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After yesterday's strong push back higher, one might have expected a continuation of the bullish trend. The markets opened weakly this morning, but regained their footing by noon and closed with modest losses on the day. SPX lost $5, closing at $1763 and RUT closed down $5 at $1104. Volatility rose a touch with VIX closing up three tenths of a point at 13.3%. Trading volume was modestly higher with 2.0 billion shares of the S&P 500 trading today (up from 1.9B yesterday). Trading volume increased 13% on the NYSE and increased 7% on NASDAQ.
The ISM Services index came out this morning at 55.4 for October, up modestly from last month's 54.4. But that didn't seem to impress the markets. The Boston Fed president, Eric Rosengren, was reported to have said that the FOMC will keep interest rates low for "quite some time". You might think that would encourage the bulls, but it didn't appear to have much effect. My impression is that more and more market observers are worrying about the long term effects of the Fed meddling in the markets.
My Nov iron condor on SPX continues to benefit from time decay lessening the loss on the position to -9% with position delta = -$66 and theta = +$230.
In after hours trading the market darling, Tesla, appears to have stumbled with the shares down over $20 to $157 in after hours trading following their earnings announcement. Is this the beginning of a slide or will the bulls come to the rescue?
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Just when many of us were counting on a small correction, the markets turn and bounce strongly - surprise! SPX gained $5 to close at $1766 and RUT outperformed SPX with an eleven dollar gain to close at $1107. However, trading volume fell off to 1.9 billion shares of the S&P 500 stocks (the 50 dma = 2.1B). Trading on the NYSE dropped 17% and trading volume decreased 7% on NASDAQ. SPX opened strongly this morning and then traded down to its opening price by mid-morning. But the remainder of the day saw a slow but steady climb higher.
There weren't any significant economic reports to drive this market today. Many are looking forward to the Twitter IPO on Thursday and the jobs report Friday.
Perhaps the bullish undercurrent is just too strong to allow a correction, and we will trade sideways for a while and burn off the excesses. The test of that theory will be whether SPX can break out above the highs set last week around $1775. Today's gains on weak volume don't provide very strong motivation to buy into this market. Many of the gurus on CNBC are predicting a correction, but the market has a way of surprising traders.
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The markets opened and traded down this morning, but had moved back into positive territory by the afternoon. However, a sell off in the last hour of trading wiped out all of the earlier gains. SPX lost $7 to close at $1757 and RUT closed at $1100, down $5. Trading volume jumped up in this sell off with 2.4 billion shares of the S&P 500 stocks trading. Trading on the NYSE increased 15% and trading volume increased 20% on NASDAQ. Perhaps fund managers were taking profits at month end? Volatility was largely unchanged with the VIX at 13.8%, up a tenth of a percent. Today's drop on increased volume after yesterday's drop after the FOMC announcement is one more bearish signal for this market. Apparently, the Fed's pessimistic assessment of the economy was regarded as bad news this time, instead of the "bad news is good news" reaction we have seen recently.
The Chicago PMI jumped markedly from 55.7 to 65.9 for October. One might have expected that report to buoy the markets, but it didn't. Unemployment claims came in at 340k, down ten thousand from last week, but continuing claims rose by 38k.
$1750 was a weak resistance level for SPX on the way up. I will be watching that level for possible support. Otherwise, the top around $1730 from late September is the next solid support level.
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SPX traded lower through the middle of the day, but then recovered sufficiently to close with a $5 gain at $1762. However, RUT continued its slide downward with a loss of $4. closing at $1096. One positive sign was RUT's low on the day at $1087, almost ten points lower than its close. That suggests some buying strength around support at $1088, the high set in early October. Trading volume fell off today with 2.3 billion shares of the S&P 500 trading. Trading volume fell 3% on the NYSE and dropped 14% on NASDAQ.
Due to the government shutdown, the jobs report has been delayed until next Friday. The ADP report came out a couple of weeks ago at a modest 130,000 jobs, so expectations have been lowered for the federal report.
My November iron condor on SPX is doing well with a net loss of $1,900 or -9% with position delta = -$79 and position theta = +$122. However, due to previous adjustments, the best outcome for this position is a loss of $660 on 20 contracts or -3.9%.
Enjoy this nice fall weekend. We are starting to rake leaves in this neighborhood.
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The markets have been showing signs of weakness for several days, most notably RUT's lack of leadership while SPX traded higher. That trend continued this morning with RUT trading lower even as SPX traded upward. But then SPX weakened and traded down to about $1764 before the FOMC announcement at 2 pm ET. Then SPX traded even lower to its low of the day at $1757. But it recovered somewhat before closing down $9 at $1763. In stark contrast, RUT traded lower all day, hitting its low around 2:45 pm ET at $1104 before closing at $1106, down $16.
Volatility spiked during the trading day but settled at the close with VIX at 13.7%, down only two tenths of a point. RUT's comparative weakness is a bearish sign for the market. Trading volume was flat with 2.1 billion shares of the S&P 500 trading. Trading volume increased 2% on the NYSE and was flat on NASDAQ.
The consensus expectation for the FOMC announcement was a continuation of stimulus, given the weak economic data reported since the last meeting. I had expected SPX to spike upward after the announcement, and thought I would hedge or close my Nov call spreads. But after watching RUT lead lower all day, I decided it was safe to leave my November iron condor in play. It remains underwater, but the delta of the 1800 calls is now down to 16, so much of the pressure has been relieved.
The question for traders is whether this is merely a brief consolidation phase in the bull market or a trend reversal. That question causes me to reflect on the advantages of non-directional trading...
