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The non-farm payroll report, aka the jobs report, was generally more positive than expected with 236 thousand new jobs. The unemployment rate dropped to 7.7%, but a large factor in that drop was 130 thousand people dropping out of the search for work. One of the quirks of our government's method for calculating unemployment is that they use a survey of households to determine the labor force participation rate - as that number decreases the unemployment rate decreases. We don't count as unemployed those people who have given up searching for work. If the labor participation rate were 66%, as it was in December of 2007 before all hell broke loose, the unemployment rate today would be 10.7%. That may help you reconcile what you are seeing in your neighborhoods with the published unemployment rates.
A large factor in the increase in the jobs number was a bump up in construction due to a rebounding real estate market. And that is certainly welcome news. The positive jobs report surprise continued to fuel this bullish market run even higher. SPX tacked on another $7 to close at $1551 and RUT closed at $943, up $8. VIX dropped another half point to 12.6%.
Trading volume continues at anemic levels. Trading in the S&P 500 was 2.4 billion, still below the 50 day moving average. The last time we saw above average volume was on February 25th when the market pulled back, and the following day when it bounced. Trading on the NYSE dropped 1% and decreased 4% on NASDAQ. This trading volume picture seems odd. I see reports of the individual investor returning to the markets and bonds being sold to move to equities. That is consistent with a bull market, but where is the trading volume?
I applied my Two Sigma Rule to the March position today, but the 810/820 put spreads are far, far OTM, so I left them open to expire worthless. I closed the call spreads a little over a week ago.
Enjoy your weekend.
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SPX opened higher this morning, traded into the red around noon, and then it rebounded, only to be pulled back down by the close of trading. SPX gained $2 when it was all said and done, closing at $1541. RUT gained $3, closing at $930. VIX remained unchanged at 13.5%. Trading volume was flat to slightly down with 2.4 billion shares of the S&P 500 trading (flat from yesterday and below the 50 dma). Trading volume increased 1% on the NYSE and decreased 7% on NASDAQ.
ADP released their private employment report today and it was a favorable surprise to most analysts with 198 thousand jobs added in February. This buoyed the market this morning, but it didn't seem to hold. ADP's numbers suggest that the jobs report Friday may also be favorable and we may even see unemployment tick down a bit. In the absence of some surprising news out of Washington or Europe, this bull market may continue to surprise traders and move higher.
I decided to take a flyer on AAPL today, buying the Jan 2014 500/600/700 call butterfly. The beauty of this trade is a very broad range of profitability and plenty of time to be right. Several of the notable "names" in the hedge fund world are bullish on AAPL from these levels - we'll see.
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The markets were pretty choppy today, but the bullish pressure was unabated with SPX closing at $1525, up $7. RUT was less bullish all day, closing up $2 at $917. SPX closed right at or near a decision point on the chart. SPX hit highs just above $1530 week before last, so today's close is nearing resistance. It will be interesting to watch if SPX can break through to new highs above $1530. If you survey the major technical indicators for the market (put/call ratios, P/E ratio and dividend yield of the S&P 500, etc.), I think it is fair to say you would end up with a neutral to bearish posture. But, on the other hand, this market has been overbought for some time and has continued higher.
The CBOE volatility index, VIX, opened at 16.2% this morning, and dropped all day to 14.0%. The recent volatility in VIX demonstrates the nervousness of the market these days; the market may be trading higher, but traders are watching over their shoulders for the other shoe to drop, likely in Washington. VIX is still at relatively low levels, but it has spiked higher in recent days and then, just as quickly, dropped back down.
Trading volume declined today, even as the markets traded higher, with 2.2 billion shares of the S&P 500 stocks trading today. Trading volume on the NYSE and NASDAQ both dropped 8% today. A market move higher on declining volume is not bullish.
Today was a slow day in terms of economic data. The ISM Services Index reports tomorrow. Wednesday brings the FOMC Beige Book and the ADP payroll data, which will be the first clue for the jobs report Friday.
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If you watch CNBC, you had to be impressed with all of the hoopla surrounding the Dow's new all time high. They even scheduled a special program for this evening in commemoration. SPX closed up $15 to close at $1540 and RUT gained $11 to close at $927. Trading volume was up marginally at 2.4 billion shares of the S&P 500 shares, still below the 50 day moving average. Trading volume was up 4% on the NYSE and was up 10% on NASDAQ. VIX dropped a half point to 13.5%.
The bulls remain in charge of this market but one of the missing factors that worries many analysts is the lack of volume. If you take a look at the SPX chart, you will see that the down days in the market in recent weeks displayed higher trading volume while the last three days recorded below average trading volume as SPX traded higher. I am not suggesting you get in front of this train, but I am suggesting some caution. Today's run may convince IBD to change their "Market in Correction" label, but this volume picture is one of the reasons they have remained in correction mode.
The ISM Services index reported today at 56.0 for February, up from January's 55.2. This gain was a bit higher than analysts expected and probably helped fuel today's rally. Tomorrow brings the Fed's Beige Book and ADP's payroll numbers. Now we watch to see how strongly the market moves tomorrow - will the bulls continue to drive or will some profit taking calm things down a bit? The sequester couldn't stop this market; what can?
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Well, here we are on March 1 and I don't see any swarms of locusts or any of the other predicted calamities. You doomsday preppers may have a bit longer to wait for the collapse of civilization. The markets opened weakly this morning with the S&P 500 trading as low as $1501 before bouncing back to close at $1518 for a gain of $4 on the day. RUT gained $4 to close at $915. VIX dropped to 15.4%, a bit lower than yesterday's close. After spiking up over 19% on Monday, VIX has calmed quickly. Trading volume dropped off a bit with 2.5 billion shares of the S&P 500 trading; this is slightly below the 50 dma at 2.6B. Trading volume on the NYSE dropped 8% and volume decreased 5% on NASDAQ.
Today's economic data were a mixed bag with personal income declining 3.6% in January, but the University of Michigan consumer sentiment survey inched up to 77.6 for February from January's 76.3. The ISM Index bumped up a little over one point to 54.2 in February but construction spending dropped 2.1% in January after a 1.1% increase in December.
I hope you all have a great weekend.
