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Markets opened higher this morning, but almost immediately started weakening and chopping sideways. SPX closed at $2001, down $2. RUT lost $7 to close at $1172. RUT remains well off the highs from early July. RUT would have to gain 3% to get back to those highs. SPX has not only set new highs since early July; this index appears reluctant to give up any of those gains. Many analysts were predicting that SPX would bounce off the $2000 mark and decline, but so far, that hasn't been the case. The bulls remain in control of this market, but that doesn't mean it will accelerate higher. The reluctance of the small caps, as represented by the Russell index, to join the party is another signal of "risk off", but short of "sell and go home". Trading volume reinforces this conclusion; it has remained low throughout this summer. Trading in the S&P 500 stocks remained flat today at 1.7 billion shares while volume declined 4% on the NYSE and declined 1% on NASDAQ. The 50 dma of trading volume in the S&P 500 stocks has been steadily declining since early April.
The minutes from the last FOMC meeting, known as the Beige Book, were released this afternoon.The economy was described in neutral to slightly positive terms. Terms like "modest", "moderate" and "mixed" were sprinkled throughout the report. The economy doesn't continue to sink, but we knew that. The Fed doesn't know what to do about an economy that just won't bounce back like it always had in past recessions. The St. Louis Fed issued a paper this week that reports the huge amounts of money that banks and consumers have stashed into reserves or savings accounts over the past several years. From my perspective, it is obvious why consumers are saving rather than spending - they are scared. Another 5000 people lost their jobs in Atlantic City this week. Business has been inundated with bureaucratic rules and taxes since the beginning of this recession. Listen carefully to the politicians; they like to blame business and the rich for all of this country's ills. And we are surprised Burger King left for Canada? Who do we think create jobs? Hint: it isn't poor or even middle class people.
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Trading volume picked up significantly today as traders began to return to the office after the holiday. The S&P 500 Index (SPX) gapped open higher this morning, but then declined to a low around $1995 in early afternoon trading. But the bulls came to the table and pushed SPX higher to close at $2002, down one dollar. RUT traded stronger, closing up $5 at $1179. But RUT is still trading from behind and no where near the highs it hit earlier this year. Volatility rose a bit with the VIX adding three tenths of a point to close at 12.3%.
Trading in the S&P 500 stocks came in at 1.7 billion shares, just below the 50 dma at 1.8B. Trading volume rose 32% on the NYSE and 51% on NASDAQ, but those percentage gains are off low numbers from Friday's pre-holiday trading.
The ISM manufacturing index reported out for August at 59.0, up from July's 57.1. Construction spending rose 1.8% in July, a nice increase from June's decline of 0.9%.
My September iron condor on SPX is pretty well complete at this point with the call spreads closed and the 1830/1840 put spreads far OTM. Assuming those puts expire worthless, we will close September for a gain of about 15%. I opened the October position last week and we are up 2% through today, but a lot can happen in 44 days. The current pause as SPX plays with the $2,000 level is working well for these positions.
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As many have predicted, SPX is pausing to digest the $2,000 mark. This is only natural when you think about it. Many investors see this as the wake up call to take some of their profits off the table. If the bulls are correct, it will be a temporary pause. Two different interviews on CNBC today predicted corrections of 50% or more. Wow! think about that for a while - that would take us back to the middle of 2009. I think I will get my put buying machine tuned up.
SPX closed flat at $2000 and RUT retreated a couple of dollars to $1173. Volatility is close to unchanged at 11.8%. Trading volume is tepid with 1.3 billion shares of the S&P 500 trading - flat with yesterday. Trading volume declined 4% on the NYSE and declined 4% on NASDAQ.
I'm not sure what to think of the talk of such severe corrections. Much of this argument is based on concerns about the Fed's balance sheet as a result of the quantitative easing programs of the past few years. I'm not sure how the Fed will unwind its positions, or what the implications may be - we haven't been here before.
What is clear is that our country continues to go deeper in debt and interest rates are at record low levels. What happens when interest rates normalize? Interest payments on the debt will begin to crowd out other federal spending. Then the U.S. becomes like Greece. What is also clear is that the U.S. is no longer considered a friendly place for business. Much of it is moving off shore or, worse yet, is never starting up here in the first place. No wonder job creation is so sluggish.
Sorry to leave you on a sour note, but I don't think these issues are imagined, and they are serious.
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It seems like SPX hitting $2,000 has brought all of the doom and gloom crowd out of the closet. Or it could be that the producers on all of the financial networks just call those contacts when they think that should be the story. Yes, I am that cynical. In any case,you don't have to go far to hear or read predictions of a severe correction. SPX pulled back as far as $1991 today before recovering to close down $3 at $1997. RUT dropped off $7 to close at $1166. Trading volume continues to be rather low. In fact, the trading in the S&P 500 has been steadily declining since the first week of August, closing today at 1.2 billion shares. Trading on the NYSE declined 11% and volume fell 12% on NASDAQ. Volatility remains pretty low with the VIX gaining three tenths of a point to close at 12.1%.
The second estimate of second quarter GDP was issued this morning at +4.2% and the GDP deflator was reported as +2.1%, up from the first quarter's +1.3%. The PPI and CPI have been running closer to zero. Yellen has said they are watching for inflation to rise to 2% or more before raising interest rates to cool the economy. A move to higher rates will throw cold water on this bull market.
Initial unemployment claims are flat at 298k and continuing claims rose by 25k to 2.53 million. Pending home sales for July increased 3.3%, a nice change from June's -1.3%.
Pardon me while I go back to watching for the sky to fall ( but it will happen when we least expect it).
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The Standard and Poors 500 Index is struggling to get past that large round number of $2,000. Today, SPX ran as high as $2005 but couldn't hold that high price into the close at $2,000, up $2. Technically, SPX broke the $2,000 mark by two cents, closing at $2,000.02. RUT is still playing catch up and gained $10 today to close at $1175. RUT remains far from its closing high at $1208 in early July. Volatility was flat with the VIX unchanged at 11.6%. Trading volume remains flat on the S&P 500 stocks at 1.3 billion shares, unchanged from yesterday, but trading bumped up 8% on the NYSE and increased 4% on NASDAQ.
All of today's economic data was positive with a huge gain in durable goods orders: a 22.6% gain in July as compared toJune's +2.7% gain. The Case Schiller housing price survey came in at +8.1% for June, a bit lower than May's +9.4%, but still pretty strong. The Conference Board's consumer confidence survey hit 92.4 for August, up from 90.3. I'm not sure why this survey of consumers seems to be disconnected from the survey by the University of Michigan.
My September SPX condor only consists of the 1830/1840 puts at this point. I tried to close those remaining puts for five cents today, but couldn't get it filled. I should have entered the order first thing this morning; I might have been filled as SPX spiked up to $2005. Maybe tomorrow.
