Rebound?

The market rebounded today. For the RUT, this was a substantial move off support. The NDX lagged but AAPL beat results after hours and that should put the market at a higher open tomorrow. Looking at the RUT chart, you see that a move higher was expected by the position of the Momentum and Near-term lines of the MFC (Market Forecast Chart, in the middle of the graph below). However, the Market Sentiment has completely rolled over from a very high level and is pointing lower now.

Tomorrow is the first of the month, so a positive day is expected. This is not the end of the sell off however, in fact it has not even begun!

Seasonally, February is the weakest month of the 6 month bullish period starting from November. In post election years, it is one of the weakest months of the YEAR!  Nasdaq stocks are usually the weakest in February. 

The SKEW is again on the rise - upto 138 now! I am going to look into what happens when the SKEW clusters for an extended period over 135. 

Put/Call ratios have been stuck in overbought conditions for an extended period. The VIX is also beaten down. Yet, both yesterday and today, the VXST traded above VIX intraday. This is a strong sell signal. 

Figuring tomorrow would be bullish, I traded out of both the NDX and SPX call spreads. 

I bought back the NDX 5140/5150 Feb2s for $3.50. I also traded out of the SPX 2185/2195 calls expiring Friday for a small profit of 30 cents overall. 

I am going to look to put both of these spreads on again tomorrow for larger credits as the market should have a positive day tomorrow. That may be a short reprise, however. 

Sell off

The overnight pressure to the downside carried through to the morning session with a strong sell off across all indexes within the first hour. The indexes took the rest of the day to fight some of that off. This is not going to be the end of this sell off, however, as the SKEW rose today to 134+. Meanwhile, VXST traded higher than VIX several times today, marking more volatility is coming. The VIX is still extremely low.

There is good reason to believe that the recent high on the NDX will hold for sometime. The RSI is falling back out of the upper extremes. Today's candle was an ominous retracement to the breakout area, which is holding as very short term support right now. The Double Smoothed Stochastics are also very high on the chart and could start rolling over soon.

I traded out of some of the NDX spreads today. I bought the NDX Feb2 5160/5170 back for $2.20 and the 5160/5175 spread for $2.85. Having brought in a credit of $1.05 originally, these trades are manageable losses.

I still have the NDX 5140/5150 trade in place, along with the SPX 2185/2195 calls. If needed, I will roll these out further.

In the meantime, I may buy some VIX call spreads on the open, just to take advantage of the high SKEW.

Opens higher, closes flat

The overnight move was again impressive. The NDX especially was strong and opened with a gap. That did not hold and the indexes closed on their lows. After hours, GOOG missed its earnings estimates and sold off about 3%. This could put pressure on the NDX tomorrow.

The SKEW went up a bit to 129 today. It's still a high number, but not extreme like a few days ago.

VIX fell today and ended in the 10 handle. VXST remains only slightly below it at 10.05.

I had to move a lot of trades around and add more put spreads. Yesterday I added a small bull put spread at 5070/5050 for only 70 cents. Today, I added another at 5100/5090 for 40 cents. These are just trying to cover some of the adjustments to the calls. They all expire tomorrow in the AM.

I moved a few NDX call spreads yesterday to next Friday expiration for a credit of 20 cents by widening the strikes from 5130/5140 to 5160/5175. Today, I moved the rest of the 5130/5140 that were to expire tomorrow out to next Friday by moving them up to 5140/5150 for a debit of $1.80.

I did not move the SPX calls at 2285/2295 as they expire next Friday. There is a good chance we will see some pullback before then.

This bullishness is really spectacular given the low level of VIX and the length of the rally already. The RUT has not made new highs yet, however, and was leading to the downside today. This may foreshadow weakness in the market soon, but until signs of a reversal arrive, the market is bullish.

Super bull

The market made a big move overnight and after a short bit of selling in the morning, went on to make new highs. The DOW made it over 20,000 finally.

The NDX broke through the call spreads, so I began moving them out to next week. I also added put spreads way down at 2070. For the next few weeks I will be battling with a strong uptrend. At any time, we could get a sharp pullback to retest the breakout, especially if big tech names' earnings come in light.

Bullish day, but SKEW is way too high still...

