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A few days ago, it seemed all traders were concerned about was the FOMC (a bit of an exaggeration), but now every twitch of the spot oil prices is telegraphed into the stock market. SPX went into free fall this afternoon, dropping $36 to close at $2006. RUT dropped $14 to $1121. Volatility rose again with the VIX closing at 20.4%, up 1.4 points. Trading volume was higher, as one would expect on expiration Friday. Trading volume rose 69% on the NYSE and increased 27% on NASDAQ.

The fear is that falling commodity prices are an indication of global economic weakness. This is in stark contrast to the positive assessment of our economy from the FOMC this week. Is that why the markets rallied so strongly on Wednesday, but then sold off yesterday and today?

RUT continues to trade more weakly than SPX. After this week's see saw in prices, RUT is only 1.6% off of the August flash crash lows. However, SPX would have to drop almost 7% to get back to those lows. RUT's weakness is not a positive signal.

SPX settled at $2029.72. The 2160/2170 call spreads in our December position expired worthless. This resulted in a 8% loss for December, but ends the year for the Flying With The Condor™ service at +40%.

I track the difference between the Thursday close and the settlement price for SPX. The average change this year was $9.60, but August and September were big months with changes over $20. This was the origin of my developing the Two Sigma Rule for closing spreads on the Friday before expiration week. This has proven to be a conservative measure for deciding whether to close spreads early or to allow them to go into expiration to expire worthless.

The FOMC announced a quarter point interest rate hike but said the rate of increase would be very gradual. This was the first interest rate hike since June 2006. This was well received by the markets, as SPX rose $30 to close at $2073. RUT lagged a bit, as usual this year, closing up $17 at $1149. Trading volume was pretty flat with 2.7 billion shares of the S&P 500 trading. Trading volume rose 5% on the NYSE, but fell 8% on NASDAQ. Volatility continued to contract with the VIX dropping three points to 18%.

Housing starts came in at an annualized number of 1.173 million for November, up from last month's 1.062 million. Building permits reported at 1.289 million for November, up from 1.161 million. Industrial production declined 0.6% in November, down from -0.4%. Capacity utilization was roughly flat at 77.0% in November, as compared to October at 77.5%.

IBD moved from Market in Correction to Market in Confirmed Uptrend. This was a record turnaround for this indicator.

The FOMC announcement created a lot of discussion and debate. The Fed has sang the "dependent on the data" song for a long time, and now, with inflation reported at roughly zero, versus the Fed target of 2%, and employment looking tepid (labor force participation at record lows, etc.), the Fed triggers the rate hike. Maybe some politics going on here? Incumbents can point to the Fed saying the economy is fine.

As everyone begins to think about the FOMC announcement tomorrow, the market traded strongly higher today. SPX gained $21 to close at $2043. And RUT fully participated for a change, up $16 at $1132. Volatility contracted nearly two points with the VIX at 21%. Trading volume fell off a bit with 2.7 billion shares of the S&P 500 stocks trading. Trading dropped 10% on the NYSE and declined 6% on NASDAQ.

The CPI reported flat for December, down from +0.2% last month. The Empire manufacturing survey from the NY Fed improved a bit for December but remained negative at -4.6, up from -10.7.

Everyone is obsessing about the FOMC announcement and a possible interest rate hike tomorrow afternoon. Today's strong market was surprising to me. Has the fear of a global economic slowdown been alleviated somehow? Do we know what the Fed will do tomorrow? For that matter, do we know how the market will react?

If you have any December index options that are anywhere near the money, you might consider closing them. There may be some wild swings in the market and implied volatility for the next two days. I closed the 1940/1950 put spreads in our December SPX condor today. Assuming the 2160/2170 call spreads expire worthless, this condor is closed for a loss of $64 per contract or -8%. We hedged the position three times and rolled spreads twice - a busy month! This brings the Flying With The Condor™ trade alert service to +40% for 2015. Since SPX is down about 1% for the year, that is a superb performance. Our SPX Jan iron condor positioned at 1850/1860 and 2210/2220 stands at a net gain of 8% and is perfectly delta neutral.

Get your chips and snacks out for the Fed watch...

The slide in oil prices paused today, or bounced if you are an optimist. Many analysts attribute the market bounce to that hope of a bottoming of oil prices. SPX gained $10 to close at $2022, but RUT continues to be more negative, closing down $8 at $1116. Volatility pulled back almost two points with the VIX closing at 22.7%. Trading volume rose with 2.9 billion shares of the S&P 500 stocks trading. Trading volume rose 8% on the NYSE but dropped 2% on NASDAQ.

