The markets traded down for the second day in succession, causing the doom and gloom types to restart their "sky is falling" commentary. But it does raise the interesting question of how high is too high? I would be one of the first to point out the obvious weaknesses in our economy: unemployment and underemployment remain very high, and there are empty commercial buildings on every corner. On that basis, one cannot justify this bullish market. But one can't ignore the fact that publicly traded companies, by and large, have been turning in reasonable earnings, and we can't forget the Fed. They are still pumping a lot of money into this market. This recent run in SPX may be just taking a breather, rather than setting up for the "big crash".

SPX closed at $1944, down $7. RUT also dropped off, closing down $6 at $1167. SPX hit its low for the day around $1940 just after 2pm ET, but then recovered much of its losses into the close. RUT traded in a similar intraday pattern. If you plot the Bollinger bands on SPX, you will see that this index has been running along the upper edge of the band for about two weeks, so taking a couple of days to rest wouldn't be unusual at all. Volatility rose a bit to 11.6%, still a relatively low level. Trading volume remains low with 1.7 billion shares of the S&P 500 trading today, almost identical to yesterday and well below the 50 dma at 2.0 billion shares. Trading volume on the NYSE and NASDAQ both dropped off by 1% today.

I closed the 1040/1050 put spreads in my June iron condor on RUT today for $0.08, resulting in a nice 23% gain for June. My motivation was two-fold. One the one hand, I am hedging myself just in case the sky is falling. On the other hand, I wanted to free up some capital for the possibility of entering a new July condor while we still have a reasonable amount of time left.

No economic data of any significance was reported today. Tomorrow brings unemployment claims and retail sales. The PPI and the University of Michigan consumer sentiment numbers report on Friday.