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When I looked at the futures this morning, I gasped. Then I gasped again after the market opened and SPX plunged down to $1867 in about 5 minutes. It slowly recovered much of the loss through early afternoon, but then weakened again to close the day at $1893, down $78. RUT lost $45 to close at $1112. Volatility spiked as high as 53% on the VIX, before settling to 41%, up 13 points. Trading volume also spiked, with 4.8 billion shares of the S&P 500 trading today. Trading rose 27% on the NYSE and was up 26% on NASDAQ. This spike in volume is even more significant when you consider that Friday was options expiration which propped up that volume number somewhat.
That initial spike lower on the markets resulted in a lot of discussion in all of the financial media, with repeated references to the May 2010 flash crash. The initial loss on the Dow actually surpassed the May 2011 flash crash.
My Flying With The Condor™ service is 100% in cash, so we are watching the turmoil with a 34% gain year to date. That feels good. But the bigger question remains: is this "V bottom" different? The close today brought the SPX to 11% below the late July high. Is this a correction or the beginning of a bearish reversal? I would be the first to acknowledge the mediocre nature of U.S. economic data, but the data don't warrant this market. Is China's slowdown all that is going on here? More questions than answers.
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We have all seen our share of bear markets, but the past two days have been ones for the record books. Yesterday, SPX lost 2.1% of its value and I think of a one percent loss as a big day. But today, SPX traded down even more strongly, losing 3.2% of its value. SPX closed at $1971, down $65. SPX is now down 4.3% for the year. RUT didn't trade nearly as bearishly today as SPX, and at one point this morning, RUT actually looked like it might trade up to yesterday's close, but it couldn't hold and closed down $16 at $1157. Naturally, volatility has spiked with the VIX hitting 28% today, the highest level all year.
Trading volume was higher today, although at least some of that was due to option expiration. 3.5 billion shares of the S&P 500 traded today. Trading volume rose 28% on the NYSE and rose 25% on NASDAQ.
I was considering hedging my Oct RUT 1060/1070 put spreads this morning, but decided on the conservative path. This market is just too ugly. I closed those spreads for an 11% loss. This brings our year to date gains to +34%, way ahead of the S&P 500. If we get a bounce, I will work at re-establishing my October condor position.
SPX closed at its lows both yesterday and today - a very bearish pattern. After yesterday's extreme bear market, I expected a bit of a bounce, but that faded quickly and today's trading even exceeded the bearishness of yesterday's market. Next week will be interesting. And, by the way, don't tell me this is all about China.
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The markets continue to just ebb back and forth, as though waiting on something to happen. The minutes from the last FOMC meeting will be released tomorrow. Perhaps that will push the market one way or the other, but I doubt it. The Fed rarely gives a definitive peek of the future; they have to keep their cards close to the chest. SPX closed at $2097, down $6, and RUT lost $10 to close at $2115. Volatility increased a bit with the VIX closing at 13.8%, up almost one point. Trading volume remains pretty flat with 1.7 billion shares of the S&P 500 companies trading, but this is well below the 50 dma at 2.1B. Trading on the NYSE increased 3% but trading was down 1% on NASDAQ.
Housing starts came in at an annualized rate of 1.206 million for July, the highest since 2009. Building permits followed suit at 1.119 million.
I took a look at the price/earnings ratio of the S&P 500 companies today; it is running around 21, which is on the high side, but well below the highs around 30 from the dot com bubble. When one adjusts the data based on relative yields, the low interest rates make stocks look more attractive, so maybe the P/E ratio isn't too high after all.
I am inclined to believe the overall market is treading water in advance of news from the Fed about interest rates. In any case, the longer we trade sideways, the more likely we remain in a long term bull market that is just taking a breather. The bulls continue to repel any moves to push this market lower.
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The so-called Beige Book, the minutes from the last FOMC meeting, were issued this afternoon, and it seemed as though that helped the market for a few minutes, but it didn't last. SPX closed down $17 at $2080, just above the 200 dma. RUT lost $13 to close at $1203. Volatility rose with the VIX closing up about a point and a half at 15.3%. SPX opened and sliced down through the 200 dma this morning, hitting its low for the day at $2071. SPX hit its high for the day a few minutes after the Fed minutes were released, but then SPX weakened and closed lower.
Trading volume spiked upward today with 2.2 billion shares of the S&P 500 trading. Volume on the NYSE rose 22% and trading on NASDAQ rose 21%. So we had a weak market day on increased volume - not good.
Both the minutes and various quotes from FOMC members suggest there are strong camps on both sides of the decision to raise interest rates at the September meeting or to wait until December. In the meantime, we are stuck in this trading range. I am watching this market closely. It seems precariously balanced right now and I am unsure what might tip it one way or the other. When a market trades sideways this long, the resulting move higher or lower is usually very strong.
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SPX opened down this morning and hit a low at $2079. But from about 10 am ET on, SPX steadily climbed higher, closing up $11 at $2102. RUT gained $12 to close at $1225. But trading volume continues to be rather weak with 1.6 billion shares of the S&P 500 trading. Trading volume rose 2% on the NYSE and increased 1% on NASDAQ. We remain solidly trapped in the trading range of the past several months. Volatility remains sorta "luke warm" with the VIX at 13.0%, up two tenths of a point today. This isn't much of a rise in volatility, but it is unusual to see VIX up on a positive day in the markets. Hmmm...
The Empire manufacturing survey (from the New York Fed) surprised analysts, plunging in August to -14.9 from July's +3.9 reading. Several signs of a softening economy are starting to pop up - nothing too severe, but enough to raise my concerns.
My Oct iron condor on RUT still only consists of the put spreads at 1060/1070. My plan was to sell the call spreads when the market cycled back higher, but so far, the market hasn't cooperated. This is an excellent example of the downside of legging into a condor position.
I will now return to treading water.
