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The markets pulled back a bit today, causing many bears to wonder if finally their predictions are coming true. But I'm not so sure. SPX closed down $8 at $1746 and RUT closed at $1111 for a loss of $5 on the day. SPX hit its low around 11am ET this morning at $1741 and then recovered to the close at $1746. RUT's candlestick is the classic hanging man which often signals weakness at the top of a trend. Coming after yesterday's doji, this is one more sign of the trend weakening. However, look at the VIX, closing at 13.4%, up just one tenth of a percentage point. That tells me that market participants are not concerned about this move, so I wouldn't put on the bear suit just yet. This bullish trend has been proceeding nonstop for almost a year now, so it is tempting to start imagining the end around the corner. Plus, it is hard to see any really good economic news to build one's confidence. The best I can do is remind myself that the Fed is holding this market up and I should therefore be bullish. That seems to be the working hypothesis to date, with emphasis on "working". Whether it feels good or not, it is working. The corrections have been frequent and volatile, but the bullish trend is intact.
An additional piece of data supporting the slowing market case is the flat to declining trading volume today, with 2.5 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 4%, but trading on NASDAQ increased 2%. But I would also point out that today's market declines were modest and yet volume remained low. Therefore, it wasn't a case of traders heading for the exits.
Unemployment claims are out tomorrow and Friday brings consumer sentiment and durable goods orders. It will be interesting to see how the market handles those reports. Will bad news continue to be seen as good news, i.e., meaning the Fed will continue filling the punch bowl?
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The markets continued to trade higher today and the euphoria continues (unless you own NFLX). SPX gained $10 to close at $1755 and RUT gained $3 to close at $1116. Volatility remained flat with VIX closing unchanged at 13.3%. Trading volume jumped upward with 2.5 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE surged upward 13% and trading on the NASDAQ was up 6%. New market highs are becoming routine events in this marketplace. It makes me uneasy. RUT set a new high with its intraday high of $1122, but it closed almost precisely at its opening price, setting up the classic doji candlestick. The doji is the sign of a marketplace nearly perfectly balanced between the buyers and sellers; candlestick analysts view this as a sign of indecision, and possibly a change in direction.
The September jobs report was issued today, a couple of weeks late due to the government shutdown. It reported a drop in new jobs to 148 thousand and a slight drop in unemployment from 7.3% to 7.2%. Most analysts had expected closer to 180k new jobs. The previous month's reports were revised with August moving up to 193k from 169k. But July was revised downward to 89k from 104k. So the report was similar to recent ones: not too bad, but not very good either. But many view these weak reports as positive news in that the Fed isn't as likely to remove its stimulus programs. That is probably a short sighted viewpoint, but we'll see.
As you probably have guessed, my NFLX earnings trade didn't work as planned. The put helped, but wasn't sufficient to save me. I adjusted the trade this morning, but NFLX just continued to fall all day, so I closed for a loss this afternoon. The CEO's comments on the conference call that the stock price had traded too high apparently were taken to heart.
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SPX jumped $23 to close at $1722 and RUT gained $13 to close at $1092. This was a new all time high for RUT and SPX is only a few dollars off of a new all time high as well. Trading volume jumped up to 2.3 billion shares of the S&P 500. Trading on the NYSE increased 7% and but trading on NASDAQ only increased 1%. Volatility collapsed almost four points to close at 14.7%.
This market appears to be set on continuing to make new highs. This sets off my personal alarms, but we have to respect the tape. Trade small and hedge yourself appropriately.
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Markets took a pause today, but the bulls remain very much in control of this market. The bears are left trying to argue that the markets are over valued. That is always a tough argument. Consider Tesla. By most any financial measure the stock has been and continues to be over valued, but it continues to trade higher. Tesla is showing a little weakness lately, but it remains over $170/share. The bulls took a little bit of a pause today, but the bull trend remains strong. SPX closed unchanged at $1745 and RUT dropped $2 to close at $1112. Volatility is flat with VIX closing at 13.2%, unchanged on the day. Trading volume dropped back with two billion shares of the S&P 500 trading. Volume on the NYSE decreased 23% and trading dropped 9% on NASDAQ.
New home sales came in at 5.29 million for September, down a bit from the previous report of 5.39 million units. It is one more report of the real estate market holding its own, if not rising.
My Nov iron condor on SPX at 1650/1660 and 1800/1810 has been hedged once and repositioned, so it is currently underwater with a P/L of -$3,260 or -16% with position delta = -$27 and position theta = +$126 on 20 contracts.
My trading group entered the following trade on Netflix today with the diagonal call spread, Jan14/Nov $350/$400. I also bought the Nov $300 put just in case the earnings announcement went south. That gave us a position where we were only exposed to a loss of 2-3% if NFLX fell out of bed, but we still have a bullish position if the stock continues its run. As I write this blog, NFLX is trading around $390, so I will sell the put protection tomorrow and allow the spread to profit as NFLX trades upward. Check out Dr. Duke's Trading Group if you would like to learn more about using options conservatively.
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The continual drumbeat of global financial collapse started to have an effect on Wall Street today. Unfortunately, the common financial media outlets are playing the same Chicken Little game. Bill Gross of PIMCO fame (the largest bond fund in the world) was interviewed on CNBC several weeks ago and pointed out how it was virtually impossible for the treasury to default on the debt - it requires less than 20% of incoming monthly tax receipts to pay the monthly interest bill. But it was clear that that didn't fit what the producers at CNBC were selling and so it was simply ignored. Our freedom is in danger when the press effectively becomes a propaganda tool for a political point of view.
The Fed's empire manufacturing survey surprised analysts with a
significant decline to 1.5 for October from last month's 6.3 reading.
The Beige Book will be released tomorrow and maybe the CPI data as well.
SPX lost $12 to close at $1698 and RUT gave up $11, closing at $1080 (this figures since the rally yesterday forced me to close my October call spreads on RUT). The reversal on SPX at $1710 reinforces the resistance level set by SPX's high in early August. Volatility spiked up almost three points to 18.7% on today's sell off. For RUT, today's price action is merely a common pull back after setting another all time high. RUT's bullish posture underscores the underlying strength of this market. RUT has been leading this bull market all year. All of the technical signs point to a bull market poised to erupt once Washington settles the debt/spending issue. But when the consensus of the evidence seems so obvious, it worries me. Keep your positions on a short leash.
I entered the EBAY Oct 46/50 and 58/62 iron condor today as a play on this evening's earnings announcement. EBAY's price action has been very sluggish since December, so the OTM options didn't have much premium, but it is a high probability trade, returning about 11% in 2-3 days. In after hours trading, EBAY is unchanged at $54.
