Another week of gyrations in the market, this time ending on a down note. I expect to see more downside in the short term as the technical indicators are consistently pointing that way. However, the market remains firmly in an uptrend, and all we are seeing at present is movement within the trading range. It's difficult to pin point the reasons behind the serial up and down moves except to say that we continue to see "good economic news is bad market news" playing out due to interest rate sensitivity. It also seems that the reduced Q1 GDP estimate of -0.7% didn't sit well with investors. However, there is no indication that this trend will continue based on YoY GDP data, and moreover, the seasonal adjustment methodology is questionable for the past few years' Q1 data. The methodology will be updated soon to provide a more accurate picture of future Q1 economic growth (or not). Finally the Greek tragedy is crawling to a conclusion; next week appears pivotal since the IMF is owed a payment on Friday. If that does not happen, expect capital controls to be erected in Greece as it crashes out of the euro in style. The US markets appear more or less indifferent to what happens in Greece: we'll have to see if that holds towards the end of the week if no agreement is in place with the creditors. This may prove to the the dominant theme of the next week, and may well introduce additional volatility into the markets. Provided investors are not so spooked as to cause a market rout, it will be an opportunity to open credit spreads with excellent premiums.
The June S&P500 Futures (ESM15) closed down the majority of days last week, with a bone rattling drop on Tuesday. Volume picked up considerably, especially on Tuesday, and the selling pressure continued through the week. Despite this, it did not close through the support level at 2100, and is presently resting at the 50MA. Technically, short - term momentum is negative, but longer term MACD is still positive. I expect more downside to start the week; external factors will probably dominate toward the end, so it will be necessary to keep up with events as they unfold. As I said above, the market is clearly in an uptrend, and will remain so until we have a clear break of support at 2090. Below that, support is at ~2075 (weak) and ~2040, which is the 200MA. I'm using the latter as the max. short strike price until we get Greece out of the way, and I'll be prepared to move down/out if it looks like its all going down the pan later in the week.
RUT suffered along with the rest of the indices, and continued to fall below the 50MA. Short-term momentum is negative and MACD is starting to turn over. All of this is consistent with RUT forming a new down channel. If so, the bottom will be around 1195, lower than current support at ~1210. If the markets continue down, I expect RUT will be leading the charge, and it will present a good opportunity to open an iron condor as volatility spikes upwards.
AAPL started the week well, pushing up above 132 only to end the week at~ 130, which proved to be support over the course of the week. Volume picked up on the down moves indicating profit taking is becoming a theme. Short-term I expect continued downside with support at 126. I'm not sure it will get that low since 130 has held this week. The change in direction was a good opportunity this week to place a call credit spread, which I did with a 136 short strike. While this bout of weakness persists I'll continue to look for these opportunities to earn extra premium.
The week went well for GILD and it continues to move up and strengthen its recent breakout despite market weakness. Short term momentum has weakened and is turning down, suggesting further up moves may be muted. Support now appears to be at 110 and then 105. I have not placed a spread on GILD in the past week or so since I wanted to see how it reacted to market weakness. I'm more comfortable now and I'll probably place a spread for the 6/12 expiration.
Similarly, SWKS continues to march upward. Indicators are pointing upward suggesting we haven't see the last of the upswing. Support is at 104.
LNKD is bobbling around 195 support, and was relatively unaffected by the overall market action last week. This is a good sign since it suggests investors are supporting the stock after it took its 20% dive. I continue to open spreads at 185 short strike, leaving room for some further weakness before having to take correction action.
Last but certainly not least, GOOGL managed to get to mid-channel before turning down. Both RSI and MACD are indicating a lack of momentum, and GOOGL may well drift lower next week. Volume for down moves was not particularly high last week, suggesting the stock still has some support. The bottom of the channel is at 530, and I've set up my short-strikes accordingly. I'll also look to open a call credit spread next week at 575 to squeeze out some more profit.
