Markets finally get hit

The RUT, which had been weak since December 8th, fell 1.16% today on higher volume. It's still above the 1350 level, but the market is weakening.

The SPX fell almost 0.85% today, and the tech sector also got hit with the NDX down 0.8% also.

Volatility continues to rise, but the SKEw remains low. Further downside this weak maybe limited, but January could get nasty as this final week of the year is a good barometer for the rest of January.



I had to move the SPX Dec28 put spread at 2260/2255 out to Friday for a debit of $2.00. Everything else is ok, and it would be ideal if the market treads water at these levels for the rest of this week.

This has been a difficult month to trade with volatility so low and the market refusing to retreat. January should be much better and I will look to increase bear call spreads on any bullishness this week.

Lackluster bull...

The market opened strong today, but all of the gains came in the first half hour. After that the major averages worked their way lower for the rest of the session. The NDX finished with a gain of .52% while the SPX rallied .22%. The indexes closed on their lows. 

The SKEW is still marking mid-range and the P/C ratios still dwindle in the bottom of the range. Until these numbers pick up, a sell-off is unlikely. 

Volatility did move up today. This is yet to be meaningful, but potentially a bottom in the volatility has been achieved. 



The last few days of December - except for Dec 30 - and the first two days of trading in January are generally the most consistently bullish of the year.

I added a small put spread expiring tomorrow on the SPX at 2260/2255 for 40 cents.

I also added a small put spread for Friday at 2245/2235 for 70 cents. These will help offset the cost of moving the 2260/2270 call spread that I have expiring Friday. I tried to move that up and out to January at 2315, while widening the strikes to 15-wide for a large credit. So far that has not been filled.

Bullish time, but not so bullish

Last week we had a day where the SKEW was above 130, this put a damper on the rally. The VIX is extremely low as with the VXST.

This time of the year is supposed to be very bullish, but signs of weakness are mounting. First, the P/C ratio is now rolling over and moving higher. Market breadth is weakening, also.

The SPX is still very bullish. Until it trades below 2200, the market trend is up.

We are headed into the most bullish part of the year. If the market is not going to rally over the next 5 trading days, January can be a troubled month.

Flat Friday and Monday

So far the market is just going sideways and consolidating recent gains. The NDX is leading the markets bullishness.

This week tends to be flat - leading up to the usual rally after Christmas.

Currently we only have one trade on - SPX 2060/2070 call spread that expires on Dec30. I will need to move this out or close this week most likely.

Intraday reversal on NDX

Today, everything started good, but ended not so well. The markets tried to push higher, but ended off their highs. The NDX retreated to its opening level.

The SKEW almost hit 130, market breadth was mixed and the P/C ratio fell further. Volatility fell and will likely fall by days end tomorrow even further as its Quadruple witching Friday.

With the SKEW up, it hard to sell premium on the call side. I will be looking for any strong up days to sell premium on the NDX particularly, and may even engage in some long put spreads if the market shows signs of deterioration.

NDX holds up best, RUT getting hit

Again the RUT was weakest today. The index currently sits right on its five-day moving average. This index needs to lead higher if this rally will continue. Usually, the RUT leads in the second half of December, but with this year's huge rally in November and December it will take a lot of optimism to propel it further.

Today's FOMC meeting was initially met mildly, but Yellen's post meeting news conference that focused on low growth and high interest rates sent the market lower. The market internals showed signs of the weakness with market breadth negative and the number of stocks above their 20 day moving average falling substantially.

The SKEW jumped back to 125 - a moderate reading still. VIX and VXST both rose also, but not substantially.

As this is options expiration week, it should be bullish. So far, it has not been, so the next two days could save this week from negativity.

Finally NDX leads, breaks out.

The NDX took the lead today, roaring out of the gate, but all gains made after the first 30 mins were given back by the day's end. It still ended up 1.26%. The RUT was down and the SPX split the difference with a 0.83% gain.

The SKEW again fell to 119 today, while volatility rose. Everything is overbought but still bullish. In fact, bullish signals have triggered for AAPL and FB recently. Gains in these stocks helped the NDX and SPX make gains today.

Tomorrow's FOMC meeting is tomorrow. Volatility could fall dramatically after that event.

RUT continues to lead, NDX lags

Its more of the same story really. The RUT was up nearly 2% again today. We have an extremely bullish market with most indexes (not NDX though) making new highs. The RSI lines are climbing for all the indexes, even though most are in extreme overbought territory.

Strangely, volatility is rising and SKEW is falling - now down to 119! This could mean that everyone is buying out of the money calls thereby increasing volatility. At least, that is what it looks like to me.

Next week's option's expiration week is historically the most bullish options expiration week of the year. After that, the RUT goes into the most bullish time of the year! How can we get any more bullish???

I am trying to reach for selling some way out of the money premium on the NDX but today I could not get filled.

I wait for any signs the market may halt its endless roar upwards, because a responsible person does not sell put premium at these levels. It may take some time for the market to actually start trading sideways....

Markets build on strength, Volatility up!

Today, the market wobbled for the first half hour of trade and then launched higher - never looking back. All main indexes except the NDX made new highs. Volume increased on the exchanges and market breadth was positive. All this is very bullish - so much so to produce the biggest rally day since the day after the US election.