Have we now entered the waiting period for the FOMC announcement on Wednesday? Maybe.

Has the recent sell-off been principally driven by the prospects of slower economic growth, evidenced by lower demand for oil? I am inclined to think so. But part of the sell-off could be anticipation of a rate hike by the Fed this week.

That leaves us with the $64,000 question (how many of you remember that TV show?): how will the market react to a rate hike or possibly continuation of the current near-zero interest rates? I have more questions than answers. This is a spooky market, so limit your risk. Don't bet on a direction.

Oil prices traded lower again today. That coupled with an anemic retail sales number spooked traders. SPX lost $40 to close at $2012. RUT traded down $25 to close at $1124. All of this downward pressure on stock prices spiked trading volume with 2.8 billion shares of the S&P 500 trading today. Trading volume rose 16% on the NYSE and also increased 18% on NASDAQ. Volatility bumped up five points with the VIX at 24.3%.

Lower oil prices are a two edged sword. The energy companies are hurt but the higher cost oil production operations like oil shale and tar sands are devastated. But these low oil prices result in lower gasoline prices for consumers, which can be a boon to consumer spending. But consumers are hunkering down. Retail sales rose 0.2% in November, especially lethargic for this time of the year. A bigger concern is lower commodity prices in general may be signaling declining demand. Does this suggest a global recession on the horizon?

The Producer Price Index (PPI) reported +0.3% for November, up from the -0.4% of October. Retail sales increased 0.2% for November, up from +0.1% for October. The University of Michigan consumer sentiment survey reported a small increase for December, up from 91.3 to 91.8.

The most bearish observation for the technical analysis of the SPX chart was the breaking of support at $2020. Up until the last hour of trading, that support level from mid-November appeared to hold, but the markets traded lower for the last hour of trading. The only bright spot was a slight recovery so SPX didn't close at its low for the day, but it was close.

Now the spotlight is even more intensely focused on the FOMC announcement and their decision on interest rates. It had been a foregone conclusion that the Fed would begin the process of raising interest rates this month. Now it isn't as clear.

I don't think many of us traders will have a relaxed weekend. I reduced much of my risk today, but...

Trading volume fell off today, perhaps beginning a "wait and see" trend into the Fed announcement next week. SPX gained $5 to close at $2052 and RUT gained $3 to close at $1149. But volatility didn't contract much; the VIX closed at 19.3%, down 0.3 points. The bulls are being held back by the bears quite effectively. SPX had traded up to $2068 in the afternoon, but then was pulled down into the close at $2052. Trading volume declined with 2.2 billion shares of the S&P 500 trading. Trading volume declined 17% on the NYSE and declined 12% on NASDAQ.

Has the generally bearish tone of trading the past couple of weeks suggested that an interest rate hike by the Fed will be traded downward in the markets? Perhaps so. But one could also argue that the market sell-off is already baked into the current market prices because everyone seems to assume the rate hike is a done deal. This FOMC announcement is unquestionably the most anticipated announcement in Fed history (at least during my history). We may see some extreme spikes and whipsaws next Wednesday afternoon. And expiration week often has a wide range of implied volatility swings anyway, so next week may be a record breaker.

Initial unemployment claims reported at 282k, up from last week's 269k. Continuing unemployment claims rose 82 thousand to 2.243 million.

The December SPX condor in my Flying With The Condor™ service stands roughly at break-even with position delta = $1.57 per contract; the probability of both spreads expiring worthless is 96%. The spike in volatility this week has hurt the P/L of my positions. The January SPX position stands at +5% with 35 days to expiration. I will decide tomorrow whether to close the December positions or allow them to go through the weekend. In no case will the December condors remain open past Tuesday.

The Fed watch begins...

I didn't expect any sustained trend in the markets until we get past the FOMC announcement next week, but this week's trading has been steadily downward. The S&P 500 has lost 2% of its value in the past three days. SPX closed today at $2048, down $16 and RUT lost $14 to close at $1146. The VIX moved up two points to close at 19.6%. RUT broke through its 50 dma yesterday and SPX broke its 50 dma today. RUT found support at $1140 in October and November, so I am watching to see if that level holds once again. The analogous support level on the SPX chart is $2020. SPX traded over a wide range today, trading as high as $2080 by about 10:30 am ET, but then trending downward until early afternoon.

There wasn't any significant economic data reported today. Oil prices, fears of a global recession, and anticipated interest rate hikes seem to dominate traders' concerns. Bernanke was surprised by the market's swift reaction when he mentioned raising interest rates a couple of years ago. I still find it a bit surprising if a 25 basis point interest rate hike will send this market over the cliff. At a minimum, we can expect some significant market volatility next week. But when I look at the market's price action since last Thursday, I have to wonder, "more volatility?"

