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This market has given us many days or weeks we would compare to roller coaster rides, but today took the cake. It looked weak from the open and forced me out of the few remaining positions. But it just became uglier and uglier. SPX opened at $1876 and dove as far as $1812 before recovering a bit. The intraday low in the October 2014 correction was $1821, so this was a significant pull back. SPX closed at $1859, down $22. At one point in the late afternoon, SPX had actually traded back up to the opening price at $1876 - that is a serious round trip. RUT was even more surprising. RUT closed up $4 at $999, after dipping down to $958. That is only the third positive day for RUT this year.
Volatility spiked up to 32% during all of this craziness, but closed back at 27.6%. Trading volume spiked higher with 4.3 billion shares of the S&P 500 stocks trading today. Trading volume rose 17% on the NYSE and increased 38% on NASDAQ.
The CPI reported for December at -0.1%, close to the previous month's 0.0%. How can CPI be zero when all of my grocery bills are higher? Housing starts came in at 1.149 million for December, down from 1.179. Building permits followed suit with a decline from 1.282 million to 1.232 million for December.
This reminds me of road trips with the kids when they were younger. "Are we there yet?" I don't know, but that long lower shadow on the SPX candlestick and a positive day on RUT certainly are signals in that direction.
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China announced 6.9% GDP growth for 2015 this morning. Even though we would be jealous to have that level of growth, that's the low in a slow downward slide for China. But is that worth the U.S. market crashing and turning into a bearish trend? Oil prices continue to dominate the discussions and continue to be blamed for the market weakness. Yes, China is slowing and requires less oil. Yes, everyone and his cousins are pumping cheap oil and we are swimming in it. I continue to think this has been seriously overblown. Our economic data have been weak and muddling along for years. The politicians just try to tell us everything is rosy. But even my less rosy view of the economy doesn't paint the dreaded R word.
The markets opened and traded higher this morning, but the enthusiasm was short lived. SPX closed up one dollar at $1881 after being as low as $1865. The August flash crash lows are around $1870. RUT, as usual, traded more weakly with a $13 loss, closing at $995. For the previous three sessions, RUT appeared to be trying to settle around $1010 and RUT opened there this morning and traded up for a while before weakening.
VIX is interesting. In spite of all of the hand wringing of the doomsday gurus, VIX has remained relatively low. VIX pulled back 1.1 points today to 25.9%. That isn't low volatility, but it isn't crash mode either. On August 24th, VIX hit over 53% intraday and closed at 41%.
You may be following the Stock Traders Almanac as they discuss the three January indicators: the Santa Claus rally, the first five days of January indicator and the month of January indicator. The first two have already turned in negative signals. SPX has to get back to $2038 by the end of the month to be positive. Gaining $157 is feasible, but days like today do not appear to be increasing the odds. In years where all three indicators are negative, the past track record of predicting a flat or negative market for the year is impressive.
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What started the day as a sideways market turned ugly this afternoon. Starting around noon, SPX started declining and closed at $1890, down $48. SPX didn't close at its low for the day, but it was close. RUT was just as weak, giving up $35 to close at $1010. Trading volume remains high with 3.4 billion shares of the S&P 500 stocks trading. Volume on the NYSE increased 6% and trading on NASDAQ increased 18%. Volatility increased as the market declined, with VIX closing at 25.2%, up almost three points.
RUT is hitting new record lows, having broken the support levels set by the October 2014 correction on Monday and trading even lower today. SPX has not traded downward as aggressively and remains about twenty points above the August flash crash and sixty points above the October 2014 correction.
The most interesting question is "Why"? The financial news networks were interviewing all the gurus this afternoon, asking that very question. The answers were interesting. The most common answer was to blame dropping oil prices. But oil prices have been pretty steady this week, trading around $30. What changed this afternoon? One pundit claimed the markets are predicting a recession, but the last several GDP reports have been languishing around 2% growth for 2015. No one is happy with that, but it isn't negative (economists define a recession as two quarters in succession of negative GDP growth). Let's consider the oil price rationale.
Declining oil prices have traditionally been interpreted as resulting from reduced demand, suggesting lower economic activity. So declining oil prices often signal a slowdown in the economy. That may well be true if we have normal supply market reactions. But OPEC has just opened the spigots even more, flooding the market with oil. Reduced demand decreases prices but increasing supply also reduces prices. Add to this the reports of ISIS selling oil at $10 to fund their activities and we have a market flooded with cheap oil that may be primarily a supply problem, not a demand problem.
There is no question that the global economies are slowing, but none of the major economies are flirting with negative GDP growth. We are still seeing positive GDP growth here in the states; I may complain that it is too low, but it isn't negative.
Then why is the U.S. stock market in the tank?
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Traders will remember the first two weeks of 2016. SPX closed at $1880, down $42 today and down 7.7% for the year. SPX traded down and broke through the August flash crash lows today, but the good news is that SPX bounced and closed above those lows. But we will see if that matters on Tuesday. RUT closed at $1008, down $18. RUT traded weaker than SPX over all of 2015, and this year is no different so far. RUT is off 11% for the year. RUT broke through the August flash crash lows back on January 6th, and broke through the October 2014 correction lows on January 11th. RUT traded as low as $984 this afternoon before recovering somewhat into the close. You have to go back to the summer of 2013 on the charts to find RUT trading around $980.
Trading volume remains high with 3.9 billion shares of the S&P 500 stocks trading. Trading volume increased 17% on the NYSE and rose 6% on NASDAQ. But higher volumes on option expiration aren't unusual. Implied volatility has been high as the market has tanked; the VIX hit 31% intraday and closed today at 27%, up three points.
Our markets will be closed Monday. It is impossible to predict what news event might occur over the long weekend and either accelerate the downward spiral or stimulate a strong bounce higher. I have hedged our February iron condor position and been whipsawed several times. At the close today, that position is being held at about a 7% loss. We'll see what next week brings.
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The intraday trading pattern of today's market was almost identical to yesterday's: higher at the open, then trading off with a rally into the close. One sign I interpreted as significant was that the VIX was declining even as SPX traded down this morning. SPX opened up at $1928 this morning and traded up to $1947, but almost immediately began to decline, reaching the low for the day at $1914 around 2 pm ET. Then the market rallied over the last 90 minutes of trading, closing at $1939, up $15. Today's open and close on SPX were back within the Bollinger band.
RUT traded similarly, but less bullish, closing up $3 at $1045. RUT's candlestick was a near perfect doji, the sign of balance between buyers and sellers, often signaling a trend transition. The VIX lost two points to close at 22.3%. That is a decline in volatility of about five points in two days - another signal of transition. Trading volume remains elevated with 2.9 billion shares of the S&P 500 stocks trading; the 50 dma is 2.4 billion shares.
The February position in the Flying With The Condor™ service is near break-even; at one point today, my position was actually profitable. The partial hedge is doing its job and buying us time. I closed the January position for a 13% gain, so we are off to a good start in 2016 in spite of all of the hysterics in the market. The cable business channels are dragging out all of the extreme bears. Their message is simple: "sell everything; buy a tent and move into the woods.". Fear sells.
I don't mean to be cavalier; this remains a dangerous market. But I put my money where my mouth is. I bought SPX calls yesterday and added to that position today.
