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Monday's market was flat; Tuesday's market rallied, and Wednesday's market gave back all of yesterday's gains. SPX lost $23 to close at $2080 and RUT lost $12 to close at $1192. Volatility contracted with the VIX closing at 15.9%, down 1.2 points.
ADP's private employment report came in at +217k for November. the FOMC's beige book, the minutes from the last meeting, were released this afternoon and seemed to be generally upbeat about the country's economic growth. Janet Yellen spoke today and reiterated that theme of modest, but positive progress and anticipated we would see inflation make its way closer to the Fed's target of 2% in coming months. Her comments about future inflation rates were curious since both the CPI and PPI have been steadily tracking near zero for a long time. In summary, the beige book and Yellen's remarks lead analysts to expect an interest rate hike to come out of the FOMC meeting December 15-16.
It seems as though the market contracts every time Yellen or other members of the FOMC say anything that could possibly be interpreted as leading to an interest rate hike. Would a quarter point change make any significant difference? I doubt it. And interest rate hikes in the past have generally been met with bullish markets, not bearish markets. But one could correctly argue that this low interest situation is unlike anything in this country's economic history. It will be interesting to see the eventual outcome of this drama.
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The market has bounced back strongly today. I hedged my Dec position Friday "just in case", so this bounce causes me to look over my shoulder once again. Do you ever feel the market is just watching you trade and is determined to move the other way? Just because I am paranoid doesn't mean the market isn't really after me...
SPX closed at $2053, up $30. RUT closed up $10 at $1156. I am in Chicago for some meetings, so I don't yet have all of the trading volume data, but preliminary numbers look to be down about 10% from Friday. Volatility pulled back about two points with the VIX closing at 18%.
We are still well positioned with our December iron condor on SPX, but we have gobbled up a lot of our potential gains with multiple adjustments.
Some of you may have noticed my web site was down last night. The hackers found me once again. But we are back up and believe we have plugged the holes. This is just a cost of doing business on the internet. Tune in tomorrow to see if this market is really bouncing or just toying with us.
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The old adage, "Count to ten before you respond", is what comes to mind with the current market. The market is bleeding off some of the excesses of the past few weeks. After record gains in October, we are grinding slowly sideways and slightly downward. SPX closed down seven dollars to $2075. RUT lost ten dollars to close at $1178. Volatility rose a bit with the VIX rising almost a full point to 16.1%. Trading volume fell off with 2.2 billion shares of the S&P 500 stocks trading today. Trading volume dropped 1% on the NYSE and declined 16% on NASDAQ.
No significant economic data were reported today.
RUT is trading roughly at the high hit after the retest of support in mid-September. RUT is a long ways from its recent high in June, around $1296. By contrast, SPX traded within twenty points of its June and July highs before this most recent pull back. The significant point is that the small caps are not following the blue chips higher. Could they be leading the market lower? I don't think they are forecasting a bearish trend. I think this market is held up by Fed QE and low interest rates, but held down by weak economic data and a global economic slowdown.
We may be stuck in a sideways range until the next Fed meeting in December.
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It is hard to believe that this is the same market that gained 12% just last month. SPX closed down $29 today at $2046. RUT also closed down, with a 23 point loss to $1155. Volatility jumped over two points with the VIX at 18.4%. Trading volume was up across the board with 2.5 billion shares of the S&P 500 stocks trading (up to the 50 dma). Trading volume rose 9% on the NYSE and increased 7% on NASDAQ.
Initial unemployment claims were flat with last week at 276k. Continuing unemployment claims increased by five thousand to 2.174 million. This was the only significant economic data reported today, so what sparked this push lower? Some analysts cited sliding oil prices. Others are worrying about the FOMC raising interest rates in December. I also read about an IMF (International Monetary Fund) report that apparently speculated about an extended period of low global economic growth. The concern about interest rates appears to be more widespread, but I'm not sure why. Past history doesn't support the idea of the market tanking when the Fed raises rates, and certainly not after a quarter or half point rise in rates, which is probably what we will see in December. The bottom line is that I'm not sure what changed to turn this market on its head. I was surprised at the strength of the rise in October and now I am surprised by what is becoming a significant down draft. Perhaps I am being too honest here, but predicting this market's turns appears to be beyond my abilities.
SPX and RUT both closed at their lows for the day - a worrisome sign. RUT landed on the 50 dma. We'll see if that acts as support. The area on RUT from $1140 to $1170 was a congestion area for RUT in October; perhaps it will hold as support if the 50 dma is broken.
My December iron condor on SPX in the Flying With The Condor™ service is delta neutral at this point (less than $1 per contract), but we have rolled spreads twice and hedged once, so that has diminished our potential gains. We stand at -13% on this position. Unless this downturn gets truly ugly, we should be OK since our put spreads are about $100 OTM.
We'll see what tomorrow brings...
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The jobs report was surprisingly good this morning with 271 thousand jobs and a slight reduction in the unemployment rate, down to 5.0%. However, the Labor Force Participation Rate sunk to a new low as people continue to give up on looking for work. The markets opened weaker after the jobs report, presumably because traders fear this will result in an interest rate hike in December. However, SPX strengthened as the day wore on, closing down one dollar at $2099. RUT actually traded stronger than SPX for a change, rising $9 to close at $1200. But RUT remains relatively low as NASDAQ and SPX near their all-time highs. RUT must grow 8% before it can reach the high set in June. But SPX and the NASDAQ Composite are only one percent off of their highs.
The VIX pulled back almost a point to 14.4%. Trading volume increased today with 2.6 billion shares of the S&P stocks trading. Trading volume rose 10% on the NYSE, but rose only 1% on NASDAQ.
SPX is nearing its all-time high around $2130, but the economic data and the results of the latest cycle of earnings announcements don't appear to be sufficiently positive to push the market to new highs. And the markets appear to be slowing down as we move closer to those highs. As I wrote on Wednesday, another V-bottom has now been entered into the record books. SPX gained over 12% in October!
Enjoy your weekend.