I think it will be prudent to look closely at your positions and decide whether you want to carry them into the FOMC announcement.

Worldwide markets declined today with concerns that lower commodity prices were signaling weakening economies around the world. When coupled with news of a slowing economy in China, a bleak picture emerged. SPX closed down $13 at $2064 and RUT lost $5 to close at $1159. Trading volume in the S&P 500 rose slightly from yesterday to 2.6 billion shares. Trading increased 5% on the NYSE, but decreased 2% on NASDAQ. Volatility spiked higher with the VIX closing up nearly two points to 17.6%.

SPX dropped as far as $2052 this morning but then recovered and chopped sideways into the close. It appeared as though SPX found support at its 50 dma at $2049. RUT didn't decline as much as SPX, so one could take that as a positive sign. But RUT definitively broke through its 50 dma and didn't recover that level in today's trading.

Traders are still obsessed with the Fed announcement next week, although the consensus appears to be that they will start to raise interest rates at this meeting. Is this recent market weakness a result of that expectation?

In summary, the market is limping along weakly, but the bulls are still buying the dips. It seems unlikely that a strong trend in either direction will materialize until after the Fed announcement next week.

Let's recap: SPX drops $30 on Thursday; SPX gains $42 on Friday and then drops $15 today. If we were at the carnival, we might be feeling a bit nauseous. SPX closed at $2077, down $15 and RUT traded down even stronger, closing at $1164, down $19. As one would expect, volatility rose a bit with the VIX closing up a point at 15.8%. Trading volume in the S&P 500 companies was down at 2.5 billion shares, down from Friday, but still above the 50 dma. Trading declined 7% on the NYSE, but increased 2% on NASDAQ.

We didn't have any significant economic data released today.

RUT has been trading more bearishly than the SPX for the past several months. It corrected more strongly in August and broke that support level in late September, whereas SPX did not reach the support level created by the August flash crash. SPX bounced back strongly in October and appeared to threaten the previous all-time highs from the summer months, but RUT remained well off of the previous highs. That trend continued today with RUT dropping 1.6% while SPX only declined 0.6%. RUT found support at its 50 dma today but SPX remains more than $30 above its 50 dma. The small cap stocks, typical of the Russell 2000 Index, tend to lead the markets higher in bull markets and lower in bear markets. RUT's recent bearishness may be a warning sign.

The wrestling match with my December iron condor on RUT is nearing its end this week (assuming we close Friday in advance of expiration week). After four different adjustments, the position stands roughly at break-even today, and looks likely to be closed for a small gain on the order of 2-3% this week. The January position on SPX at 1850/1860 and 2210/2220 stands at a net gain of 9%. The Flying With The Condor™ service will end the year with a track record of something on the order of +43-45%.

Unfortunately, this price volatility is likely to continue until the FOMC meeting and announcement next week, and perhaps for some time after that announcement as the market sorts out the effects of an interest rate hike (assuming that is in the works). Analysts have been steadily downgrading earnings estimates for the S&P 500 companies for the fourth quarter, down 3.4% in the first two months of the quarter. This is one more headwind for the market as we move forward. A resumption of the strong bullishness of 2013-2014 appears less and less likely.

Monday's market was flat; Tuesday's market rallied, and Wednesday's market gave back all of yesterday's gains. SPX lost $23 to close at $2080 and RUT lost $12 to close at $1192. Volatility contracted with the VIX closing at 15.9%, down 1.2 points.

ADP's private employment report came in at +217k for November. the FOMC's beige book, the minutes from the last meeting, were released this afternoon and seemed to be generally upbeat about the country's economic growth. Janet Yellen spoke today and reiterated that theme of modest, but positive progress and anticipated we would see inflation make its way closer to the Fed's target of 2% in coming months. Her comments about future inflation rates were curious since both the CPI and PPI have been steadily tracking near zero for a long time. In summary, the beige book and Yellen's remarks lead analysts to expect an interest rate hike to come out of the FOMC meeting December 15-16.

It seems as though the market contracts every time Yellen or other members of the FOMC say anything that could possibly be interpreted as leading to an interest rate hike. Would a quarter point change make any significant difference? I doubt it. And interest rate hikes in the past have generally been met with bullish markets, not bearish markets. But one could correctly argue that this low interest situation is unlike anything in this country's economic history. It will be interesting to see the eventual outcome of this drama.