Today was generally a continuation of yesterday's move. The markets opened higher and after a brief test of yesterday's close, they moved higher in spurts throughout the day.

The NDX broke above 5100 and made a new high. This pushed the RSI line above 70, a place it will usually not stay for long.



Meanwhile, the SKEW rose slightly today. It's still marking really high numbers, showing more volatility is likely in the near future.

Volatility fell, but on such widespread bullishness, short term measures still remained above recent lows. At the same time, longer term measures broke to new lows.



I tried to move the NDX call spreads up about 30 points and out until next week for a credit, but I could not get filled. Tomorrow could have some follow thru (at least intraday) in this rally, but the next few days could be flat. So far our spreads are not being tested.

Nothing happening

The sideways pattern continues without a move of greater than 1% on a daily close basis for the SPX. The NDX is most bullish, and the RUT is most bearish.

Typically, this week is bearish - especially for the QQQ - until Friday.  The SKEW is still high, at 137 today, so it supports that more volatility is ahead. This may only be intra-day moves however, like today, as the SPX is very stuck in a tight range between 2230 and 2280.

Volatility itself is low with the VIX marking 11.54. Today VXST did shoot up to 10.94, which puts it close to crossing above the VIX. If this happens, the market may actually begin a more serious pullback.

TRIN was more negative today, especially on the open. It was not excessively so, however.

I traded a short term NDX call spread that will expire this week. The 5130/5140 is placed just outside a 1 standard deviation move. I was able to get a credit averaging $1.01 for the spread. This should close solidly out of the money by Friday morning, but if we get an uptick I will move it out.

Market still wary - even more so now

So much talk about 'buy the election, sell the inauguration' on every news channel just makes the markets worry more it seems. The SKEW hit 146 - a really big number! When combined with a very low VIX, which fell today on monthly options expirations, this is very often a sign that volatility will rise sharply in the days ahead. This makes sense, as we finish out the bearish mid-January season before the end of January bullishness kicks in.

On a grander scale, the SPX could be setting up for something larger. The Market Sentiment line (bottom graph on SPX chart below) is fully extended into the upper most bullish area. This signals that even if the market continues to rise, those gains will not be significant and will be given back in the future. This has happened a few times in the past as the Market Forecast line (middle green line) drop out of the upper reversal area (above 80).



The TRIN is acting very strange these last two days also. As the market is going nowhere, the TRIN is posting fiercely bullish numbers, yesterday hovering around 0.6 and today on the open it hit as low as 0.37! It seems large traders are leading this market higher buying only the stocks that are posting new 52-week highs. Very selective buying does not lead markets higher!

On today's up day, I tried to get some call spreads filled. I only caught one trade - the SPX Feb3 2285/2295 for $3.20.  I have been working the SPX 2285/2295 this month with some success. With $3.20 credit for a 2 week trade that would require the SPX to make and hold a new all time high, I feel like I am off to a good start next week.

Let's see what happens as the market gets used to new US president next week. Today's action was like a repeat of the action witnessed on the day of his recent press conference. The minute Trump started his inauguration speech the SPX dropped 6 points. It only settled down after he stepped away from the microphone. If he keeps talking the market actually may start taking him seriously. This may kill the market rally named after him.

Melodrama

This market is still holding on to the bullish moment we have seen for over two months. The only index experiencing any type of decline is the RUT, shown below by the ETF IWM. Today, it closed below the low of the high it set back in late November.

 

The retreat has been slow and uninspiring, as volatility remains low (VIX below 13 still) and price action very mild intra-day. There have been no sell-offs, just jerks around as Trump, his cabinet members, the Fed members and politicians talk while the banks post record results.

Today, retailers warned of lower than expected sales in December, so that sent XRT down over 2%. The industrials sectors was the bright spot.

The markets refusal to collapse is met with put buying. The SKEW again marked above 140 - a number rarely reached - for the second day in a row. Until that put buying subsides, the market is not going to make any headway higher. 

With Trump's inauguration tomorrow the traders are loaded up on puts. Secretive missives from his staff that immediate Executive Orders are coming places a lot of fear of trade sanctions that could hurt business. Anything but positive remarks tomorrow or this weekend, could set this market flying in either direction. 

I am 100% in cash as weakness until February should pick up soon. Trades will show up, but we need not force them right now.  

