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This morning's market looked weak, but didn't appear like anything serious was happening. However, it was as though the market sprung a slow, but steady leak that just continued to pull it lower all day. Before we knew it, we were looking at serious losses. SPX lost 1% or $30 to close down at $2061, and RUT even took it on the chin more strongly, closing down at $1234, down $30, but this was a 2.4% drop on RUT. The NASDAQ composite traded more like RUT, losing 2.4% or $118 to close at $4877. All of the major market indexes have been trading weakly for the past three days, but today was a significant shift. As one might expect on a day like this, trading volume spiked up with 2.3 billion shares of the S&P 500 companies trading. Trading volume rose 9% on the NYSE and increased 37% on NASDAQ. Volatility popped up with the VIX increasing almost two points to 15.4%.
The only economic data reported today was durable goods orders for February, which were down 1.4%, a turnaround from the 2.0% gain in January. The market's extreme reaction to this data point reinforces what I have been saying for some time. The unprecedented quantitative easing and extremely low interest rates for a prolonged period of time have created a unique market environment. Wall street veterans have nothing in their past market experience to draw upon; this is new for veterans and newbies alike. No one feels like they know how this will play out. We haven't been here before. Consequently, we have a nervous market that sells to protect profits first and asks questions later. I think this is largely the cause for the V-bottoms and price volatility we have been experiencing for the past couple of years.
My April iron condor on RUT at 1110/1120 and 1310/1320 stands at a net gain of 11% if closed today, and the May position that we just opened last week is already up 4%. I have been nervous about the downside lately and have allowed myself more safety margin when selling the put spreads. On days like today, that feels good.
I close with the two questions on all traders' minds:
1) Where will this correction bottom?
2) Will the bulls buy this dip strongly just as they have for the past two years and create one more V-bottom?
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Thank you for a great, comprehensive set of classes. My intentions are to paper trade and utilise the skill that I have learnt from you. Could you send through the details of the trading platform that was used in your examples. Again, thank you.
Mike
Phoenix, AZ
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The markets traded up strongly today. SPX closed at $2108, up $19. Both RUT and NASDAQ gapped open higher, with RUT closing at $1266, up $11 and the NASDAQ closing up $34 at $5026. RUT set another all-time high today, and NASDAQ is nearing its all-time high at $5049. Trading volume on this expiration Friday would have been higher anyway, but I think the bulls stampeding increased it even more so. Trading in the S&P 500 stocks hit 3.4 billion shares; trading volume on the NYSE rose 87% and trading ran up 55% on NASDAQ.
There wasn't any significant economic data reported today, so I guess we are still riding the FOMC announcement euphoria. One of my newsletters headlined with something to the effect that the Fed has written a blank check - here is how you cash in. The IBD Big Picture technical indicator had not yet posted as I write this, but I suspect their "Uptrend Under Pressure" will shift to "Confirmed Uptrend" tonight.
SPX settled at $2099.02, up $9.60 from yesterday's close. The average move for 2014 was $8.74. RUT had not yet posted its settlement value at the time of writing and I can't hang around; I'm taking my honey out to dinner (yes, I am referring to my wife).
Enjoy your weekend.
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Markets have to take pauses from time to time, and after Friday's huge move higher, a breather or pause should be expected. SPX closed at $2104, down $4. RUT dropped $2 to close at $1265. Volatility increased slightly with the VIX increasing about a third of a point to 13.4%. Trading volume spiked up Friday even more than would be normally expected for an expiration Friday. Hence, lower trading volume was to be expected today with 1.9 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE declined 49% and volume dropped off 40% on NASDAQ.
Existing home sales were reported at an annualized rate of 4.88 million in February, up slightly from January's 4.82M.
My April iron condor on RUT at 1110/1120 and 1310/1320 closed today up 9.5% with position delta = -$73 and position theta = $81. Delta of the 1310 call is just under 9, so the pressure on the call spreads remains minimal.
By all measures, we are in a strong bullish market. However, the pattern of frequent "V-bottoms" is not likely to disappear, so keep your stops tight. Several of the stops on my directional trades are being hit as the market whipsaws, but there's not much you can do about that - whipsaws and V-bottoms are simply characteristic of this market.
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The Fed dropped the word, "patient", from their commentary about when interest rates will rise, and the market clearly liked what it heard. SPX ran upward $25 to close at $2100. RUT traded even higher to set a new all-time record at $1252, up $10. Accordingly, volatility contracted with the VIX dropping almost two points to a touch under 14%. Trading volume spiked higher with 2.6 billion shares of the S&P 500 stocks trading. Trading volume rose 30% on the NYSE and was up 15% on NASDAQ.
I was surprised at the market's intense reaction to the FOMC announcement today. Removing the "patient' adjective would seem to suggest higher interest rates coming sooner, but traders didn't take it that way. The announcement included a downgraded assessment of the strength of the economy and projections of year end interest rates that were lowered from the last announcement. It now seems very strange that just a couple of weeks ago, the markets pulled back because of a fear that the jobs report was so favorable that the Fed would raise interest rates sooner. Trying to put the market on a rational basis that enables some predictability appears to be a difficult, if not impossible, task.