So, we wrapped up the May spreads on Friday, with all open spreads and the RUT iron condor, expiring OTM. Profit is 10%: excellent! Results for May are now up on the 2015 page. I got busy last week with spreads for ESM15, opening up a ladder of put credit spreads at successively lower short strikes, and putting in an iron condor with 2000 and 2160 short strikes all for the 06/05 expiration. I also opened a spread for the 06/12 expiration with short strike at 2040. Given the potential for added volatility this week, I'll keep a close eye on the futures price as the week proceeds, with correction action primed and ready to go. I have open spreads on LNKD for both 06/05 and 06/12. The insensitivity of the price to last week's market ups and downs gives me some confidence that the 185 short strike will prove to be satisfactory. Finally, I open an AAPL put credit spread on Tuesday with 125 short strike, then as the day wore on it looked like an opportune time to follow that up with a call refit spread at 136 since I didn't expect AAPL to make a new all time high that week. So I have an open iron condor for the 06/05 expiration. If these spreads all hold up, profitability should be good again for June.
- Brian Gilmartin with a brief summary of 1Q2015 Earnings season. Bottom line: analysts were too pessimistic coming into earnings, and earnings ex-energy are decent (~8-10%). Not a story that has much traction in the media. http://www.investing.com/analysis/earnings-season-over---growth-was-pretty-solid-across-the-sp-500-252725
- Another method to predict market returns. This time using statistical analysis to predict ranges of outcomes instead of using PE's to predict. http://www.bloombergview.com/articles/2015-05-26/a-better-way-to-think-about-stock-market-values
- A look at US stock market capitalization and also bond markets. The point is that central bank policies have resulted in the restoration of all the wealth (and much more) that was destroyed during the Great Recession. http://www.investing.com/analysis/central-banks-restore-wealth,-working-on-growth-(excerpt)-25298
- The Dow transports have broken below support, so the author suggests that the bull market in stocks is now over. We'll see. https://seekingalpha.com/instablog/29482055-gregory-mannarino/4037396-proof-that-the-bull-market-in-stocks-is-over
- John Hussman on the drivers of market valuation. Interesting points include his conclusion (via painful experience) that short-term stock prices are driven by investor risk preference, while only longer-term do valuations drive stock price. Only when risk preference shifts will a market collapse. He suggests that risk preferences can be measured using "market internals" such as credit spreads (and other indicators that are not defined in this article.) He plots what looks like total market cap / total market earnings and shows that 10 year returns have a 92% correlation with this metric - impressive. Also interest rates do not explain most of the variation of market prices. A second point is that "vertical market moves" are driven by changes in risk preference. At the present time he suggests that market internals have deteriorated to the point when vertical moves are more likely. https://seekingalpha.com/article/3214676-john-hussman-voting-machine-weighing-machine
- Brad Macmillan looks at the latest durable goods orders and likes what he sees. https://seekingalpha.com/article/3216576-todays-economic-news-expectations-and-reality
- This week's most important economic indicators: some noise, and some worries, but US economy appears to be still on the up. http://www.investing.com/analysis/3-numbers:-eurozone-business-sentiment-stumbles,-us-jobless,-us-homes-253158
- Slow GDP growth. Analysis showing the QoQ numbers exhibit large fluctuations, which are not evident in the YoY numbers. https://seekingalpha.com/article/3223366-u-s-gdp-and-slow-growth
- Why buybacks don't impact SPX earnings and PE calculations. https://seekingalpha.com/article/3205126-s-and-p-500-earnings-inflated-due-to-buy-backs-surprising-truth
- Commentary on the uptrend in the market. Is it still in place? This author thinks so. https://seekingalpha.com/instablog/706857-fear-and-greed-trader/4019796-signs-that-the-market-is-at-a-top-but-are-we
- A problem with GDP calculation; https://seekingalpha.com/instablog/226469-steven-hansen/4048546-something-wrong-with-gdp-seasonality
Additional disclosure: I have open spreads as listed in the article and I will most definitely be opening more this week.