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The equity markets took off higher today with SPX gaining $28 to close at $2076, near the December 2015 high just above $2080. RUT traded even more strongly, up $24 to $1135. Volatility dropped about 1.4 points to 14.4% on the VIX. Trading volume popped up as well with 2.1 billion shares of the S&P 500 trading, but remains below the 50 dma at 2.3B. Trading rose 11% on the NYSE and was up 3.5% on NASDAQ. The strength of today's move prompted IBD to shift to an assessment of "Market In Confirmed Uptrend".
New home sales may have had a role in today's strong market, as they reported an annualized rate of 619 thousand homes for April, up from March's 531 thousand. This is the highest new home sales number since January of 2008.
We closed the volatility trade we entered on ULTA in the trading group on May 6th for a 23% gain. This trade began as a diagonal call spread and was predicated on the June options rising in implied volatility as the earnings announcement approaches. Join us in our next trading group meeting June 2nd.
We have two positions open in the Flying With The Condor™ service; the Jun RUT iron condor at 1010/1020 and 1220/1230 stands at a net gain of 14% and the July SPX condor at 1860/1870 and 2170/2180 is up 10%.
The second estimate of first quarter GDP will be reported Friday. Will that pull the market back into the sideways channel? Or will that report be revised upward and energize the bulls? SPX is close to resistance around $2080, the high from last December. The next resistance level is $2110, the high from November of last year.
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The markets were trading higher until the release of the FOMC minutes from the last meeting. SPX traded up to $2061 before the release, plummeted to $2034 after the release and then recovered to close at $2048, within a few cents of being unchanged for the day. RUT gained $5 to close at $1103. Trading volume on the S&P 500 was up a bit to 2.5 billion shares, above the 50 dma at 2.3 billion shares.
The minutes from the last FOMC meeting were released this afternoon and the market turned sharply lower. The minutes revealed a general discussion of the prospect of raising the interest rates at the June meeting. This surprised traders who had been expecting the next rate hike later this year. The concern is that the economy is too weak to absorb higher interest rates. However, some economists believe higher interest rates would stimulate the housing market by encouraging banks to lend. But higher rates make capital investment more expensive for business. Capital investment has remained low in spite of low interest rates. Why? Is that because of weak economic forecasts or burdensome regulations? Now fast food businesses are starting to roll out automated order entry systems to lower labor costs after minimum wage law increases. Politicians need to refresh their understanding of the Law Of Unintended Consequences.
Our June condor position on RUT in the Flying With The Condor™ service is up 6% and the July position on SPX is up 7%. The markets continue to trade sideways. RUT is trading very close to its August flash crash levels from last year. SPX seems to be trading in the channel of $2040 to $2110.
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Consider the last three days of trading in the S&P 500. On Tuesday, SPX gained $25, but turned around and gave back $20 yesterday. Today, SPX closed at $2064, effectively unchanged (more precisely, down thirty five cents). RUT lost $6 to close at $1109. Volatility decreased a bit with the VIX closing at 14.4%. Trading volume was slightly up with 2.3 billion shares of the S&P 500 trading. Trading volume was only up 1% on th NYSE and was up 4% on NASDAQ.
SPX traded down to touch its 50 dma at $2054, but then executed a textbook bounce off support to close unchanged on the day. RUT broke its 50 dma during today's trading, but recovered to close precisely at the 50 dma of $1109. So we continue to watch a market that seems to be trapped in a sideways consolidation pattern. Perhaps traders will be treading water until after the presidential election? This scenario also conforms with historical patterns of lackluster trading through the summer (the "sell in May and go away" pattern). The Stock Traders Almanac has documented the historical strength of being long the market from November through April. $10,000 invested during those months would have grown to $838,486 for the past 65 years as compared to a $221 loss for May through October. This November, we will have the additional factor of a possible dramatic change in the White House. I can't predict who will be elected, much less how the market will react, but I think we have many forces that are uniting for a sideways market leading to November.
Initial unemployment claims rose this week to 294 thousand from last week's 274 thousand. Continuing unemployment claims also rose by 37 thousand to 2.161 million. That is the third week in succession of rising weekly claims; that may not be statistically significant yet, but I still find it concerning.
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The retail sales numbers that were released today appeared to put a damper on the market, but the market has really been lackluster for the last three days. We seem to be in a "three days up and then three days down" pattern - not really, but you get the point. The market is going nowhere. SPX closed down $18 to $2047 and RUT closed down $6 to $1102. Volatility inched up almost one point on the VIX to 15.1%. Trading volume declined with 2.1 billion shares of the S&P 500 trading. Trading volume declined 8% on the NYSE and declined 13% on NASDAQ. So we have declining prices on declining volume - not very inspiring for the bulls or the bears.
Retail sales came in at a modest +1.3% for April, up from -0.3% for March. FactSet reported that internet sales were up in the first quarter (year over year) 143%. Next best was home improvement at +12%. Department stores were down 48%. The Producers price Index (PPI) reported +0.2% for April, up from last month's -0.3%. The University of Michigan's consumer sentiment survey increased from 89.7 to 95.8 in May.
The bulls have just enough strength to hold support (so far), but not enough strength to push to new highs. On the other hand, the bears can't seem to take control to break major support levels. We may be stuck in this sideways channel until after the election.
Have a great weekend.
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AMZN is representative of this market. Some stocks like AMZN and FB are making surprising moves higher, but others are lethargic or being pummeled after a mediocre earnings announcement. But AMZN's influence was the key today. SPX closed today at $2084, up $26. RUT followed with an increase of $11, closing at $1129. VIX fell a point to 13.6%. Trading volume fell off a bit with 2.1 billion shares of the S&P 500 trading. Trading volume declined 5% on the NYSE, but rose 9% on NASDAQ.
As I look at SPX's chart, I have to wonder if we aren't locked in a sideways channel from about $2040 to $2110. Maybe the bulls and bears are at stalemate.
I'm at the Money Show in Las Vegas. It has been great to see many of my friends and clients. The program has been first class. I'm glad to say that my talk was full with people standing all around the room. But I need to get back to the meeting.
