocre report, the bulls are still in charge (or should I say the Fed continues to hold the market up?).
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SPX tried to break out to new highs this morning, only to be pulled back, but then the bulls reasserted themselves and SPX closed up $6 at $1569, a new all-time high for this index. RUT was more muted with a one dollar increase to close at $952. VIX dropped a half point to 12.7%. Trading volume bumped up a bit to 2.3 billion shares of the S&P 500. Trading on the NYSE was up 22% and trading on NASDAQ was up 13%. With tomorrow's holiday, the exchanges will be closed, so today was the last trading day for the quarter. That explains the increase in trading volume as institutional managers positioned their funds for the end of quarter statements. If this was the usual "window dressing" by fund managers, then we may see a bit of a pull back on Monday.
Today's higher close on SPX was a break-out of the recent trading range from $1550 to $1565. But I'm skeptical that will hold. Look at RUT. This index of small and mid-cap stocks has also traded in a tight sideways range for the past 2-3 weeks, from $940 to $955. But RUT has been much more quiet as SPX continues to make these highs. Normally I would expect to see RUT leading the bullish charge.
Initial unemployment
claims came out this morning at 357k, up from last week’s 341k. Continuing
unemployment claims dropped 27k from last week. Fourth quarter GDP came in at a
modest growth of 0.4% annualized, and the Chicago PMI reported out at 52.4 for
March, down from 56.8 in February. These economic data reinforce the case that this bullish market is built on the
FOMC, not economic fundamentals. Our economy is slowly recovering, but it
certainly isn’t in the boom mode that this bullish market run might suggest.
So we wait to see what April brings. It is worth considering that the past three Aprils brought significant downdrafts in the markets... interesting.
Enjoy your long weekend.
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The markets opened in positive territory this morning, but then seemed to stall and trade sideways. Around 1 pm ET, SPX began a slow but steady climb upward, closing at $1564, up $12 on the day. This is the fourth day in the last nine sessions of trading that SPX has come very close to its all time high just above $1565. So tomorrow's trading will be interesting - break-out or fake-out? RUT has been trading in a much more muted fashion than SPX the past several sessions. RUT was unchanged much of today, but traded higher in the afternoon, closing up $4 at $950.
One can draw a pretty clear trading range from $940 to about $955 on the RUT chart. But there have been very few closes near the bottom of that trading range during the past nine trading sessions. The corresponding trading range on SPX has been about $1550 to $1560, but the daily price ranges have been much larger. Take last Thursday and Friday for example. On Thursday, SPX dropped $13 or 0.8%, only to retrace almost all of that the next day with an $11 gain or 0.7%. By contrast, RUT lost $3 or 0.3% last Thursday and gained $2 or 0.2% on Friday. That makes for an interesting observation, but what does it mean? Normally, I think of the mid and small cap stocks (represented by RUT) as the "risk on" stocks, trading up strongly when we are bullish and trading down strongly when we are spooked. On that basis, perhaps this relationship of SPX and RUT is just one more indicator of traders' collective nervousness as we reach for all time highs on SPX.
The low levels of trading volume support that thesis. Only two billion shares of the S&P 500 stocks traded today and trading volume declined 12% on the NYSE; trading fell off 13% on NASDAQ. It is certainly true that the bulls have effectively shrugged off the Cyprus Banking bad news, but that doesn't mean traders are euphorically bullish and buying with both hands.
Today's batch of economic news was mixed: durable goods orders jumped 5.7% in February, up from a decline of 3.8% in January. The Case-Schiller Home Price Index increased 8.1% in January, up from a 6.8% gain. But, on the other hand, consumer confidence dropped to 59.7 in March, down from 68.0; new home sales came in at 411k for February, down twenty thousand from January. Perhaps this data contributed to most of today's sideways trading.
My April condor remains underwater by 9% with position delta = -$8 and position theta at +$95. Watch for tomorrow's open on SPX. If it opens higher, don't be surprised if that triggers some profit taking. This market is bullish, but nervous.
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The Standard and Poors 500 Index (SPX) opened weakly this morning and immediately traded down to the low of the day at $1552. But then those super-resilient bulls pulled the market back up to close near its open at $1563, down only $1 on the day. RUT closed unchanged at $950. Volatility edged up just a bit with the VIX at 13.2%, up only 0.4 points.
The SPX candlestick today was a dragonfly doji, often a trend reversal signal at the top of the bullish trend. The theory is that it shows the increasing weakness of the bulls, even after allowing the price to drop so far, even though they succeeded in pulling it back up. It is hard to be very confident about a prediction of a trend reversal or pullback of any kind. This bullish run has confounded many analysts. But the longer we trade sideways, I think this makes it less likely that we see a violent correction. Just chopping sideways for a few weeks will burn off the excesses.
Trading volume remains low with two billion shares of the S&P 500 stocks trading; volume on the NYSE rose 5% while trading dropped off 2% on NASDAQ. In fact, you can draw a pretty good downward trend line on the S&P 500 trading volume over the past 2-3 weeks. As I discussed yesterday, both SPX and RUT are trading within well-defined sideways channels, consistent with low trading volume. We will most likely see volume pick up when the markets either break out to new highs or correct significantly.
Today was a slow day for economic data with a report of pending home sales for February being down 0.4%. That report probably had little or no impact on traders.
My Apr condor position stands at a P/L of -$1,601 or -8% with delta = -$21 and theta = +$102. The large theta/delta ratio underscores the rapidly improving P/L for this position. It seems that the all time high for SPX is proving difficult to surmount. We will probably start to see traders leaving for the long weekend tomorrow, so volume may fall off even more.
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The futures were positive this morning on the news of the Cyprus bank bailout and the markets opened higher as one would expect. But the euphoria didn't last long. SPX hit up against its all time high near $1565 by 10 am and crumbled from there. SPX closed at $1552, down $5 but RUT remained unchanged at $946. Volatility remained unchanged with the VIX at 13.7%.
Most market observers attributed the reversal this morning to concerns that other European banks may be subject to similar bailout requirements, taxing large depositors, and this prospect may begin a flight out of the European banks. Bank stocks in Europe traded down.
There wasn't any economic news today, but tomorrow brings a host of data with durable goods, Case-Schiller, consumer confidence, and new home sales. It should be interesting.
My April iron condor position stands at a net P/L of -$2,110 or -11% with delta = -$5 and theta = +$107.