 

SKEW out of control

Today the market bounced back after yesterday's down day. This has happened every day so far this year. Every down day in 2017 has been followed by an up day, so this is nothing out of the ordinary. 

Volatility continued to rise with the VIX up 5% after yesterday's high SKEW reading. Today the SKEW rose to extremes with a reading of 143.43! This is a big number that has not been produced many times in the last five years. These are correlated with high levels of volatility in the very near future. However, this is likely related to the inauguration of Trump on Friday. Traders are hedging their positions by purchasing puts going into this event. 

Without a follow thru to the downside today, I closed out the SPX 2285/2295 call spread for 45 cents, profiting 65 cents on the trade from last Thursday. As Yellen started speaking and the market rose into the last hour, I tried to sell the same spread again for $1.20, but could not get filled as the mark was around 80 cents only. I am looking to sell calls again on the move up from here. 

SKEW is above 130

Friday, the SKEW finally got into the 130+ level. Today, again, it closed above that level. This is a good indicator that volatility will increase in the next few days. With VXST up 21% today, that process has already started. A VIX move to 14 should be the first target.



With the increased volatility the market is under pressure. The RUT led the way down with a loss of 1.35%. The SPX recovered its heavy losses, but still finished down about 0.35%. The SOX was down 1.65% and IBB (a biotech ETF) was down over 2%. Banks were the hardest hit sector today, after they have led the market higher since the election, with XLF down 2.38%. This occurred even though Morgan Stanley posted is largest Q4 profit ever. It fell over 3% today.

As I mentioned last Thursday, we are entering a historically soft spot in mid-January. My SPX 2285/2295 call spread expiring this Friday is showing a profit and needs to be rolled on any up day.

Down and up

The markets opened sharply lower, then recovered most of the losses by day's end. The initial sell off was fast and furious, the rebound was a slow grind. The last few days have been moves lower - with lower highs and lower lows. Today's move looked to continue that pattern.



On a larger scale, a few interesting moments showed up today. There was no real action on the SKEW, the volatility indexes, or the Put/Call ratios. The latter are still on sell signals.

First, the set up on the RUT is already short term negative. The shorter term lines on the Market Forecast have peaked and look to fall further. All the while, the Intermediate (green) line is sloping downward.

 

Second, the NDX registered a bearish cluster on a lower close after 7 days of new highs! This is a great setup for a potential flattening of this uptrend.



Third, an index I don't usually mention - the Semiconductor Index (SOX) - may have put in a lower high today, while its RSI is falling from very high levels. The SOX also put in a dark cloud cover candlestick pattern a few days back. This index is a leading indicator and is highly correlated with the NDX usually.



With GLD continuing to rise, there are dangerous signs that this bullish run is coming to a soft spot (at least). In fact, the StockTrader's Almanac notes that the week of options expiration in January and the days surrounding the Martin Luther King holiday are weak.

I took a small position on the SPX calls by selling the 2085/2095 spread expiring next Friday for $1.05. I sold this too early today, but the SPX would have to make and hold a new high for this trade to be in trouble. Next week should be interesting.

Trump Wiggle

The markets fell the minute Trump opened his mouth today. They rose when he shut up. Then they fell again during some analysis period, then finally they closed up and positive, as was expected today.

The next two days should be rather bullish, but next week should see some softening.

The Put/Call ratios are acting as an early warning system - they are on sell signals. The SKEW is still low (low 120s) so no real warnings yet there. Volatility is low - and was really going crazy during Trump's talk - but settled down today.

We have non-farm payrolls and earnings starting on Friday. The direction could go south to 2230 on the SPX quickly very soon.

RUT comes back

Today the RUT led higher. Interestingly, all the major indexes suffered an intra-day reversal, but only the RUT recuperated from it completely. The SPX nearly closed on the lows of the day. The NDX stayed postive.

According to McMillan's analysis the Put/Call ratio's 21 day moving average is rolling over to move higher off very low levels on the chart. This could mark the warning sign that a pullback is ahead. Volatility levels are extremely low - especially the VXST trading below 9! Low short term VIX levels don't last long. On a multi-year chart, low levels of the VXST have corresponded with at least short pullbacks in the market. 

