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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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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!
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The next two weeks will likely be mostly sideways trading in lower volume. But, as I write that, I realize that much of what we know about market behavior based on history has been turned upside down this year. Just one example was the recent 5% correction in the midst of everyone expecting the Santa Claus rally that has a solid history behind it. The options legend, Larry McMillan, wrote in his newsletter this week, "In nearly 45 years of trading, I don't think I've ever seen a market as wild as the one has been this month." That makes me feel better. I am particularly pleased that our November and December iron condor positions in the Flying With The Condor™ service achieved positive returns in the midst of this craziness.
SPX closed up $8 at $2079 today and RUT gained $6 to close at $1202. Trading in the S&P 500 stocks was down a bit today at 2.0 billion shares; the 50 dma = 2.3B. Trading volumes on the NYSE and NASDAQ were both up by large percentages over Friday, but this is the usual post-expiration Friday drop-off. Volatility has almost returned to its pre-correction values, with the VIX closing at 15.3%, down 1.2 points today.
Existing home sales reported for November at an annualized rate of 4.93 million, down from last month's 5.25 million. Analysts were surprised; they had expected around 5.20 million.
The stock and option exchanges will be open for normal hours tomorrow and Friday. They will be open until 1:00 pm ET Wednesday and closed Thursday.
Is your shopping done?
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Hello everyone! Vacations are nice, but it's time to get back to work. The markets appeared to be rebounding at the open this morning, but then things turned dark. SPX hit its low for the day around 1:30 pm ET, but then traded up to about $2016 and gave us hope before turning downward to close at $2003, down $18 on the day. RUT followed suit, dropping $20 to close at $1161. Volatility increased to 21.3% on the VIX, up 1.4 points. The VIX ranged as high as 23% today before pulling back a bit. Both SPX and RUT ended the day with moderately long lower shadows on their candlesticks. This is hinting that we are closer to a bottom, but that is always hard to predict. I took a pass through the price charts of several stocks I trade and many of those charts were showing signs of either finding support or bouncing higher. Long lower candlestick shadows were common.
But that brings me back to wondering why the market is pulling back. Aren't lower oil prices good for almost everyone? The other scary goblin trotted out for us by the bears is Greece and their coming election. The only thing that worries me about Greece is that it may be a hint of coming attractions for us in this country: crushing debt, a preponderance of government bureaucrats, and a population that believes it is entitled to continued handouts.
Certainly, the core economic and employment data aren't strong and robust. But they aren't signaling recession either. The basic economy is strong, but we aren't seeing the strong creation of jobs to accelerate growth out of the recession. By most measures, the Standard and Poors 500 Index is modestly over-priced at worst. But these 5% and 10% pull backs in the market every few weeks are strange and don't seem to make much sense, at least not to me.
Trading volume continued to build today as people get back to work. 2.7 billion shares of the S&P 500 companies traded today, up significantly higher than the 50 dma at 2.0B. Trading on the NYSE increased 14% and trading volume increased 20% on NASDAQ. The ISM Services survey for December was released with a rating of 56.2, down from November's 59.3. Factory orders were unchanged in November with another decline of 0.7%. The FOMC minutes will be released tomorrow and the jobs report comes on Friday. Perhaps this data will stabilize the market.
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I don't know about you, but this market is exhausting. I cannot become accustomed to the swift pullbacks, followed by stellar runs to the upside that recover all of the losses in just a few trading sessions. This last one is another extreme case; SPX lost $102, or 5%, in 7 trading sessions, and then recovered nearly all of that loss in just three sessions! SPX closed today at $2071, up $9, and just shy of where the pullback started only two weeks ago. RUT closed up $4 at $1196. RUT is still trying to recover its losses from the March highs around $1210. RUT has traded weaker than SPX most of this year, but it actually provided the early signals of a recovery this week, posting a gain on Tuesday while SPX was still trading downward. Volatility peaked on Tuesday, with the VIX spiking up over 25% intraday. The VIX closed today at 16.5%, down 0.3 points.
The sharp reversal this week cost me in my January iron condor on SPX. Insurance is never free in this business, but the quick market reversal cost me as I closed my February call options that were hedging my January position. The January condor retains a profit potential of about +6.5% and is well positioned with the 2160/2170 call spreads well OTM. The original potential gain was 17%, so the insurance was costly, but it worked. We are still in the game and have salvaged the trade.
SPX settled today at 2061.01 (RUT settled at $1191.29). My SPX Dec 1940/1950 and 2100/2110 spreads expired worthless. I closed the 2080/2090 call spreads yesterday. They stood 1.7 standard deviations OTM, so the probabilities were definitely on my side. But we have been witnessing some large gap opens to the upside this week. I decided the risk wasn't worth it. Call me a wimp, but I have the scars to show what happens sometimes if you venture out there too far. This closes my SPX December position for a gain of 5.8%. Similar to the January position, December's profitability was reduced by the hedging efforts on the upside as the market ran higher after the October pullback.
I keep a spreadsheet with the difference between Thursday's closing price and Friday's settlement price for SPX and RUT for 2006 through 2014 (I will upload it to my website in the free downloads section). The averages for 2014 for SPX and RUT are $8.74 and $6.14, respectively.
Hard to believe that 2014 is coming to an end. It seems like I just trained myself to write 2014 instead of 2013. But then, you know what they say about old dogs...
