Stocks finished modestly higher on Monday in exceptionally jumbled trading that started with a feint higher, then a feint lower, then a sharp advance midday, followed by an equally sharp decline into the close. It was a bad session for trend-following traders, who got chopped up — but overall not a bad session at all for major mid-cap and large-cap stocks.
The U.S. dollar was stronger, gold was flat, crude oil sank a bit and Treasurys fell hard. The support for stocks was largely attributed to some iteration of the “good news is good news” theme, as the May ISM manufacturing index and April construction-spending data surprised to the upside. Also helping sentiment were spending and inflation data.
Overseas, Greece and China continued to grab a lot of the macro headlines. Greece missed its self-imposed Sunday deadline to secure a deal with its creditors. It’s not looking good for Athens, to be honest. They seem to have frittered away a lot of time chasing moonbeams.
Following the sharp sell-off last Thursday, the Shanghai Composite jumped 4.7%, while Shenzhen was up 4.9%. No one specific factor drove the rally, but the policy support dynamic remained in focus. As has been the case for some time with China stocks, spillover was limited.
Back here in the United States, the industrials sector put in the best performance on Monday, with special strength in the transportation stocks, which have been lagging badly. The airlines, which have been bogged down as of late on pricing and capacity concerns, rallied, with American Airlines Group Inc (AAL), Delta Air Lines, Inc. (DAL) and United Continental Holdings Inc (UAL) all up 3%–4%. The move was driven by a Bloomberg headline that Southwest Airlines Co (LUV) plans to cap growth in seat capacity at 7% — news that sent its shares up 2.4%.
Consolidation among chip makers continued to dominate most of the headlines, but software and Internet drove the better performance in tech. Notable gainers included Intuit Inc. (INTU), up 2.2%; eBay Inc (EBAY), up 2%; Facebook Inc (FB), up 1.4% and Citrix Systems, Inc. (CTXS) up 1.2%.
After yesterday’s crazy, up-and-down session, let’s take advantage by making a volatility trade via call options on the iPath S&P 500 VIX Short-Term Futures ETN (VXX).
Buy the VXX June 26th $19 calls at $1.00 limit, good till canceled, for target $1.50. The ticker symbol is VXX150626C00019000, and these are the weekly calls that expire on June 26, 2015.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Check out his Top Stock for 2015 here.
