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The markets continued the recent pattern of trading sideways as SPX closed up $5 at $1461 and RUT closed at $880, up $5. Trading volume was flat with 2.5 billion shares of the S&P 500 stocks trading today; this is right at the 50 day moving average (dma). Trading volume was also flat on NASDAQ and up 3% on the NYSE. VIX inched up 0.2 points to close at 13.8%.
SPX traded up to resistance at $1465 this morning but then steadily declined into the close. Alcoa's better than expected earnings report set the stage this morning for a favorable market, but it wore off quickly. Some favorable earnings reports and optimistic guidance would be helpful for this market, but we don't have any significant blue chips reporting this week. Next week some of the big banks and Goldman Sachs report. Those reports may move the markets.
We are hip-deep in forecasts and predictions this time of the year. I am seeing a surprising number that are predicting a strong market for 2013. Given the headwinds constraining our economic recovery and the debt/spending debate, those predictions appear a little too optimistic to me. The only significant economic data expected for the balance of this week are tomorrow's unemployment claims. Analysts are predicting flat numbers on the order of 365k initial claims.
Increased theta decay as we near expiration (about $280 today on my 20 contract position) is helping my Jan iron condor on RUT to lessen its losses, which now stand at about 35% - rough beginning for the new year.
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The markets continue to basically trade sideways to slightly down. SPX lost $5 to close at $1457 while RUT held up better, losing $1 to close at $875. Trading volume popped up a bit with 2.6 billion shares of the S&P 500 stocks trading; trading volume rose 4% on the NYSE and rose 2% on NASDAQ. VIX remains relatively low at 13.6%.
Perhaps the prospect of the debt ceiling debate and the ratings agencies waiting on the sidelines to down grade our bonds has traders a bit concerned. The earnings announcements in the next few weeks will also have an influence on this market, especially the guidance offered for the next quarter. For all those reasons, it isn't too surprising to see the market trudging sideways.
I have to cut this blog short this evening due to other commitments.
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Wall Street obviously was thrilled with the Senate's tax package being voted in by the House at the eleventh hour. The market's extremely positive reaction was a little surprising to me since the fundamental spending/debt problems remain unaddressed by this legislation. The additional revenues will add up to about $300 billion this year. When you are generating new debt as fast as we are, that isn't even a drop in the bucket.
SPX ran up $36 to close at $1462 - wow! RUT closed at $873, up $24. These are huge gains by any measure. Trading volume also spiked upward with 3.1 billion shares of the S&P 500 stocks trading today. Trading volume on the NYSE was up 29% and volume on NASDAQ was up 37%. If you take a look at the one minute chart on SPX today, it was very unusual. Normally, there is a lot of choppiness throughout the day, but today SPX spiked up at the open and largely traded sideways until the last half hour or so, with very little volatility. Most of the one minute candlesticks were just a few cents in height. It was one of those rare one sided markets.
Economic data was mixed today, but I don't think anyone in the markets even noticed one way or the other. ISM's manufacturing index rose to 50.7 for December from the previous month's 49.5, but construction spending slowed by 0.3% in November; analysts had predicted a 0.6% increase.
The market truck ran over my Jan iron condor this morning, forcing me to close and reopen spreads on both sides. The position remains largely underwater, but hopes for a positive month are gone. Now I am fighting to minimize my losses - not a nice way to start the new year. Losses are the cost of doing business for traders. But I still haven't learned to take losses very well.
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After such an enthusiastic beginning to the new year last week, it seems traders' enthusiasm is waning. SPX closed at $1462, down $5 and RUT lost $3 to close at $876. Trading volume was flat to declining with 2.3 billion shares of the S&P 500 stocks trading today. Trading volume was flat on the NYSE and dropped 3% on NASDAQ. VIX jumped up a bit this morning to 14.5%, but settled back down to 13.8%, near the open this morning.
Alcoa kicks off the earnings season tomorrow and estimates of earnings for this quarter have been steadily dropping. Fourth quarter earnings projections back in October were for growth of 9.2%, but that has dropped to an anemic 2.7%. That is starting to temper traders' appetite for risk. This series of earnings announcements could be taken as opportunities to sell and lock in gains, but that action may largely rest on the guidance given during the reports. The back drop of the debt ceiling fight that is starting to heat up may temper guidance.
If the early sound bites are meaningful (maybe it is empty posturing), the parties on both sides of the aisle are digging in for a serious fight over the debt ceiling. I thought the recent tax battle was bad enough, but this is shaping up as an even nastier battle. Unfortunately, significant numbers of both parties are dissatisfied with the last deal, so this negotiation is starting out in the hole as leaders on both sides try to appease the various factions of their parties. I am starting to think the network hosts of the Sunday political talk shows are part of the problem. Have you noticed how they like to goad whomever they are interviewing into taking an extreme position and drawing a line in the sand? It makes for great headlines, but I don't think it serves us very well.
Turning to the SPX chart, a technical analyst has to take note of the resistance level at $1465 set back in mid-September and tested in early October. For the past several trading sessions, it appears as though SPX has been struggling to break through that resistance. It is interesting that the trading volume on SPX has declined every day in this new year. It popped nicely on January 2, but SPX volume has been steadily retreating since then.
My January condor position continues its underwater journey; the higher theta as we near expiration is helping work off some of the losses, but the position will be a loss when it is all said and done.
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A couple of weeks ago, I compared this fiscal cliff drama to one of the classic Greek tragedies where all the main characters die in one way or another and the play ends with everyone left standing mourning their losses, cursing the gods and so on. I was joking, but now I'm not so sure. Today, it finally became apparent that the president really has no intentions of averting the fiscal cliff; he has calculated that the ensuing mess will be blamed on the Republicans, so how could a politician pass up that opportunity? You think I'm wrong? How else can we explain that only today did the president finally call together in a single meeting the majority and minority leaders of both houses in the White House. This is the first time since the election that this group has met. I don't call that leadership.
But the reality is starting to dawn on the markets and they are trading downward. SPX closed at $1402, down $16 and RUT closed at $832, down $5. The only good news is that trading volume remains low; only 1.7 billion shares of the S&P 500 stocks traded today. Trading volume was down 8% on the NYSE and was down 15% on NASDAQ. So panic has not yet set in; the large institutional traders haven't started running for the doors. But they are hedging their portfolios. VIX jumped up to 22.7% today.
Economic data of late hasn't been terrible, but I think it has been largely ignored; all eyes are on Washington. New unemployment claims are stubbornly running around 350k month after month. The new home sales reports yesterday were upbeat; the pending home sales today were a little disappointing with an increase of 1.7% for Nov (October's increase was 5%). The Case Schiller Index reported a nice 4.3% rise in housing prices earlier this week. So the economy continues to muddle along and slowly recover. But next week??
My January iron condor on RUT at 700/710 and 870/880 stands at a P/L of -18% with delta = -$104 and theta = +$154.
Enjoy your holiday weekend and don't let these political and economic problems worry you too much. Focus on what's important. Best wishes for a happy and prosperous new year.
