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SPX opened at the neutral line this morning, but then slow, but steady, selling started that did not end until about 20 minutes before the close when it hit its low for the day. SPX dropped off $17 to close at $1554. RUT declined even more, percentage-wise, with a close at $919, down $16. To my surprise, the VIX didn't pop up as much as I would have expected, closing at 14.2%, up about one and a half points.
Trading volume jumped up today with 2.7 billion shares in the S&P 500 stocks, finally breaking through the 50 dma. Trading on the NYSE jumped 23% and volume increased 15% on NASDAQ.
Before the market opened this morning, ADP reported an increase of 158k private sector jobs in March, down from last month's 237k and down significantly from analyst estimates around 200k. This report has already promptly one economist to lower his estimates for Friday's jobs report. The ISM Services Index reported out at 54.4 for March, down from last month's 56.0. Some financial headlines are blaming the ADP report for today's market slide, but the market didn't really react at the open; it almost seems like traders required several hours to slowly decide to lessen their market exposure. Concerns over North Korea's antics are another possibility, but South Korean stocks seem to be holding up reasonably well. Maybe all of the talk about a correction had traders nervous and it didn't take much to get the selling ball rolling.
The RUT chart looks pretty negative. The candlestick pattern of the past three sessions is known as "Three Black Crows" - each succeeding candlestick starts within the body of the previous candlestick and trades lower. This indicator suggests we are headed lower. RUT broke support at $940 yesterday and broke through support at $935 today. RUT's next support level is around $910 and then $895.
I bought some ATM puts to protect my positions today. I will likely leave them in place through Friday morning (post jobs report).
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SPX bounced back upward this morning and put to rest the naysayers looking for a correction. SPX ran up $8 and closed at $1570. On the other hand, RUT decreased $4 to close at $934. Volatility gave back yesterday's increases with VIX closing at 12.8%. Trading volume popped up from yesterday's anemic levels, but remains relatively low with 2.2 billion shares of the S&P 500 stocks trading. Trading increased 13% on the NYSE and also increased 7% on NASDAQ.
The fact that RUT diverged from SPX's rise today is another indicator of the sideways consolidation range remaining in control. The Fed's pumping up of this market can't be ignored, but many traders are becoming cautious. This is keeping the bulls in check. You also see this in the relatively low trading volume of the past several weeks. If traders were as bullish as one might conclude from all of the euphoria about new market highs, we should be seeing strong trading volumes to accompany the rising prices. But unless we have some seriously bad news that surprises traders, I think the sideways consolidation range established over the past three weeks will likely continue.
Tomorrow we will receive the ADP private employment numbers, leading to speculation about Friday's jobs report. That jobs report could bring a surprise, but that doesn't seem likely, given the recent economic news and data. It hasn't been rosy, but it hasn't been terrible either. An extremely negative surprise in the jobs report is the only possibility to trigger the widely discussed correction. More likely, we will continue to trade sideways and slightly higher.
My April iron condor continues to slowly improve its position with a current P/L of -$1,590 with position delta = +$53 and position theta = +$121. My May position at 840/850 and 1010/1020 stands at a 6% gain with delta = +$10 and theta = +$45.
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SPX tried to break out to new highs this morning, only to be pulled back, but then the bulls reasserted themselves and SPX closed up $6 at $1569, a new all-time high for this index. RUT was more muted with a one dollar increase to close at $952. VIX dropped a half point to 12.7%. Trading volume bumped up a bit to 2.3 billion shares of the S&P 500. Trading on the NYSE was up 22% and trading on NASDAQ was up 13%. With tomorrow's holiday, the exchanges will be closed, so today was the last trading day for the quarter. That explains the increase in trading volume as institutional managers positioned their funds for the end of quarter statements. If this was the usual "window dressing" by fund managers, then we may see a bit of a pull back on Monday.
Today's higher close on SPX was a break-out of the recent trading range from $1550 to $1565. But I'm skeptical that will hold. Look at RUT. This index of small and mid-cap stocks has also traded in a tight sideways range for the past 2-3 weeks, from $940 to $955. But RUT has been much more quiet as SPX continues to make these highs. Normally I would expect to see RUT leading the bullish charge.
