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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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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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Oil continued to trade lower today, driving energy stocks lower (makes sense) and carrying the broad market indexes lower as well (makes no sense). I have never seen so much hand wringing on behalf of lower oil prices. All the years I worked for a large oil company, all I heard were complaints when we made money and cheers when oil prices dropped and we posted losses.
SPX lost $17 to close at $2028, but RUT only dropped $6, closing at $1180. RUT bounced off its 50 dma at $1178, while SPX opened at its 50 dma and continued lower. Trading volume popped up a bit with 2.1 billion shares of the S&P 500 stocks trading today, slightly above the 50 dma at 2.05 billion shares. Trading volume on the NYSE rose 3% and volume increased 10% on NASDAQ.
Alcoa (AA) kicked off earnings season positively, beating estimates and resulting in analyst upgrades. Perhaps a few good earnings announcements will distract all of this negativity around lower oil prices - did we like $4 gasoline?
We are looking at a week full of economic reports as well as continued earnings announcements. The Fed's Beige Book and retail sales are released Wednesday. Unemployment claims, the New York and Philadelphia Fed surveys, and the PPI all report on Thursday. Friday brings the CPI,industrial production, capacity utilization, and the University of Michigan's consumer sentiment survey.
In the meantime, I will be watching support on SPX in the neighborhood of $2000 to see if the market stabilizes.
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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.
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The jobs report came out this morning and may have disappointed a few people. And oil prices continue to drop, although that should be a boon to consumers, but market analysts continue to tell us the market is weak because oil prices are low. That doesn't make any sense to me. When oil was below $10 in the nineties, no one noticed, unless you worked for an oil company. In any case, SPX lopped off $17 to close at $2045. RUT also lost ground, closing down $10 at $1186. Volatility rose a bit with the VIX gaining a half point to close the session at 17.6%. That was a small increase in the VIX for a $17 drop in SPX. It doesn't seem as though the big boys are too concerned.
Trading volume dropped off with 1.9 billion shares of the S&P 500 trading. Volume on the NYSE decreased 7% and trading decreased 18% on NASDAQ. Did everyone took a long weekend?
The jobs report came in at +252 thousand, down significantly from last month's +353 thousand. The unemployment rate dropped again to 5.6%, but that number is basically useless due to the calculation protocols now being used. Most of you rememmber times when we had 5% unemployment; look around. This isn't that kind of booming economy. Many of my acquaintances remain unemployed; empty store fronts are on every block.
Another round of earnings announcements begin next week with Alcoa on Monday. Maybe traders are waiting on the sidelines until they see some of those numbers.
Have great weekend. And if you live around Chicago, try to stay warm. I was shoveling snow this morning and it was cold!
