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.