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Trading involves a great deal of uncertainty. This is the reason many investment advisers and brokers appear so confident and give you the impression that they understand what just happened in the markets and the underlying reasons for the move. We are looking for that confidence. The markets traded upward today. Why? The Greece problem remains unsolved. The FOMC announcement is still ahead of us. I remained unconvinced that the Greece problem is our problem and whatever interest rate increases are likely to come out of the Fed are probably already priced into the market. But who really knows? All we can do is control our risk in whatever position we take.
SPX closed at $2096, up $12. RUT gained $8 to close at $1270. Trading volume fell off with 1.6 billion shares of the S&P 500 trading. Volume declined 4% on the NYSE and decreased 5% on NASDAQ.
Housing starts dropped a bit in May with 1.036 million, down from 1.165 million. However, building permits were up, increasing from 1.140 million in April to 1.275 million in May. The real estate market remains pretty solid. It is somewhat ironic that real estate lending is where the financial crisis began, and the real estate market has largely recovered, and yet the broad economy remains in the doldrums. Many of the people who lost their jobs in 2008 remain unemployed.
Markets will probably be volatile immediately after the FOMC announcement tomorrow. Don't jump too quickly. The move in the first couple of minutes is often quickly reversed.
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The Empire manufacturing survey reported -2.0 for June, down from +3.1 in May. Industrial production decreased 0.2% in May, slightly better than the -0.5% in April. Capacity utilization remains basically flat with a 78.1% report in May, only slightly different from April's 78.3%. Housing starts and building permits report tomorrow and the FOMC announcement is scheduled for Wednesday afternoon. Thursday brings the CPI and the Philadelphia Fed manufacturing survey.
I doubt we will see much happen in the markets until after the Fed announcement.
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The bulls continued the strong push that began yesterday and tacked on $25 on SPX to close at $2105. RUT gained $17 to close at $1267. And the VIX pulled back a full point, closing at 13.5%. Trading volume was up with 2.0 billion shares of the S&P 500 stocks trading today. But to be fair, that only pushed volume back up to the 50 dma. Trading volume rose 6% on the NYSE and increased 1% on NASDAQ.
RUT's close is near the highs around $1268 back in late March and within striking distance of the all-time high at $1275. SPX is digging itself out of a deeper hole, having just managed today to break above its 50 dma at $2102.
There wasn't much in economic data reported today. We get unemployment claims and retail sales tomorrow.
The talking heads gave credit for today's bullish market to the prospects of a compromise on Greek debt, but this run started yesterday. Look back at the SPX chart for several months and note the candlesticks with long lower shadows. Many times they signal a bullish move. That was what prompted my bullish trade on AAPL yesterday for our trading group. That position is up 10% after just one day - a nice way to start the trade.
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The bullish push higher of the past couple of days sputtered out today. The major indexes posted minor gains on lower volume. SPX opened strongly and traded up to $2115, but then pulled back to close at $2109, up $4 on the day. RUT traded similarly, posting a small gain of $2, closing at $1269. Volatility contracted a bit, with the VIX losing about a half of a point to close at 12.8%. The last two days saw weak gains in trading volume, but trading fell off today with 1.8 billion shares of the S&P 500 trading. Trading volume fell 7% on the NYSE and decreased 9% on NASDAQ.
Initial unemployment claims for the week rose by two thousand to 279k and continuing claims rose by 61 thousand to 2.27 million. Retail sales perked up in May with a gain of 1.2%, but that wasn't enough to get this market excited.
The good news is that all the doom and gloom folks can't seem to get a selling spree started, but the bad news is that the bulls appear to have exhausted all of their energy just maintaining the status quo. So we continue to drift sideways in lower trading volume.
The July iron condor position on RUT in our Flying With The Condor™ service stands at a 16% gain today and the August position is up 6%.
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The markets opened weakly again today, but then surprised traders by rebounding. Are we nearing the bottom of this most recent pull back? SPX traded as low as $2072 before bouncing back to close a dollar higher at $2080. RUT traded down to $1242 but couldn't erase all of its losses, closing at $1250 for a loss of $4. But RUT has not traded as weakly as SPX during this pull back; RUT is trading very close to its 50 dma at $1251, whereas SPX is well below its 50 dma at $2101. In line with the rebounds, volatility contracted a bit with the VIX closing at 14.7%, down six tenths of a point. Trading volume was modestly higher with 1.9 billion shares of the S&P 500 trading. Volume was up 3% on the NYSE and also up 3% on NASDAQ.
Each day it appears more and more likely that the Greece debt crisis is destined to self-destruct. Greece's political leaders are behaving like children who assume the Euro Zone owes them something. The question for us is whether Greece's flame out will impact U.S. markets. Greece serves as a warning of what happens when the entitlement mentality spreads in a country.
The only significant economic data reported today was the JOLTS job openings of 5.367 million for April as compared to March's 5.109 million.
I have positioned the put spreads for my condors well OTM to be safe, and both positions are doing well. The July iron condor on RUT stands at a net gain of 14% and the August position is up 8%. Our Flying With The Condor™ service is up 28% year to date.
Was the "Sell in May" crowd correct?
