An Early Retrospective on ^SPX and ^RUT

The end of any calendar year gives us a perfect opportunity to look back and evaluate the year that was, and perhaps prognosticate about the year that may be.

The ^SPX closed @ 2,058.90 on 12/31/14 – up nearly 12% in 2014. As I type, the ^SPX is 2,068 – up fractionally for 2015.

Yesterday and today we traded either side of unchanged on the ^SPX for 2015. The broad market is oscillating between 2080 and 2,052. Yesterday the Energy sector was weighing heavily on the market and when Crude Oil started to bounce, so too did the ^SPX. Today, the correlation to Energy is once again apparent. This morning, Crude Oil (Jan WTI futures) spiked up to nearly $39 just after the release of weekly Department of Energy data for production and consumption. The ^SPX and ^RUT made intraday highs concurrently.

Given the fact that Energy (Crude Oil, Natural Gas) and the related equities (E&P, Refining, Pipeline, etc.) have traded so poorly in 2015, the fact that the S&P is largely unchanged is a “glass half full” perspective. The flip side to that coin, however – If Crude Oil is down 35% on the year and petroleum products power much economic growth – what does that say about future growth expectations?

As in all things – Time will tell.

Looking back, this year, the ^SPX traded as low as 1,867.01 (8/24/15), or down 9.3%.

The ^SPX also traded up to 2,134.72 (5/20/15), or up 3.7%.

nn1Source: LiveVol Pro

The Russell 2000 (^RUT) small cap index, ended 2014 @ 1203.63 (12/31/15 close) – up about 5% for 2014. As I write, the ^RUT is 1,158.25, which is down almost 4.0% for 2015.

In 2015, the ^RUT traded as low as 1,077.70 (9/29/15), or down 10.5%.

The ^RUT also traded up to 1,294.41 (6/23/15) or up 7.5%.

nn2Source: LiveVol Pro

Since the middle of the year (6/23/15 to be precise) the ^RUT (Blue line) has dramatically underperformed vis-a-vis its big cap brethren, ^SPX (Red line).

nn3Source: LiveVol Pro

It’s worth noting that the end of June is when the selloff in Energy began in earnest. You can see it very clearly on the USO chart below.

nn4Source: LiveVol Pro

Energy has received the most attention, which makes sense given its impact on our everyday lives via the gasoline pump, heating and cooling our homes, and transporting most everything we consume. However, commodities in general have been under significant pressure in the second half of 2015. From Industrial Metals like Copper and Iron Ore, to Grains like Corn and Wheat, to Livestock like Live Cattle and Hogs – they have all traded markedly lower, particularly in Q3 and Q4 of this year.

The “simple” explanation for the commodity weakness is US Dollar strength, but that is arguably too myopic. In any event, the proverbial rubber will likely meet the road next week if/when the Federal Reserve follows through and raises rates for the first time since 2006.

Looking out toward the end of the year, there’s potential for a “Golden Cross” (50 day moving average crossing over the 200 day moving average) in the ^SPX, which technical traders consider bullish. Nearer term, the ^SPX needs to hold its 50 day moving average for the bulls to retain “control”. The 50 day has been tested, and held in October, November, and twice in December.

nn5Source: LiveVol Pro