Today, was a tricky day for the call spread on the SPX. I initially rolled it out to Jan 17 for a 40 cent credit early in the day. Then as the market pulled back, I closed it out for a total price of 75 cents. We captured 50 cents profit on the trade overall. 

Earnings season starts on Friday with several big banks reporting. January expiration week is next week, and historically, its usually a weaker one. If the market moves up these next few days, I will look to put on more bear call spreads. 

First five days of 2017 positive - NDX up all of them!

NDX is usually the most bullish of the indexes in January. So far this has been the case in 2017.

Unlike the RUT, the Market Sentiment on the NDX is sloping up and has not yet reached the overbought levels above 80. We can expect more gains after a slight pullback coming up in the NDX.

The market's trade in the first five days of the new year is often a barometer for the rest of January. The SPX gained about 1.3% in the first five days of trade, but fell slightly today. This bodes well for a positive January. For large caps, but the RUT could be in trouble. It barely broke even after a strong start last week.

GLD and TLT made strong moves in the first 5 days of the new year. This is in the face of rising equities, so it seems bullishness abounds in many markets. 

In fact, only the energy and utilities sectors were down in the first five days of trade this year. Strangely, healthcare led all other sectors.

In the face of this bullishness and because the first five days have ended I sold a 22295/2305 call spread on the SPX for expiration this Friday for 85 cents at the highs of the day. The market closed on its lows, so the spread is worth 50 cents now.

RUT down, TLT up most in 6 months

Today, the NDX was up, while the SPX was flat. However, there were two noticeable items today that warrant caution for the market.

First, the RUT was down over 1% today, giving back nearly all of yesterday's gain. This created a 'railroad tracks' pattern on the chart. Also, Tuesday I mentioned that the Market Sentiment on the SPX was approaching an overbought area (above 80). The RUT already has attained that level and is flattening. Besides this, the green line of the Market Forecast is sloping down and below the 80 mark. This is a slightly bearish reading for the market.



Second, intermarket analysis shows some headwinds for equities. Gold (GLD) and long term US treasuries (TLT) - both risk-off trades that run counter to equity markets - spiked today. TLT had its best day in 6 months! Without going to deep into the analysis of the charts, they both show nice rounding bottoms and the Market Sentiment is ready for a bullish run. In fact, the Market Forecast for both GLD and TLT have recently turned bullish. The USD fell sharply today, also, and broke distinctively below its 30-day MA. Its Market Sentiment line is now falling from very high levels, which signifies a trend change in the USD is happening.

Medium term volatility hits 52-week low

Markets moved up again today, especially the RUT as oil bounced back and the USD fell.

VXV, the measure of longer term volatility hit lows today that have not been seen in all of 2016. Just a cursory glance at these low levels of the long term volatility measures mark at least breaking points in the uptrend over the last few years, as seen by the SPX chart in green below.



Everything is bullish - and again extremely so. McMillan's Put/Call ratios are at extremely low levels, so when the sell off comes, it could be a big one.


The Santa Claus Rally period ended today with a positive gain. This is generally positive for the markets in the short term, but there are two other test coming up: 1) the first five trading days of January and 2) the month of January. If these are both positive periods, then the market will most likely trade positive for the year.

From the Stock Trader's Almanac "Including this year, Santa has paid Wall Street a visit 53 times since 1950. Of the previous 52 occasions, January’s First Five Days (FFD) and the January Barometer (JB) were both up 28 times. When all three indicators were positive, the full year was positive 26 times (92.9% of the time) with an average gain of 17.8% in all years."

A big test is ahead however as market downturns usually happen when Republican presidents are new to office. The promises made during elections often do not turn into immediate outcomes for the US economy. The table from the Stock Trader's Almanac (2017) highlights this, as 4 out of 5 new Republicans led market declines.


Furthermore, first year's under Republican's is usually a difficult time.

Bullish start to Jan 2017

Right on time and as expected, today was a bullish day, although the move occurred mostly overnight due to some good growth numbers out of Italy and China. Oil fell and that put pressure on the day's session until a rally in the last hour.



The Market Forecast chart (middle chart on the graph above marked MFC) shows that a bullish intermediate cluster was formed last week. This means that further downside is limited this week, and we will likely see the markets retest the highs.

