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One of the traditional Wall Street historical measures is to predict the new year's market performance based on the first five days of January's trading. SPX started the year at $1846 and closed today at $1837. I am not a big fan of these stock almanac type of patterns, but I can't ignore them either. However, this year's first five days is more weak and sideways than bearish. It is certainly true that last year's first five days of trading did correctly predict a strong market, although with unprecedented price volatility.
SPX closed unchanged at $1837 and RUT was also unchanged at $1157. Trading volume was up a bit with 2.4 billion shares of the S&P 500 trading today. Volume increased 4% on the NYSE and increased 3% on NASDAQ. SPX traded to its low of the day at $1831 shortly after the open and then strengthened. The Fed minutes were released this afternoon and it seemed like the market slowly declined thereafter to nearly match the low about thirty minutes before the close; but a rally in the last few minutes brought SPX back to unchanged on the day.
My Jan RUT iron condor stands at a net P/L of -$1760 on 20 contracts or -10% with position delta = -$150 and position theta = +$440. The 1175/1185 call spreads remain squeezed, but the theta decay is helping more each day as we near expiration. I might manage to collect a small gain after all.
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The S&P 500 Index finally turned in a positive number for the new year, rising $11 to close at $1838. RUT followed suit with a ten dollar increase to $1158. Trading volume expanded with 2.2 billion shares of the S&P 500 stocks trading today; trading volume increased 11% on the NYSE but was flat on NASDAQ.
Volatility continued to decline with a little more than a half point drop to 12.9% on the VIX.
Today's gains were significant; SPX recovered about half of its losses since the first of the year in one day. Support at $1810 remains the level to watch for a pullback, while a break above resistance at $1850 would suggest a return to rally mode for the bulls. RUT has been trading in a more narrow range, bouncing off support at $1147; but it couldn't hold its high today at $1160. One of the market measures I watch is the difference between new highs and new lows on the NYSE. While that indicator was steadily declining toward the end of 2013, it appears to be rebounding the last two days. It almost seems as though the market hears all of the CNBC gurus predicting correction and is determined to defy the conventional wisdom. We'll see.
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The holidays, plus a snow storm, conspired to keep the markets churning largely sideways on low trading volume. SPX lost one dollar to close at $1831. RUT, by contrast, gained $5 to close at $1156. Trading volume dropped from yesterday's already low number to 1.7 billion shares of the S&P 500 stocks. Trading volume on the NYSE decreased 11% and also decreased 4% on NASDAQ. Monday should give us a better clue as to this market's direction.
Volatility pulled back by about half a point on VIX, ending the day at 13.8%.
There were no economic data reports of any consequence.
Enjoy the balance of the holidays. It's back to work on Monday!
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Markets traded down today on increasing volume, but support levels aren't being broken; so one has to concede that control remains with the bulls, at least for now. SPX lost $5 to close at $1827, while RUT traded down $9 to $1147. Trading volume popped upward with 2.1 billion shares of the S&P 500 stocks trading today; the 50 dma = 2.0B. Volume increased 15% on the NYSE and increased 36% on NASDAQ. But one has to take these increases with a grain of salt, since we are coming off the low volumes of the holidays. Volatility declined slightly with the VIX closing down 0.2 points at 13.6%.
Economic data were mixed today with the ISM services index coming in at 53.0 for December, down from 53.9. But factory orders increased 1.8% in November, which was greatly improved over the half percent decline in October.
It is difficult to confidently say the bears have finally taken control of this market as long as support on SPX at $1810 continues to hold. But consider this: SPX broke out above resistance at $1810 (set back in late November and early December) on December 20. SPX then traded to a high of $1849 on 12/31. SPX has now given back $22 or 56% of that gain. We have a strong support level at $1810 that remains intact, but the bulls have given up a lot of previous gains at this point. It is enough to at least increase one's caution. Even more caution may be generated when you look at the RUT chart. RUT closed today at the late November high of $1147. RUT is already knocking at the door of its support level that is parallel to SPX's $1810. Small caps lead the bull market higher, but they also lead the bear market lower.
My Jan iron condor on RUT now stands at a net P/L of -$2,240 on 20 contracts or -13%, with position delta = -$29 and position theta = +$388. This position is now almost perfectly delta neutral with two weeks to go; as one can see from the theta/delta ratio, time decay is now strongly favoring the position. The danger to this position would be a large sudden move in either direction. A little sideways meandering would be ideal.
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What a difference a year makes! Remember the first trading day of 2013? It was as strong a spike upward as was today's downward push. SPX closed down $16 or 0.9% at $1832 and RUT dropped $13 or 1.1% to close at $1151. The fact that RUT decreased more than SPX underscores the bearish move, but it is far too early to put on the bear suit. RUT bounced off support at $1147, the high set on November 29th. The parallel support level on SPX is at $1810, and we are not even close to that level. Volatility has risen the past three trading days and gapped open higher this morning, with VIX closing up a half point to 14.2%. But that remains a relatively low volatility historically. Many of us may be expecting a correction and even arguing it is overdue, but today's price action doesn't necessarily signal the beginning of a correction. This could be a more benign cooling of the market exuberance via a period of sideways to slightly downward trading. But the memories of last year are fresh - every one of those dips last year were buying opportunities as the bulls roared back.
Trading volume was up today with 1.9 billion shares of the S&P 500 stock trading, but these increases are off low holiday numbers (the 50 dma for volume on the S&P 500 is 2.1B). Trading volume was up 17% on the NYSE and up 27% on NASDAQ.
My Jan iron condor on RUT is positioned at 1110/1120 and 1175/1185 with a net P/L of - $3,900 on 20 contracts or -22% with position delta of -$65 and position theta = +$270. This position still retains a good profit potential but has been adjusted and repositioned as the market charged forward after the Fed announcement. So it remains underwater from the adjustments and we'll see where this one ends up.
I have read many year end summaries of the 2013 markets and the common denominator of these articles is that it was an odd, outlier of a year. Hedge funds and other professional traders had a tough year. The huge 30% gains of the S&P 500 are deceptive. Very few traders achieved those gains. The markets of 2013 threw traders for a loop with several 4-5% pullbacks that were immediately reversed into the stratosphere. It was a tough year to trade. Hopefully, 2014 will be friendlier to us.
