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After a significant drop yesterday, the markets recovered all of those losses today. That brings us to the big question: is the bullish break-out real or is this just one more case of the price volatility that we have been observing repeatedly for the past year or so? SPX closed upward $19 at $2123 and RUT tacked on $16 to close at $1254. Volatility pulled in a bit at 13.3% on the VIX, but it didn't give back all of yesterday's spike upward. Trading volume also doesn't support the idea of a strong break-out leading to another bullish leg higher. Trading in the S&P 500 was flat at two billion shares - no change from yesterday's sell-off. Trading volume declined 6.5% on the NYSE and rose 5% on NASDAQ.
The NASDAQ composite index made a new all-time high today and all of the financial news folks were touting that achievement. But it was barely a new high and it is hard to put much credence in an up market trading on lower volume. So I wouldn't be betting the farm on a "super bull" or whatever the next leg upward is being called. I am making bullish trades, but they are carefully hedged positions.
My July iron condor on RUT is up 13% and the August position is up 6%. All this thrashing about in the markets is helpful for these delta neutral positions; we don't even have to worry about adjustments and hedges. But who knows what is coming? This down $22 one day and up $19 the next day is a little unnerving.
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The primary thesis of my blogs and newsletter for the past couple of weeks has been whether the bulls would be able to create a strong break-out to new highs to push this bull market even higher. SPX set new all-time highs last week, but the price action remained lackluster and largely sideways, slightly above the previous trading range set by the low in early March around $2040 and the highs around $2120 set in late February and late April. SPX lost $22 today to close at $2104, right back in that trading range of the past couple of months. RUT gapped open lower this morning, sliced through its 50 dma and closed down $13 at $1239. Volatility popped up almost two points on VIX with a close at 14.1%.
Trading volume was markedly higher in supporting this large move downward on the major market indexes. Trading on the S&P 500 stocks came in at 2.0 billion shares, up from Friday's 1.3 billion shares, but still below the 50 dma at 2.1B. Trading volume rose 29% on the NYSE and rose 11% on NASDAQ.
Today brought a mixed bag of economic data, starting with a dismal durable goods orders number of -0.5% for April, down from March's +5.1%. The Case Schiller housing price survey was flat from last month, but remains positive at +5.0%. New home sales increased to an annualized rate of 517 thousand for April. The Conference Board's consumer confidence survey report 95.4 for May, up very slightly from April's 94.3. Perhaps the weak durable goods order number prompted the bears to start rolling the market downhill. Other analysts blamed increasing strength in the dollar. Economic data has been steadily weaker for the past couple of months, so anything could have spooked traders at this point. When your profits are large, it is easy to push the sell button quickly and ask questions later. Of course, all of the talking heads will talk about "Sell in May and go away".
Will the bears continue to press their case tomorrow?
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SPX closed at $2129, up $6 and establishing a new all-time high for the S&P 500 Index. RUT is still lagging behind, but it did accelerate today, breaking through its 50 dma (finally), and closing at $1258, up $14. Volatility closed up a fraction of a point with the VIX closing at 12.7%. Trading volume fell off with 1.7 billion shares of the S&P 500 stocks trading. Decreased trading volume after option expiration this past weekend is normal, but 1.7B remains a low volume number. Trading volume contracted 15% on the NYSE and 3% on NASDAQ.
In short, we are still in this odd space of "sorta bullish". The blue chips are trading higher, but on reduced volume. The small caps are trading higher but only broke out above their 50 dma today.
My July iron condor position on RUT at 1120/1130 and 1360/1370 is up $82 per contract or +10% on capital at risk. This brings our year to date performance in the Flying With The Condor™ service to +25%.
The market trend is bullish, but be sure to have stops in place for all of your bullish trades. It remains a nervous market.
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The FOMC released the minutes from the last meeting this afternoon. At first, the market rallied, but it didn't take long for that spike to dissipate and the markets closed roughly unchanged. SPX lost two dollars to close at $2126, while RUT gained two dollars to close at $1258. Volatility remained unchanged with the VIX at 12.9%. Trading volume contracted with 1.9 billion shares of the S&P 500 stocks trading. Volume declined 5% on the NYSE and was flat on NASDAQ.
The Fed's announcement continued the theme started by Yellen a few days ago with this phrase, "valuations remain stretched for some asset classes". Maybe that phrase poured cold water on the initial bullish response to the minutes.
SPX remains above the old resistance level of $2120, but it appears to be softening, unable to hold the new highs. Maybe we are in for a repeat of late February and late April, when the markets hit new all-time highs, but then pulled back into the trading range.
April's housing starts were announced yesterday with an annualized rate of 1135k, the highest number in seven years. Building permits followed alongside with 1143k, up from last month's 1038k. Tomorrow brings the unemployment claims data, but that isn't likely to move this market; those numbers appear to be stabilized and in a slow decline.
My July iron condor on RUT is now up 11% or about half of its maximum potential gain. This position is delta neutral with a delta of -$2 on twenty contracts and theta of +$45.
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The markets almost appear to be teasing us once again. The more I trade, the more the market seems like a living, breathing malevolent beast. I need professional help. But I digress. SPX closed at a new high yesterday and I was watching the open this morning for a clue as to the future direction - break-out or not? SPX opened this morning at $2122, one dollar higher, but then dropped back a bit to $2117 and then recovered to close at $2123, up $2 for the day. In short, it was a boring day in the markets with an open and close very close to each other. RUT behaved similarly, declining $1 to close at $1244. Volatility continued to decrease with the VIX closing at 12.4%. But this leaves us with the question of whether or not the bulls are going to finally break out to new highs or pull back into the trading range.
Industrial production reported at a decline of 0.3% for April, equal to the decline in March. Capacity utilization for April declined slightly to 78.2% from March's 78.6%. The University of Michigan's consumer sentiment survey reported out at 88.6% for May, down from April's 95.9. Maybe the lower gas price euphoria has dissipated.
So we will wait until Monday to see if the bulls can push this market out of the consolidation range. In the meantime, enjoy your weekend.
