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The markets calmed a bit after yesterday's exuberance. SPX pulled back $11 to close at $2052, while RUT stayed pretty flat, losing one dollar to close at $1189. Volatility was up just a tad at 16.7%. Trading volume fell off from yesterday with 2.2 billion shares of the S&P stocks trading; this is right at the 50 dma. Trading declined 8% on the NYSE and declined 16% on NASDAQ.
The last pull back began as SPX opened at $2063 on January 9th and then proceeded to drop to $1993 on January 15th. SPX closed yesterday right at that opening on January 9th as the pull back began, so I was interested to see if we could break out above that level, but it wasn't to be... At least it didn't happen today. Perhaps the bull trend is on hold for a bit as the market consolidates and chops sideways.
Existing home sales came in at 4.93 million for 2014, representing a 3.1% decline year over year. This was the first annual decline in four years.
Our February condor position on RUT closed at a net gain of 11% today. Delta for this position is less than a dollar per contract, so we are very well positioned at 27 days from expiration. Next week brings some closely watched earnings announcements with AAPL, AMZN, GOOGL, and FB.
Have a great weekend.
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The markets appear to be calming a bit today - no extreme moves and volatility is beginning to contract. SPX gained $10 to close at $2032. But RUT was weaker, closing at $1166, down $4. The VIX closed the day at 18.9%, down over a full percentage point. Trading volume fell off with 2.2 billion shares of the S&P 500 trading today. Trading volume declined 8% on the NYSE and declined 5% on NASDAQ.
The SPX chart now looks like a choppy sideways pattern is shaping up. A key question is whether SPX can break out above the 50 dma at $2045 or be pulled back closer to the low set by the last two pull backs around $1900. It is remarkable that we have seen three corrections or pull backs just since the beginning of December. One has to conclude that the bulls have sufficient strength to hold this market up, even if they appear to have lost the strength to drive it higher. And this also shows that the bears cannot really make a case for reversing the trend. Perhaps this balancing of power between the bears and the bulls is shaping up for a classic sideways market with higher than average choppiness.
The Stock Traders Almanac has developed two January indicators with good historic accuracy. One is the First Five Days indicator and the other is the January Barometer. The First Five Days indicator simply tells us that the full year will be bullish if the first five days are bullish; this indicator has proven prophetic 85% of the time and the January Barometer has a 77% batting average. The First Five Days "sorta" came out bullish with the first five days being up by less than a tenth of a percent. We have to wait until month end for the January Barometer. The Stock Traders Almanac also makes an interesting observation: there has not been a down market in the pre-presidential election year since 1939.
My February condor continues to plod along with a 4% gain thus far; we are now under thirty days to expiration, so this sideways market is working well for this position. The maximum gain is 19%, but we will likely close it early for less than that gain. We are well into earnings season, so we may see some market choppiness as traders attempt to translate individual company performance into overall market prospects.
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The weakness in the markets continued today. Lower commodity prices in general, not just oil, have analysts worried that a global recession is in the making. Copper spot prices hit a six year low. The retail sales numbers for December were released today and were down 0.9%. Lower oil prices contributed to that, but after pulling out autos and gas, the number is still negative at -0.3%. Adding fuel to the fire, J.P. Morgan missed their earnings target; the combination of all of these effects weighed on the market.
SPX lost $12, closing at $2011. RUT gapped down at the open, but actually traded higher during the session. But due to the gap down, RUT closed down $4 at $1177. Volatility rose again with the VIX hitting 21.5%, up one point. SPX traded as low as $1988 today, dipping below the low from January 6th of $1992; the pull back in December marked a low of $1973. If we break $1970, we could start to see real damage, more like the October correction.
Trading volume was up again today with 2.7 billion shares of the S&P 500 stocks trading. Trading on the NYSE was up 2%, but trading volume on NASDAQ declined 4%.
My February condor on RUT remains about 3% in the black. The short puts at $1080 appear to be safe at this point, but with everyone crying that the sky is falling, who knows?
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The markets appeared to bounce off support established just after the first of the new year. But it is a tenuous conclusion, especially since the economic data to support this recent market weakness appear absent.
SPX closed up $27 at $2019 and RUT gained an even larger percentage, closing at $1177, up $22. The VIX pulled back over a point to close at 21.1%. Trading volume was up modestly with 2.6 billion shares of the S&P 500 stocks trading. Trading on the NYSE was up 9%, but trading volume was flat on NASDAQ.
The CPI declined 0.4% in December, while the PPI declined 0.3%, so inflation seems largely absent, at least according to the official data. Industrial production for December dropped 0.1%, in contrast to the 1.3% increase in November. Capacity utilization was flat at 79.7% for December (80% in November). The University of Michigan's consumer sentiment survey peaked at 98.2 for January, up from last month's 93.6, which we thought was high. This is an eleven year high for this survey with consumers probably buoyed by the large decrease in gas prices.
SPX settled at $1989.68, so both spreads in my January condor expired worthless, but the market required two adjustments to this position and both adjustments were expensive due to the extreme market whipsaws, overwhelming our potential profits. This position lost 6%, but our February position is already up 4%. For those of you trading Russell (RUT), it settled at $1150.75.
The markets will be closed on Monday, so enjoy your long weekend.
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I enjoy roller coasters, but not with my money! Early this morning, I checked Asian and European markets and they were mostly in positive territory. Then I saw that the S&P futures were up nearly ten points, so that was reassuring after the market weakness of the past two days. When you add in my general skepticism about lower oil prices causing market weakness, you may imagine that I was feeling smug this morning as SPX opened and traded up to $2057. But then the bottom fell out of the market about 11 am ET and fell to the intraday low of $2008 by 2:15 pm ET. That was a 2% swing! We normally think we have seen a strong market move when we see a one percent move one way or the other over a day's trading. Today we witnessed a 2% move within about three hours. That puts a new definition on a volatile market.
SPX closed down $5 at $2023, but RUT managed to hang onto a fifty cent gain, closing at $1181. Volatility spiked up almost a full point to 21.1%, close to the closing price of VIX at 21.1% one week ago. I thought that was the volatility peak, and therefore the market low, but maybe not.
Trading volume popped up today with 2.5 billion shares of the S&P 500 stocks trading. Likewise, trading was up 22% on the NYSE and 16% on NASDAQ. That was probably due to traders scrambling as the market whipsawed up and then back down.
The JOLTS job opening report came in at 4.97 million job openings for November, up almost 3% from October.
So where does this leave us? Good question. I take some reassurance from RUT's relative strength, but this market's volatility is unnerving. Perhaps we are seeing a choppy sideways market, but one where the chop is higher than normal, or at least what we thought was normal. In times like these, I prefer non-directional trading, although the adjustments are more difficult. The spreads of my Jan SPX iron condor at 1940/1950 and 2160/2170 will expire worthless, but the adjustments as the market whipsawed me back and forth chewed up my potential gains; this position will post a 6% loss. My RUT Feb iron condor at 1070/1080 and 1300/1310 stands at a net 4% gain.
