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Leadership of this bull market passed to small caps and the NASDAQ last week, and that trend was still evident today. SPX gained $2 to close at $1951, but RUT gained $11, closing at $1176. Trading volume remains anemic with 1.7 billion shares of the S&P 500 trading today; trading volume on the S&P 500 has only touched the 50 dma twice since the first of May. Trading volume declined 2% on the NYSE, but rose 9% on NASDAQ. Volatility increased a bit, with the VIX closing up four tenths of a point at 11.2%.
No significant economic data were reported today; retail sales, the PPI, CPI, consumer sentiment, and unemployment claims report later this week. The FOMC meets next week.
My June iron condor on RUT, positioned at 1040/1050 and 1220/1230, has been enjoying strong profitability during this bull run since the 1220 strikes are so far OTM. But the relentless drive of RUT higher caused me to close those call spreads today - better to lock in a 22% gain rather than risk losing much of those gains later. It seems reasonable and rational to assume this market will level out or pull back, but reasonable and rational aren't words we should use when discussing market price movement.
I noted that SPX, RUT and the NASDAQ composite all surged higher today, but pulled back a bit as the day wore on, leaving longer upper shadows on the candlesticks. This wasn't pronounced enough to call it a signal, but it may be an early sign of a slowing of the bulls' charge. It certainly wasn't enough to cause me to hold my June RUT call spreads any longer.
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SPX set another all-time high today, closing up $4 at $1928. RUT appears to have bounced off its 200 dma and closed at $1131, up $5. RUT has been down so long that the 50 dma is getting close to the 200 dma. Volatility rose a smidge with the VIX adding two tenths of a point to end at 12.1%. Trading volume remains low with 1.7 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE dropped 2% and trading fell off by 5% on NASDAQ.
The ADP private payrolls report came in weak at 179k, adding to speculation about a weak jobs report Friday. The ISM services index reported an increase to 56.3 for May from 55.2 in April.
The markets seem to be pausing, waiting for news from Europe's ECB tomorrow and the jobs report Friday. But you can see the bullish sentiment still controlling the price action. For the past four days, SPX has dipped down significantly, but has always closed higher - and managed a new high today. This is a dangerous market. If the jobs report or some other news seriously disappoints, it could get ugly very quickly. But so far the bulls have it well in hand.
My June RUT condor stands at a net gain of $4,060 on 20 contracts or +27%. Position delta = +$22 and position theta = +$97. Both spreads are far OTM at this point.
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The S&P 500 index opened this morning down a bit, which I took as some reassurance of sanity in the markets. It just seems to me that the markets have been getting ahead of themselves lately. But by mid-morning, SPX had strengthened and closed the day slightly up ($1) at $1924. RUT traded up $6, closing at $1129. The VIX popped up a little on the opening of the market but then pulled back to close at 11.6%, up 0.2 percentage points. Trading volume dropped off markedly with 1.5 billion shares of the S&P 500 stocks trading. Trading on the NYSE declined 9% and trading on NASDAQ decreased 11%.
The small cap stocks continue to trail the blue chips, but appear to be making up some of that differential the past few days. The NASDAQ composite is somewhere in between. My concern about SPX continuing higher relates to the lagging small caps. Market extremes are usually met with extreme corrections. I still remember being at a dinner party during the holidays in December of 1999 and hearing people with absolutely no market experience talking about buying dot com stocks. That was a sign.
The ISM manufacturing index reported a value of 55.4 for May, slightly up from April's 54.9. Construction spending dropped off in April with a 0.2% increase, as compared to March's 0.6% gain. These are only two data points, but they are typical of what we have been seeing now for months and months - mediocre, flat to declining data. The bull market doesn't seem consistent with the hard economic numbers. The Fed's continuing stimulus, even at lower levels, is certainly part of the answer, but repeated all-time highs in the market worry me a bit.
We'll see what tomorrow brings...
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The major indexes just wandered sideways today with SPX closing down $1 at $1924 and RUT losing $3 to close at $1126. The VIX rose slightly to close at 11.9%. Trading volume rose from yesterday with 1.7 billion shares of the S&P 500 trading, but this remains well below the 50 dma at 2.1 billion shares. Trading volume rose 12% on the NYSE and increased 3% on NASDAQ.
The only economic data reported today was factory orders, increasing 0.7% in April, but this was down significantly from March's +1.5%.
Both SPX and RUT traded lower intraday, but the bulls reasserted themselves and pulled the indexes back up before the close. SPX traded as low as $1919 before recovering to close at $1924. Similarly, RUT traded down to $1119 before recovering much of that loss, closing at $1126. This was typical of trading on SPX for the past three days and shows that the bulls still control this market. But this could also be the beginning of some sideways consolidation trading. These long lower shadows on SPX are what prompted me to hedge my July call spreads yesterday. That trading pattern often shows bullish strength.
We may see similar sideways trading tomorrow as traders watch for the ECB interest rate announcement Thursday and the jobs report Friday. But so far, all bad news has been successfully explained away by the bulls. We'll see.
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Traders watched the market basically chop sideways most of the day but then the market traded stronger into the close to set another all-time high for SPX, closing up $4 at $1924. RUT gained $6 to close at $1135. Volatility was essentially unchanged with the VIX at 11.4%. Trading volume spiked up today with 1.9 billion shares of the S&P 500 stocks trading, but volume remains under the 50 dma at 2.1B.Volume rose 17% on the NYSE and increased 8% on NASDAQ.
The Chicago PMI came in at 65.5 for May, up from last month's 63.0. The University of Michigan's consumer sentiment survey came in flat at 81.9.
This market strength in the face of mediocre economic data is somewhat perplexing. I suppose it is the classic "climbing the wall of worry". When I look at the last seven days of trading on SPX, I am impressed. Everyone I hear or read seems to be bearish - I suppose that is why the market continues higher.
I am staying in the Trump Tower in Chicago this weekend and it is very nice. I am sure I will enjoy my weekend; I hope you do as well.