I notice in the Market Sentiment chart on the bottom of the graphs above that the line is flattening and again nearing the 80 level. This is again a sign that real upside potential from here is limited.

I bought back the SPX 2245/2235 put spread expiring on Jan6 for $2.70 - a loss of $1.60 on the trade. As the market is moving higher I will sell put spreads this week to gain from the bullishness.

December Monthly Market Review

This December the US markets did exactly the opposite of a usual December. Usually the first day of December is bullish. It was negative this year. Then usually the next two weeks show only moderate gains. This year the first week was extremely strong. The third week is options expiration week, and that is usually one of the strongest weeks of the year. This year it was relatively flat. Finally, the last few days of trading are usually extremely bullish in a period known as the 'Santa Claus Rally'. This year the markets suffered the month's worst losses on those days. This is not a good sign for January!



The large capitalization stocks held up better than the medium and small cap stocks in December. The SPY was flat up until the last days of the month, whereas the MDY and IWM sold off and consolidated more heavily right after making their month highs in the first week.





Non-US stocks followed the US markets, with big gains in the first week. After that they sold off hard and tried to stay above their 50-day moving average, which is negatively sloping still. Non-US have to stay above this important level if they are going to start a new uptrend.



Emerging Markets cannot break above the 50-day moving average, which is now declining at a more significant rate. It could collide with the 200-day moving average as soon a late January. The 50-day moving average in acting as a level of resistance for emerging market ETF VWO.



Real Estate markets cleanly broke out above the 50-day moving average on decent home sales news from the US in the beginning of the month. Technically, RWO then retested the 50-day moving average twice now in a 'W' formation and looks to go higher. The short term moving average looks also to be rounding and could start trending up.



Natural Resources firms remain in a bullish trend (above both their 50 and 200 day upward sloping moving averages. Many analysts feel 2017 could be a great year for commodity companies. However, if this ETF creates a lower high and continues to fall, this could be a trend changing event.



Commodities themselves suffered heavy losses in December. Importantly, the 50-day moving average on USCI broke below the 200-day average last month, and is now firmly trending lower. Commodity prices could go much lower here.



For all the talk of increased rates and lower bond prices, the market did not follow through lower from their November move. Again, the 50-day moving average crossed below the 200-day moving average, showing the trend is lower for bonds, but a retest of the 50-day level seems imminent. That is another $1 to the upside.



Inflation indexed bonds suffered more than other bonds, but still recovered late in the month.



International bonds held up better than US bonds, as they remained flat as US stock markets rose in the first weeks of the Dec. As stocks weakened BNDX rallied above its downwardly sloping 50-day moving average. This may signal the end of that rally, unless equities continue to falter.



Dollar strength continued in early December, echoing the performance of US stocks. With the USD correlated so high to US equities, any de-correlation could mark an end to the stock rally.



In summary, US stocks, the US dollar and Real Estate look strong, while bonds and commodities look weak. Non-US stocks are at potential turning point here and need to move higher in January to stop there downtrend. The effect of the Trump presidency will also become clearer in January. With that, natural resource producers will be in focus for support from the new president needed to keep their rally going.

Markets again down on tech

The NDX led the market down on the last day of the year. The RUT held up best, making this sell off seemingly not so bad.

The SKEW inflated to 127, but that is nowhere near extreme levels. The Put/Call ratios are at very low levels, suggesting that a top is likely forming in the markets. Until the P/C ratio trends higher, the stock market can still rally.

The VIX has been increasing lately, as I highlighted in previous entries on Dec 27 and Dec 28. I mentioned that the increase was not a detriment to the market, but if the trend continues, it will be. With the VIX around 14, anymore increases could be the start of a spiking situation.

 
We are still in a bullish period of the year - you would not know it though - which gives this market a chance to rally back in the next two days. Therefore, I rolled the Dec30 SPX 2245/2235 put spread out to Jan6 for a 40 cent credit. This puts the total credit at $1.10 for that spread. I will try to close this on Tuesday or Wednesday on a strong up move.

As the SPX 2260/2255 puts expired on the money on Friday, I will also look to recover those losses by trading that same spread if things look to get more bullish.

In any case, on any strength we will sell call spreads as this market is looking to roll over soon.