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The markets bounced back into positive territory today with SPX moving up $11 and closing at $1557. RUT was more muted with a two dollar increase to $946. Trading volume continues to be weak with 2.2 billion shares of the S&P 500 stocks (the 50 dma is 2.5B). Trading on the NYSE dropped 10% and trading volume on NASDAQ dropped 1%.
A large proportion of financial news was devoted to the Cyprus banking crisis this week. Traders seem to have discounted the negative effects since the markets were consistently in positive territory today, even though no resolution of the Cyprus problems is expected until early next week. SPX opened higher this morning, and then traded higher all day, including a last minute spurt that took it near its intraday highs for the close. SPX came close to completely recovering all of the losses from yesterday. That doesn't sound like a market that is worried about Cyprus.
The bullish strength underlying this market was demonstrated once again this week. Given the chorus of analysts and gurus calling for correction, this seems all the more surprising. Perhaps the recent bullish excesses will be gradually absorbed via some sideways consolidation action. In spite of all of the wringing of hands this week, SPX never came close to its solid support level at $1530.
Volatility dropped a bit today with about a half point drop in the VIX, down to 13.6%. Historically, this remains a low volatility environment. By comparison, the volatility index for the Russell 2000 index, RVX, ranged from about 24% to 32% last year, but has remained largely below 20% this year, with only two exceptions in late February. RVX closed at 17% today.
My April iron condor on RUT at 880/890 and 990/1000 remains underwater by about 13% with delta = -$12 and theta = +$108. With both spreads being greater than one standard deviation OTM with less than a month to go, this position is in moderately good shape. However, the adjustments to date have consumed much of the potential profit for this position.
Enjoy the weekend.
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Bernanke reassured traders that he isn't going to remove the punch bowl from the party anytime soon and the markets resumed the rally. SPX closed at $1559, up $10 and RUT gained $9 to close at $952. Markets were up at the open today, having put Cyprus behind them, but hit new intraday highs after the FOMC minutes were released at 2 pm ET. But trading volume remains weak with 2.3 billion shares of the S&P 500 stocks trading today. Trading on the NYSE was down 10% and trading volume fell 6% on NASDAQ.
The FOMC reported a view of a strengthening economy, but did not feel confident about ending the quantitative easing until further evidence of recovery is confirmed. As expected, interest rates remain unchanged. That would appear to give the bulls a green light to continue this strong rally. Of course, that also fuels the predictions of many analysts that this rally has run too high and too quickly to not be subject to a correction soon. The Cyprus alarm appeared to possibly be the correction trigger, but the market quickly dismissed the news.
The Cyprus incident does show how close to the sell trigger traders are in this market. No one wants to give back the gains of the past few months. But when so many analysts are warning of a correction, will the market just keep climbing?
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The markets opened in the red this morning and basically chopped sideways all day. If you were waiting for a correction, this certainly wasn't it, since we saw only very modest losses today. SPX dropped off $3 to close at $1561 and RUT lost $1 to close at $952. VIX ended the day unchanged at 11.4%, so traders haven't changed their bullish outlook.
As one might expect for a quadruple witching expiration, trading volume was elevated today with 3.5 billion shares of the S&P 500 stocks. Trading on the NYSE was up 106% and trading volume increased 33% on NASDAQ.
Many economists have been predicting that the flood of monetary stimulus by the Fed will spur inflation, but minimal evidence has appeared thus far. Yesterday's PPI report came in with an increase of 0.7% and the CPI came in today with an increase of 0.7% for February. Is this the beginning of some inflationary pressure? If so, this could force the Fed's hand sooner rather than later.
Industrial production increased 0.7% in February and capacity utilization ticked up to 79.6 for February from 79.2. The University of Michigan consumer sentiment numbers for March decreased to 71.8 from 77.6. The Empire manufacturing survey decreased to 9.2 for March from the previous month's 10.0. So the economic data today was mixed, and some suggested that the softening consumer sentiment data was the cause of today's market weakness but, in the absence of much more negative data, this bullish rally appears very solid.
SPX settled at $1557.08 and RUT settled at $953.58 for March. This confirms the worthless expiration of my March 810/820 put spreads, locking in an 8% gain for my March iron condor position.
Enjoy your weekend.
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Cyprus' plan to tax bank deposits to fund its banking bail-out spooked global markets overnight, but you could see the futures beginning to strengthen even before the markets opened this morning. SPX dropped to its low for today of $1545 in the first three or four minutes of trading and then recovered much of that loss by early afternoon. But then the markets weakened with SPX closing at $1552 for a loss of $9. RUT lost $5 to close at $947. As one might expect, the uncertainty tossed into the markets by the Cyprus news punched up the VIX two points to 13.4%, but that remains a relatively low level of volatility.
Trading volume dropped off as expected from Friday's quadruple witching highs with 2.2 billion shares of the S&P 500 stocks. Trading on the NYSE dropped 51% and trading decreased 30% on NASDAQ. In the last fourteen trading sessions, trading volume in the S&P 500 stocks has only exceeded the 50 day moving average twice. Today's drop back to 2.2 billion shares is back in the range of relatively low trading volume we have been observing - this is the one measure that isn't consistent with a bull market.
Given the relative insignificance of Cyprus, today's market action demonstrated how nervous these markets are - we have been setting records in this bullish run, and that very fact has traders watching over their shoulders. The slightest twitch is resulting in flurries of sell orders.
Economic reports were scarce today, but the FOMC meeting starts tomorrow and reports out on Wednesday. But it appears unlikely that Bernanke is going to change much, if any, of the language in their report. Traders will be watching for hints of the Fed pulling back from their stimulative posture, but Bernanke has been much more transparent than previous Fed administrations. He has been very clear about the criteria they will use to begin raising interest rates and phasing out the quantitative easing programs, and it isn't likely to happen anytime soon.
Today's market reaction to the Cyprus news makes one wonder what will happen if we have a truly negative news event...
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Markets opened strongly this morning, presumably boosted by the unemployment claims data. SPX jumped about $6 out of the box and then climbed a bit more in afternoon trade. What was a little surprising was a bump of over a dollar in literally the last minute of trading. On the one minute chart, SPX had traded down to $1562 and then jumped to a little over $1563 in that last minute. I'm not sure what caused that last minute spurt. SPX closed at $1563, up $9 and just under its all time high of $1565. RUT showed the same last minute spurt and closed up $9 at $953. Trading volume was up from yesterday, but remains relatively low. Trading in the S&P 500 came in at 2.2 billion shares as compared to the 50 dma at 2.6B. Trading on the NYSE was up 13% and trading volume on NASDAQ was up 5%.
The initial unemployment claims came in at 332k, down 10k and this surprised analysts who were predicting a good result, but not quite this good. Continuing unemployment claims also dropped to 3.0 million, down 89 thousand.
I will be watching tomorrow to see what happens if SPX punches through $1565 or hesitates before making that break-out. No one can deny the strength of this bull market, but one has to worry about the potential bad news out of Washington with respect to the debt ceiling debates and the debt rating agencies standing in the wings. I continue to be concerned about a sudden and severe pull back. We'll see.