This type of strong action put many of my colleagues trading verticals in a very tough situation, as the call spreads originally placed above recent highs are now threatened.

I traded out of the RUT call spreads early this morning at a profit, closing them for a debit of $2.90. This provided us a profit of 75 cents for a two day trade. The Dec30 SPX calls at 2860/2870 are the only trade left in the portfolio. I need to take them off when we finally get a some pullback.

Our objective is to put on some put spreads this month, but we need some pullback from this overbought situation. Some interesting items to note that explain how overbought parts of the market have become. In yesterday's blog, we highlighted the RSI reading on the RUT. A similar situation now exists with the SPX. Additionally, today's the SPX will close outside of the two standard deviation Bollinger Band. This is a rare event. In the last year, it happened (maybe - just barely!) once before. Also this is the third time this year that the RSI on the SPX is in an extreme overbought area.

Another rare event occurred today with the VIX. As the SPX rose, so did the VIX. Increases in volatility occur right after the SKEW goes above 130. Today was a good example of this phenomenon. The VXST rose more than 8% today actually. 

Moving up!

A huge increase in the US deficit was reported this morning which put a dent in the bullishness for most of the day. The RUT didn't care much and reached a new high today, however! The NDX was the weakest, but still up.

I thought about putting a RUT bear call spread on today, but refrained and will likely do it tomorrow on any early follow thru strength. The RUT registered a bearish cluster on the MarketForecast indicator, which usually means that the uptrend will slow for a bit. Its RSI is also in the overbought area, for a second time.

Looking back over the last 5 years on the RUT, the RSI overbought has led to downside in the RUT index many times - see graphs below.

 

But, there was one more complex move that did not work as expected. Back in 2012, after a 10% loss over two months, the RUT bolted higher and kept going as the RSI actually left the overbought area. It wasn't until the RSI entered the overbought area a couple more times, did the pullback finally come. I am cautious during this generally bullish period, as we may see similar action again. 

The SKEW rose above 130 today - a mark it has not seen in a long time. This can be a predictor of more volatility in the days ahead. Short term volatility is below 11 again.

December looks to be an interesting month. It will be a difficult to follow-thru to the upside after such an amazing November. It will be equally difficult to start an sort of a meaningful downtrend. This looks like a good time for Iron Condors.

Back to bullish

Today's first post Italian referendum trading day turned into a bullish celebration for the Euro! Go figure.... The Dow closed at an all-time high. Seasonally, today is generally a very bullish day. Accounting for that, on Friday, I took off the Dec09 RUT 1345/1355 call spread for a debit of $1.15 affording us about 50% of the total profit.

Put/Call ratios are falling and the total Put/Call ratio fell below 0.90 again recently, so market are again bullish in terms of sentiment. Volatility fell today, but the SKEW did not move much. The RUT bounced back the most today, and the NDX was up 0.87% also. The NDX looks the weakest of all the indexes, as it never made a new high and has strong resistance around 4900.

Seasonally, the next two trading days are weak, after today's bullish day, so I put on a 20 point wide Dec16 NDX 4865/4885 call spread for $3.65. My plan is to cut this off after a couple days of weakness.

November Monthly Market Review

November saw very strong US equity markets, weakening in non-US and Emerging market equities, strength in natural resource stocks and commodities, a rout in the world’s bond markets and a strengthening dollar.

All US equity markets started off weak in November, then changed direction and went up viciously until the last few days of the month. 

 Developed country equities outside the US did not fare so well in November. They actually saw a mild bump up after the US election, but slid to lower levels soon after.

Emerging markets fell hard both prior to and after then again after the US election bounce.

World real estate markets have suffered on fears of interest rate increases in the US. Since the US election, markets have stabilized somewhat.

Natural Resource companies rose since the election. Steel, copper and other industrial metals and mining stocks did particularly well. Gold and silver lagged on USD strength.

Commodities sold off on higher interest rates and fears of OPEC not coming to an agreement. As expectations of the OPEC came to full the index rebounded and settled only slightly lower for the month.

US bonds swooned after the election as an interest rate hike during the December Fed meeting became an almost certainty. The job reports in the US are on streak better than any time since the 1970s.

US Inflation indexed bonds also fell during November. The chart looks a little bit better, however, as some strong trading ended the month.

Non-US bonds also suffered after the US elections, but have traded flat ever since.

The USD did well versus other currencies in November. Again, the big news is an almost guaranteed interest rate hike in December.

In conclusion, November was great month for US equities – especially certain natural resource companies and interest rate sensitive sectors like financials. There was no participation in the bullishness from non-US developed markets or emerging markets. Bonds and real estate suffered. The USD strengthened significantly. 

Today was supposed to be an up day!

NDX lead again to the down side - losing nearly 1.6%. The NDX never made a new high and the chart looks very dangerously close to falling much, much further. We should get a bounce tomorrow, but that may be it for awhile.

The SPX is riding the rally with only a slight pullback. RUT also has not really broken down.

Again, VXST was higher than VIX throughout the trading day, but closed lower at days end. The SKEW has not registered above 130, but is close at 128.