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2015 is going into the record books as the toughest year for traders in 37 years. The best performing asset class of 2015 is stocks, and they were only up 2% for the year, including dividends. By comparison, stock market investors were toasted in 2008, but bonds were up 22%. The average hedge fund this year is down 4%. Bill Ackman of Pershing Square Capital has told his investors the fund's returns for 2015 will be the worst since its founding in 2004. Warren Buffet's Berkshire Hathaway stock is down 11% for the year. To find a year with worse returns, one has to go back to 1937, when the best performing asset class was three month treasury bills at +0.3%.
2015 was the year for non-directional trading. Our Flying With The Condor™ trading service was up over 40% for 2015. Non-directional trading systems outperform when the market is largely trading sideways, turn in smaller, but positive, returns when the market is trending higher, and outperform bear markets with smaller losses. Historically, markets trend strongly higher or lower only about 25% of the time, so non-directional traders have an edge.
SPX closed today at $2044, down $19, while RUT lost $14 to close at $1136. Volatility rose a bit with the VIX at 18.2%, up about 0.9 points. Trading volume of the S&P 500 stocks came in at 1.5 billion shares, well below the 50 dma of 2.4 billion shares. Everyone has taken off for the holidays.
For 2015, the S&P 500 index opened at $2059 and closed at $2044, down 0.7%. The Russell 2000 Index opened the year at $1210 and closed at $1136, down 6.1%. NASDAQ was the only major index in positive territory, opening at $4760 and closing at $5007, up 5.2%.
My subscribers to the Flying With The Condor™ service were fortunate to be with me this year. That 40% gain helped offset some of these other poor performing sectors.
I hope you spent a wonderful Christmas with family and friends. Char and I visited close friends in Florida over Christmas and plan to spend this evening with a small group of close friends here at home. Thank you for trusting me with this responsibility this year. I wish you a new year in 2016 filled with happiness and prosperity. Best wishes.
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A few days ago, it seemed all traders were concerned about was the FOMC (a bit of an exaggeration), but now every twitch of the spot oil prices is telegraphed into the stock market. SPX went into free fall this afternoon, dropping $36 to close at $2006. RUT dropped $14 to $1121. Volatility rose again with the VIX closing at 20.4%, up 1.4 points. Trading volume was higher, as one would expect on expiration Friday. Trading volume rose 69% on the NYSE and increased 27% on NASDAQ.
The fear is that falling commodity prices are an indication of global economic weakness. This is in stark contrast to the positive assessment of our economy from the FOMC this week. Is that why the markets rallied so strongly on Wednesday, but then sold off yesterday and today?
RUT continues to trade more weakly than SPX. After this week's see saw in prices, RUT is only 1.6% off of the August flash crash lows. However, SPX would have to drop almost 7% to get back to those lows. RUT's weakness is not a positive signal.
SPX settled at $2029.72. The 2160/2170 call spreads in our December position expired worthless. This resulted in a 8% loss for December, but ends the year for the Flying With The Condor™ service at +40%.
I track the difference between the Thursday close and the settlement price for SPX. The average change this year was $9.60, but August and September were big months with changes over $20. This was the origin of my developing the Two Sigma Rule for closing spreads on the Friday before expiration week. This has proven to be a conservative measure for deciding whether to close spreads early or to allow them to go into expiration to expire worthless.
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As everyone begins to think about the FOMC announcement tomorrow, the market traded strongly higher today. SPX gained $21 to close at $2043. And RUT fully participated for a change, up $16 at $1132. Volatility contracted nearly two points with the VIX at 21%. Trading volume fell off a bit with 2.7 billion shares of the S&P 500 stocks trading. Trading dropped 10% on the NYSE and declined 6% on NASDAQ.
The CPI reported flat for December, down from +0.2% last month. The Empire manufacturing survey from the NY Fed improved a bit for December but remained negative at -4.6, up from -10.7.
Everyone is obsessing about the FOMC announcement and a possible interest rate hike tomorrow afternoon. Today's strong market was surprising to me. Has the fear of a global economic slowdown been alleviated somehow? Do we know what the Fed will do tomorrow? For that matter, do we know how the market will react?
If you have any December index options that are anywhere near the money, you might consider closing them. There may be some wild swings in the market and implied volatility for the next two days. I closed the 1940/1950 put spreads in our December SPX condor today. Assuming the 2160/2170 call spreads expire worthless, this condor is closed for a loss of $64 per contract or -8%. We hedged the position three times and rolled spreads twice - a busy month! This brings the Flying With The Condor™ trade alert service to +40% for 2015. Since SPX is down about 1% for the year, that is a superb performance. Our SPX Jan iron condor positioned at 1850/1860 and 2210/2220 stands at a net gain of 8% and is perfectly delta neutral.
Get your chips and snacks out for the Fed watch...
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The FOMC announced a quarter point interest rate hike but said the rate of increase would be very gradual. This was the first interest rate hike since June 2006. This was well received by the markets, as SPX rose $30 to close at $2073. RUT lagged a bit, as usual this year, closing up $17 at $1149. Trading volume was pretty flat with 2.7 billion shares of the S&P 500 trading. Trading volume rose 5% on the NYSE, but fell 8% on NASDAQ. Volatility continued to contract with the VIX dropping three points to 18%.
Housing starts came in at an annualized number of 1.173 million for November, up from last month's 1.062 million. Building permits reported at 1.289 million for November, up from 1.161 million. Industrial production declined 0.6% in November, down from -0.4%. Capacity utilization was roughly flat at 77.0% in November, as compared to October at 77.5%.
IBD moved from Market in Correction to Market in Confirmed Uptrend. This was a record turnaround for this indicator.
The FOMC announcement created a lot of discussion and debate. The Fed has sang the "dependent on the data" song for a long time, and now, with inflation reported at roughly zero, versus the Fed target of 2%, and employment looking tepid (labor force participation at record lows, etc.), the Fed triggers the rate hike. Maybe some politics going on here? Incumbents can point to the Fed saying the economy is fine.
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The slide in oil prices paused today, or bounced if you are an optimist. Many analysts attribute the market bounce to that hope of a bottoming of oil prices. SPX gained $10 to close at $2022, but RUT continues to be more negative, closing down $8 at $1116. Volatility pulled back almost two points with the VIX closing at 22.7%. Trading volume rose with 2.9 billion shares of the S&P 500 stocks trading. Trading volume rose 8% on the NYSE but dropped 2% on NASDAQ.
Have we now entered the waiting period for the FOMC announcement on Wednesday? Maybe.
Has the recent sell-off been principally driven by the prospects of slower economic growth, evidenced by lower demand for oil? I am inclined to think so. But part of the sell-off could be anticipation of a rate hike by the Fed this week.
That leaves us with the $64,000 question (how many of you remember that TV show?): how will the market react to a rate hike or possibly continuation of the current near-zero interest rates? I have more questions than answers. This is a spooky market, so limit your risk. Don't bet on a direction.