Initial unemployment
claims came out this morning at 357k, up from last week’s 341k. Continuing
unemployment claims dropped 27k from last week. Fourth quarter GDP came in at a
modest growth of 0.4% annualized, and the Chicago PMI reported out at 52.4 for
March, down from 56.8 in February. These economic data reinforce the case that this bullish market is built on the
FOMC, not economic fundamentals. Our economy is slowly recovering, but it
certainly isn’t in the boom mode that this bullish market run might suggest.
So we wait to see what April brings. It is worth considering that the past three Aprils brought significant downdrafts in the markets... interesting.
Enjoy your long weekend.
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After SPX closed at a new all-time high on Thursday, everyone was ecstatic. But SPX gave it back today, closing down $7 to $1562. It could have been worse; about 20 minutes before the close of trading, SPX traded as low as $1558, but rebounded a bit into the close. RUT traded down even more sharply with a $13 loss down to $939 (a 1.4% loss versus a 0.4% loss). Today's close put SPX firmly back into its former trading range, but RUT dipped a bit below its trading range, down as far as $935 before recovering to close right at the bottom edge of the trading range of the past three weeks. Surprisingly, trading volume sunk even further, with 1.9 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped off 22% and trading volume on NASDAQ decreased 7%. Maybe traders took Monday off to extend the long weekend.
The ISM Manufacturing Index reported out at 51.3 for March, a decline from February's 54.2. Analysts were expecting it to remain flat. Readings above 50 indicate that more manufacturers are expanding rather than contracting. The new orders portion of the ISM Index was even more disheartening with a decline from 57.8 to 51.3. Perhaps this news, together with fewer traders on the floors, contributed to today's pullback. It will be interesting to see if there is any follow through lower in tomorrow's markets.
VIX popped up nearly a full point to 13.6%; this modest increase in volatility doesn't support the idea of a big correction starting to take hold.
My Apr iron condor on RUT stands at a loss of 7% with position delta = +$32 and position theta = +$105. All in all, I am inclined to think this market will continue to trade within the range it has defined over the past three weeks. This Friday's jobs report may be an important signal. If the market continues sideways or higher on a mediocre report, the bulls are still in charge (or should I say the Fed continues to hold the market up?).
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The Standard and Poors 500 Index (SPX) opened weakly this morning and immediately traded down to the low of the day at $1552. But then those super-resilient bulls pulled the market back up to close near its open at $1563, down only $1 on the day. RUT closed unchanged at $950. Volatility edged up just a bit with the VIX at 13.2%, up only 0.4 points.
The SPX candlestick today was a dragonfly doji, often a trend reversal signal at the top of the bullish trend. The theory is that it shows the increasing weakness of the bulls, even after allowing the price to drop so far, even though they succeeded in pulling it back up. It is hard to be very confident about a prediction of a trend reversal or pullback of any kind. This bullish run has confounded many analysts. But the longer we trade sideways, I think this makes it less likely that we see a violent correction. Just chopping sideways for a few weeks will burn off the excesses.
Trading volume remains low with two billion shares of the S&P 500 stocks trading; volume on the NYSE rose 5% while trading dropped off 2% on NASDAQ. In fact, you can draw a pretty good downward trend line on the S&P 500 trading volume over the past 2-3 weeks. As I discussed yesterday, both SPX and RUT are trading within well-defined sideways channels, consistent with low trading volume. We will most likely see volume pick up when the markets either break out to new highs or correct significantly.
Today was a slow day for economic data with a report of pending home sales for February being down 0.4%. That report probably had little or no impact on traders.
My Apr condor position stands at a P/L of -$1,601 or -8% with delta = -$21 and theta = +$102. The large theta/delta ratio underscores the rapidly improving P/L for this position. It seems that the all time high for SPX is proving difficult to surmount. We will probably start to see traders leaving for the long weekend tomorrow, so volume may fall off even more.
