Dec 262015
 

Santa-claus-rallySanta Claus delivered good news to the markets this week as the S&P 500 rallied back into positive territory for 2015. However, the SPX remains range bound above support at 1995 and below resistance at 2077-2092. A breach of 1990 would suggest a decline to support at 1937-1963. A break above resistance, and especially over 2115, would shift the bias to bullish. Due to the Christmas holidays, trading was abbreviated this week and volume was light. Volatility was also markedly lower this week dropping 24%. The VIX traded on Thursday as low as 14.45 before closing for the week at 15.74. The SPX opened on Monday at 2010.27 and closed Thursday afternoon at 2060.99, up 60.72 or 2.52%.

Chart_122615_SPX

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Dec 202015
 

Market Conditions

The Federal Reserve raised interest rates 25 basis points this week ending the longest period (84 months) of near-zero rates in modern history. The markets initially reacted positively to the news, but by Thursday, the party was over. The markets declined significantly on Thursday and Friday giving up all of the gains from earlier in the week. Helping put pressure on the stock market was the continued weakness in crude oil. The SPX opened on Monday at 2013.37 and closed Friday at 2005.55, down 7.82 or 0.38%.

Chart_122015_SPX

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Dec 142015
 

rtimg_gasflameThe past week has been difficult for my open positions in the energy arena. Crude oil (/CL) has continued to tumble along with natural gas (/NG). As losses have mounted, I have managed the trades to bring in additional premium where possible without taking on excessive amounts of additional risk. At some point when a trade continues to move counter to your plan, it is time to take your loss and move on. Several weeks ago, I posted an article entitled, The Kelly Criterion – A Game Changer, where I discussed how I planned to use the Kelly formula to determine the point at which to exit a losing trade. Despite whether or not you agree with how I have chosen to implement the formula, it has been helpful to me in determining a mechanical point at which I will abandon a trade.  Today I made the decision to completely exit my natural gas position.

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Dec 132015
 

Market Conditions

The U.S. stock market indexes came unhinged this week as hopes for a Santa Claus rally faded just as quickly as prices in crude oil declined. Volatility escalated quickly on Friday with the VIX increasing by 63% this week to as high as 25.27 before closing at 24.39. The nervousness in the markets is returning just days before the Federal Reserve is expected to raise benchmark interest rates for the first time in nearly a decade. But the real story is not interest rates, but rather crude oil. With crude oil in an apparent free-fall, there is concern about the possibility of another credit crisis. The high-yield (junk bond) debt market is heavily exposed to energy. Of the $5 trillion in junk bonds, it is estimated that over $2 trillion is financing the energy sector. If energy companies begin to default due to the low crude oil prices, it could make the 2008 housing crisis look like child’s play. In fact, this week the high-yield mutual fund Third Avenue Focused Credit Fund announced that they are blocking investors from withdrawing their money! The SPX is now back in negative territory for 2015 having opened Monday at 2,090.42 and closing Friday at 2,012.37, down 78.05 or 3.73% for the week.

Chart_121315_SPX

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Dec 052015
 

Market Conditions

Volatility returned to the stock market briefly this past week as the VIX rallied to 19.35 on Thursday. Economic data was released all through the week, but the main drivers of the market activity were… you guessed it… economic stimulus and interest rates. Thursday morning, Mario Draghi announced that the ECB would expand its stimulus program. However, the amount of stimulus was disappointing causing European and U.S. markets to react negatively. Thursday’s drop in the SPX was the biggest single-day decline since the October rally began. On Friday, the Non-Farm Payrolls report was released indicating that the U.S. economy added 211,000 new jobs in November (200,000 expected) with the unemployment rate remaining unchanged at 5%. The strong report all but ensured the first interest rate increase in nearly a decade. Throughout the rest of the day, the markets rallied erasing all of the previous day’s losses. The SPX opened Monday at 2,090.95 and closed Friday at 2,091.69, up 0.74 or 0.04% for the week.

Chart_120415_SPX

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