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As our President paints a "sky is falling" scenario over the sequestration his party set in motion, this market just continues to climb higher. Market analysts continue to label this market "overbought" and predict a correction, but the markets haven't checked their email. SPX climbed another $11 today, closing at $1531. RUT is trading even stronger, up $9 at $932. Trading volume on the S&P 500 isn't available as I write this, but preliminary data on the exchanges suggests trading volume declined today. Normally, a decline after expiration Friday would be normal, but trading volume on Friday was unusually low. No one can deny the strength of this bullish rally, but the volume has been anemic.
There wasn't any significant economic data to propel this market today; the only report I saw was the National Association of Home Builders Index coming in at 46, down slightly from January's value of 47.
My March iron condor at 810/820 and 950/960 on RUT stands at a P/L of -$790 (-4%) with position delta = -$132 and position theta = +$108. I hedged the position today with some Apr 950 calls.
It seems to me there is increasing evidence that sequestration will occur March 1 and maybe it isn't as big a deal as we have been led to believe. I never ran any organization that couldn't take a few per cent off the top without causing any real damage. After all, we are talking about 85 billion dollars in cuts - remember the scale of this government behemoth - it is running over a trillion dollars (1000 billion) in the red each year. 85 billion is nothing. Therefore, the prospect of this Washington debate impacting the markets may have been overblown... but we'll see. I remain cautious.
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The markets opened pretty flat this morning and traded sideways until late afternoon when they sold off dramatically. SPX traded down to $1514 before the bulls came to the rescue once again and recovered most of the losses to close at $1520, down $2. RUT lost $1 to close at $923. Even though the markets traded off, traders still see any pullbacks as buying opportunities. This dipping back to about $1514 and then closing around $1520 is becoming a common pattern of late for SPX. I think this has two messages: 1) this market has traded very high very fast, so a little breather is healthy, and 2) whenever there is a pullback of any kind, buyers appear, so this bullish trend still has legs. Trading volume was flat today with 2.8 billion shares of the S&P 500 stocks trading. Trading was up 9% on the NYSE, but down 3% on NASDAQ.
I keep thinking the impending March 1 deadline for sequestration will take its toll on this bull market, but thus far, traders seem to be trusting that a deal will be struck at the last minute. Or maybe there is a school of thought that the sequester will be good for us by forcing the spending cuts Congress seems unable to seriously contemplate.
The Empire manufacturing survey reported out at +10.0, an improvement from last month's -7.8. Industrial production for January dropped slightly by 0.1% and capacity utilization was flat at 79.1%. The University of Michigan consumer sentiment survey came in at 76.3 for February, up from 73.8 in January.
The settlement value for SPX for February expiration is $1523.06 and RUT settled at $928.61. Those of you who gambled on leaving our Feb 930/940 call spreads open won your bet, but that was a risky play. My Feb iron condor on RUT ended at a +5% gain - not wonderful, but I was happy to salvage that gain in this incredibly bullish market.
The exchanges will be closed Monday. Enjoy your long weekend.
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The markets just keep on trucking higher. Today was certainly a little more muted, but there is no sign of the correction so many expect. Perhaps that consensus is the sure sign that the bull run will continue. SPX gained $1 to close at $1520 while RUT tacked on $3 to close at $921. RUT's chart continues to outpace SPX, which in and of itself is a bullish sign. However, trading volume is still weak with 2.4 billion shares of the S&P 500 stocks trading. Trading on the NYSE was flat today and volume was up 3% on NASDAQ.
SPX hit its highs in the first couple of hours of trading this morning, but then pulled back and traded more weakly the rest of the day. As SPX hit its low for the day about one hour before the market closed, the bulls rallied and pushed the market back into positive territory. SPX traded as low as $1516 and as high as $1525 before closing at $1520. Today's candlestick was the classic doji, which often communicates a balance between the bulls and bears, or a measure of indecision. But shorting this market has been a mistake for a long time, so I will want to see some confirmation before suggesting this doji is signaling a market top.
Retail sales were up 0.1% in January, which wasn't anything to write home about, but was in line with analyst expectations.
I offer a warning for any Neanderthals in the audience - tomorrow is Valentine's Day. Enjoy!
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The markets opened downward this morning based on some weak economic data from Europe, but the bulls quickly recovered and pushed the markets upward. SPX dropped to $1514 but then rallied and closed at $1521, up $1 on the day. RUT closed up $3 at $924. Trading volume bumped up a bit with 2.8 billion shares of the S&P 500 stocks trading. Trading on the NYSE increased 6% and also increased 6% on NASDAQ. VIX declined about one third of a point to 12.7%.
Initial unemployment claims decreased by 27 thousand to 341k and continuing claims decreased 130k to 3.1 million. We have a heavy dose of economic data tomorrow with the Empire manufacturing survey, industrial production, capacity utilization, and consumer sentiment data all reporting. JP Morgan decreased their GDP forecast for 2013 from +2.1% to +1.9%, based on a pessimistic forecast of the sequestration debate in Washington.
Some of you may recall the property tax referendum in CA many years ago. The state and local governments whined and predicted all kinds of dire consequences, but once they realized it was inevitable, they found the waste in their budgets and slashed it. The firefighters and teachers remained employed after all the dust settled. Maybe sequestration will force the same hard and painful budget reductions in Washington. But I guarantee the media will carry nothing but horrible stories of what will be lost between now and March 1. Have you seen any government office that couldn't afford to cut at least 10% of their expenses? They might have to drop their cousins off the payroll, but I think it could be done easily.
In the meantime, what about this bullish rally? It looked pretty dark this morning, but the bulls didn't miss a beat and quickly turned it around. SPX does seem to have flattened here at $1520, but there are few signs of a serious correction as yet. Recent candlesticks are getting some long lower shadows, but that is the only sign of any weakness. And that may only be my imagination.
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SPS broke out of its recent trading range Friday, but it was on much lower trading volume. This morning SPX opened weakly, trading down as low as $1513 before strengthening to close at $1517, down only $1 for the day. RUT also dropped off $1 to close at $913. But trading volume fell off once again with only 1.8 billion shares of the S&P 500 trading today while the 50 dma is 2.5B. Trading on the NYSE dropped off by 10% and trading on NASDAQ dropped 15%.
With more and more of the talking heads predicting a pullback or correction, this market's strong bullish bias appears to continue unabated. Just as the markets opened weakly this morning, it didn't take long for the major averages to bounce back. The run since mid-November has been unusually strong, but the correction has not yet appeared. However, a few weeks of sideways trading might serve just as well to give this market time to consolidate. But the sequester deadline of March 1 is coming closer and that may provide the stimulus for a market sell-off. Or perhaps S&P will counter the Justice Department's suit with a downgrade of our treasury bonds - that would be a market moving event.
I closed the 930/940 call spreads of my February condor today for $0.35. Assuming the 820/830 put spreads expire worthless this coming weekend, that will complete the February position with a 5% gain. No significant economic news is scheduled for a couple of days, so this market may just trade as it did today - choppy and sideways. We'll see.
