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These wild intraday market rides are becoming commonplace. But I am not becoming accustomed to these swings. SPX traded over $26 or 1.4% from today's high to today's low. RUT was even wilder with a 2.3% swing today. Amazingly, SPX closed for a $6 rise at $1869 after breaking down through its 50 dma at $1859 and trading as low as $1851 before recovering to close higher. RUT traded weaker than SPX once again and closed down $6 at $1117. RUT traded down through its 200 dma at $1112 and below its low from the last pull back. That wasn't a pretty sight; I was contemplating major surgery, but then it turned back higher. It takes a strong stomach to watch these extreme price swings. I was surprised to see that the VIX remained steady at 14%, unchanged on the day. Apparently those large institutional traders have nerves of steel.
Trading volume matched these huge price swings with 2.8 billion shares of the S&P 500 stocks trading; the 50 dma is at 2.3 billion and Friday's volume was 2.2 billion shares. Trading increased 20% on the NYSE and increased 12% on NASDAQ.
The only economic news of any import was the pending home sales report for March, which came in at an annualized rate of +3.4%, up significantly from the previous month's -0.5%. Most traders are watching for the announcement from the FOMC on Wednesday and Friday's jobs report. Today should have been a slow trading day as traders waited for those events, but it was wild - so what will happen when we have some real news? And I have long since given up predicting what will move this market. Will a strong jobs report unleash the bulls or the bears?
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During the month of March, SPX hit up against resistance around $1882 several times before breaking through on April 1st and set its closing high for the year the next day. Now it appears that $1882 to $1885 is again proving to be resistance for SPX to break out to new highs. SPX gained $3 to close at $1879 today, hitting $1884 intraday and pulling back. RUT lost $3 to close at $1144, well below the 50 dma at $1167. In terms of support and resistance, RUT is in "no man's land", unless you count the two day bounce back upward that ended April 9th at $1160. RUT continues to trade much weaker than SPX; it corrected deeper and has not bounced back with the strength we have seen in SPX.
Trading volume bumped up a bit today with trading in the S&P 500 stocks reaching the 50 dma at 2.3 billion shares. Trading volume increased 4% on the NYSE and increased 21% on NASDAQ. Probably much of NASDAQ's volume was in AAPL, NFLX and AMZN.
Durable goods orders increased 2.6% in March, up from February's 2.1% increase. Unemployment claims were a mixed bag this week with an increase of twenty four thousand in initial claims to 329k. But continuing unemployment claims dropped by sixty one thousand to 2.7 million.
Maybe the "Sell in May" historical trend has started early?
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Markets continued their climb higher today. SPX tacked on $8 to close at $1880 and RUT gained $13 to close at $1156. Volatility remained unchanged with the VIX at 13.2%. Trading volume rose, but this is in comparison to the weak post-holiday trading yesterday. Trading in the S&P 500 stocks came in at 2.1 billion shares, higher than Monday's showing but well below the 50 dma at 2.3B. Trading volume fell 21% on the NYSE and dropped 20% on NASDAQ.
Existing home sales came in flat for March at 4.59 million (annualized).
SPX and RUT have been on a steep rise for the past five or six trading sessions. SPX traded as high as $1885 intraday, reaching the neighborhood of its closing high at $1891 on April 2nd. But RUT is way behind SPX in this race back higher, and has not yet even reached where it opened the year at $1161, much less its 2014 closing high of $1209. This primarily reflects the fact that RUT corrected over 8% in this most recent pull back, as compared to SPX pulling back 4%. But neither index has shown much hesitation in its race higher thus far. I was a little surprised at today's market strength given the escalating tensions in the Ukraine.
My RUT May 1060/1070 put spreads are gaining nicely in this run higher, but I have been unable to find a safe place to establish May call spreads as yet. RUT has been trading higher much too strongly. But I have a potential 8% gain with the put spreads alone and feel no rush to add call spreads to the position.
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The old saying goes, "Markets take the stairs up but the elevator down." For the last 18 months or so, we need to revise that saying to: "Markets now use the elevator in both directions." Consider the last pull back. SPX lost $75 or 4% in 7 trading sessions, but had recovered $64 or 85% of those losses in just 6 trading sessions (through yesterday). Today, SPX finally decided to take a breather, giving up $4 to close at $1875. RUT has been on a hot streak higher as well, but it lost about twice as much as SPX and has recovered only about half of that loss through yesterday's close. Today, RUT also cooled a bit, losing $9 to close at $1147. Volatility has remained about flat with the VIX steady at 13.3%.
New home sales tumbled for March, dropping from an annualized rate of 449k to 384k. This was in contrast to yesterday's flat numbers for existing home sales.
This earnings season has been modest thus far, not enough to get the bulls or the bears too fired up. But with the Fed continuing to pump money into the market and hold interest rates down, one has to give the nod to the bulls. It would be nice to see some significant improvement in the jobs market; we get the weekly unemployment claims tomorrow, but that number has a lot of noise in it and requires several sessions to confirm a trend. Lately, it has been moving roughly sideways - not worse, but not significantly better either.
Will AAPL push the market higher tomorrow? It looks pretty strong in after hours trading.
The period of May though October has historically been a pretty flat, sideways market. Most of the market's gains have come in the November through April period. Could we be seeing the beginning of a sideways, choppy summer or do we have some more upside zip left in this market?
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The markets opened strongly this morning, and for a change, remained strong throughout the day. SPX traded up through its 50 dma and closed at $1862, up $19. RUT gapped open this morning and closed up $12 at $1132. For the record, that only happened because I closed my April put spreads yesterday.
Volatility continued to pull back with VIX losing one and a half points to close at 14.2%. Trading volume fell off from yesterday's highs with 2.2 billion shares of the S&P 500 stocks trading today, falling just below the 50 dma at 2.3B. Trading volume dropped 15% on the NYSE and decreased 23% on NASDAQ.
The question for us to consider: Is this pull back over?
1) How far have we corrected? We are down 4.0% on SPX and 8.1% on RUT on a closing basis. By comparison, the February pull back was 5.7% and 7.4%, respectively. Many analysts will argue this was not an adequate correction, given recent market bullishness.
2) Today's gap open higher was accompanied by decreased trading volume - not reassuring.
3) SPX built strong support at $1815 on Friday, Monday and Tuesday. Tuesday's price action was particularly bullish; SPX traded down to $1816, but then traded 27 points higher. RUT behaved similarly, bouncing off the 200 dma on Friday, Monday and Tuesday. Both indexes gapped open higher this morning.
4) The FOMC beige book appeared to give traders encouragement. Yellen has committed to holding interest rates low even after the economy begins to recover. And don't forget that the Fed is still pumping $50B per month into this economy.
My take is that this pull back is over, but I am not so sure we will see the "straight up" type of bull run we saw so many times in 2013. I am remaining cautious for one other critical reason. Throughout 2013 and so far in 2014, this market has displayed huge price volatility - the price action where we have seen the markets trade fifty points downward and then recover those fifty points within just a few days. For that reason, I am looking at sideways to slightly bullish trades, but I remain cautious.
