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A report of declining exports from China came out over the weekend and caused Asian markets to trade down last evening. That continued into the western markets today with SPX opening weakly and breaking down through support at $1870 to reach $1867 late morning before bouncing. SPX strengthened all day and hit its high for the day at $1878 just before close at $1877, down $1. RUT lost $3 to close at $1201. VIX spiked up as high as 15.3%, but settled down as the market strengthened and closed unchanged at 14.2%. Trading volume fell off markedly today with 1.8 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped off 15% and trading decreased 3% on NASDAQ.
The hammer candlestick on SPX is consistent with the recent dojis. Every time the bears manage to pull SPX lower over the past few trading sessions, the bulls come in and bid it back up. Today was an exception in that the $1870 support level was pierced before the bulls regained control. The hammer at the top of a rising trend could be a sign of the underlying bullish strength, but it may also be significant that the bulls could only manage to get back to the opening price by the end of the day.
I also noted a continuation of the pattern we have seen now for four trading sessions: SPX manages to close close to unchanged while RUT slowly declines. That could be a sign of traders taking their profits in the small cap stocks they consider most at risk in a decline. In any case, all that may confidently be concluded is that the bulls and bears remain relatively well balanced at this point. We remain at a tipping point. Be cautious.
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All anyone could talk about yesterday was the coming jobs report. Estimates ran as low as 85k, but very few exceeded the actual reported number of 175k. The Labor Force Participation rate remains at historic lows, but at least it didn't decrease farther. The unemployment rate blipped up to 6.7%. All in all, one would have thought it was off to the races for the bulls, and it was, for a few minutes. SPX bounced off support at $1870 around 11 am ET, but strengthened thereafter to close at $1878, up one dollar for the day. RUT lost one dollar to close at $1203. VIX opened lower at 13.5% but ended the day at 14.1%, close to unchanged from yesterday.
Doji candlesticks appeared today on both the SPX and the RUT charts. This underscores the relative balance between the bulls and bears that we have seen over the past several sessions. Consider today's session; the bulls took off on a strong jobs report this morning, but were immediately pulled downward by the bears. SPX hit $1870 and the bulls came back to the party and pushed it back up to end the day basically unchanged. I think it is important to note RUT's contrasting behavior; RUT has now decreased for the last three days. Admittedly, it hasn't dropped very far, but it still makes me wonder. At a minimum, it supports the sideways trading range we have been observing.
I will be interested to see what Monday brings.
Enjoy your weekend.
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It was a little difficult to understand why the market plunged on the basis of the tensions in the Ukraine, and it was just as odd to see the market rally so strongly one day later. SPX shot up $28 to close at $1874, a new all-time high. RUT also closed at a new all-time high at $1209, up $32. And volatility collapsed, with VIX shaving off 2 points to 14.1%. Trading volume was not as strong as those gains might have suggested. Trading in the S&P 500 stocks was basically flat at 2.2 billion shares. Trading volume was up modestly on the NYSE at +4%. But trading volume was up strongly on NASDAQ at +17%.
RUT is now at the top edge of its Bollinger bands; SPX is close, but not quite at the upper edge. Of course, stocks and indexes often track along the upper or lower edge of the Bollinger bands for several sessions. The bottom line is that all signs are bullish, but one has to acknowledge that the market is edgy and ready to head for the exits on any negative news. I have to admit that I don't understand the strength of today's rally. We didn't have any economic news today, but tomorrow will be different with the Fed's Beige book, ADP employment numbers, and the ISM services index. It's hard to predict what this market may do with those reports. Is bad news still good news because it means the Fed will stay involved? We'll see.
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As one might have expected after such a huge run yesterday, the markets traded largely sideways today. SPX closed at $1874, unchanged on the day after trading as low as $1871 just after the open and then again 15 minutes before the close. RUT gave back $3 to close at $1206. Volatility shrank a bit with the VIX decreasing about two tenths of a point to 13.9%.
ADP's private employment report was released with 139 thousand new jobs, up from last month's 127k. This report has analysts speculating on the jobs report due out Friday morning. The ISM services index reported out at 51.6 for February, down from January's 54.0.
Trading volume also fell off from yesterday with 2.1 billion shares of the S&P 500 trading; the 50 dma = 2.3B. Trading dropped 13% on the NYSE and decreased 8% on NASDAQ.
The markets traded off a bit after the release of the Fed's Beige Book, the minutes from the last meeting. But then they recovered into the close. There wasn't much real news in the minutes; most Fed districts reported moderate to modest growth. A few mentioned the weather as a hindrance to growth, especially in the northeast.
The markets are at an odd juncture. Most measures from the price charts remain bullish, but it has been a long bullish run. Many traders are predicting a correction. But this scene has been playing out since before the first of the year with many doomsayers on CNBC and in the news. But the bottom line is that those who have stayed long this market since January of 2013 have profited nicely - but they must have been asleep for all of these sudden drops and rebounds (or on Valium). That probably explains why very few traders matched the S&P 500's +30% performance last year.
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Concern about the Russia/Ukraine conflict appeared to cause traders to take profits and look for safety. SPX closed down $14 at $1846 and RUT closed at $1176, down $7. As one might expect, the VIX spiked upward two points to close at 16%. At these levels of volatility, the market is on alert for lower prices, but this is still well short of the 18%+ levels that characterize the early stages of pull backs and corrections. Trading volume dropped off from Friday with 2.2 billion shares of the S&P 500 trading. Trading declined 12% on the NYSE and declined even more on NASDAQ at -17%.
The ISM manufacturing index reported a gain from 51.3 to 53.2 in February, but construction spending slowed at +0.1% in January as compared to a +1.5% gain in December. No significant economic news is due tomorrow. Wednesday brings the Fed's Beige book, ADP employment numbers, and the ISM services index. The weekly unemployment claims numbers come out Thursday, and the jobs report comes out Friday morning.
Markets forecast the future, so it isn't any surprise that the news from Ukraine is causing some angst. Depending on the turn of events there this week, these economic reports may not be terribly relevant to the market. The fact that today's market drop was somewhat measured and occurred with lower volume are positive indicators. But each day will be a new market.
My March iron condor has been adjusted and repositioned several times; at this point I have put spreads at 1120/1130 and call spreads at 1200/1210. It is a tight position as we move into the last two weeks of the expiration month. Most likely I will be taking a loss this month; the several adjustments have taken their toll. But the game isn't over yet.
