The markets were trading sideways today until traders heard Bernanke's remarks to the Senate Banking Committee. To my mind, it wasn't surprising that he was unwilling to specify actions and a timeline for further monetary stimulus, or speculate on Fed actions given various scenarios for the economy. Bernanke and his predecessors have always been very careful with their words because they are keenly aware how much their words can move markets. But traders may have focused on Bernanke's assessment of the economic outlook as "uncertain", but that language was almost verbatim from the FOMC minutes.

RUT dropped $12 to close at $613 while the SPX gave up $14 to close at $1070. The SPX just barely pushed past the 50 dma at $1087 intraday before pulling back. You will recall that SPX stalled at the 50 dma in mid-July. This tentative, indecisive market action is good for my Aug iron condor on RUT, with a P/L of -$750, delta = -$14 and theta = +$125. All of our call and put spreads are now over one standard deviation OTM with 29 days to expiration.

Disappointing earnings reports from IBM and TXN resulted in large negative market futures this morning and the markets traded steeply downward after the open, but then slowly recovered and posted impressive gains by the end of the day. RUT gained $11 to close at $624 while the SPX closed up $12 at $1083. Trading volume was up today, rising 16% on the NYSE and 13% on NASDAQ; the S&P 500 stocks traded up to 4 billion shares, but still below the 50 dma. Today's action has the SPX approaching its 50 dma at $1089; this proved to be formidable resistance a few days ago. We will see if SPX can break through this time. Given the market's reaction to the earnings reports to date, that seems unlikely.

My Aug iron condor at 510/520, 550/560, and 680/690 stands at a P/L of -$1190, delta = -$44 and theta = +$139. The market's indecision is giving our theta time to work in our position's favor. VIX dropped again today (under 24%) and this will also work in our position's favor. Can SPX break through $1089 or are we in a bearish down trend that began in late April?

The markets opened upward early this morning, seemingly in response to the extreme downturn on Friday. But within minutes the traders began selling off strongly. Then the markets recovered slowly through the rest of the day and all of the major indexes closed modestly higher on the day. RUT closed up $3 at $613 while the SPX closed at $1071, up $6 on the day. Trading volume fell off markedly; it decreased by 34% on the NYSE and 18% on NASDAQ. Trading in the S&P 500 stocks dropped to about 3.5 billion shares from almost 5 billion shares traded Friday. Volatility dropped today with the VIX closing at less than 26%.

IBM announced earnings after the close and beat its earnings estimates handily, but came in about 2% under estimates for revenues; in after hours trading IBM is trading down about $5/share - is this a signal for tomorrow's market? This market is in an extremely defensive posture - it sells first and asks questions later.

Our Aug RUT iron condor is developing nicely with a P/L of -$1050, position delta = -$10 and position theta = +$118. If you draw trend lines on the SPX chart since late April, we have a channel from about $1000 to $1100 where the SPX bounced off of $1100 last week and may now make its way down to the lower part of this channel around $1020-$1030 over the next several sessions; the disappointment in IBM's revenues may be the impetus for a move in that direction tomorrow. But we will continue to manage our condor on the basis of the market's current move, not what we predict for its future direction.

The bears came on strong today and never looked back. All of the major indexes dropped and closed at or near their lows for the day. It appeared as though the Michigan Consumer Sentiment Survey was the final straw after some weak economic data earlier in the week; the sentiment survey dropped to 66.5 from 76.0 last month. Financial stocks also led the charge downward, based on pessimistic outlooks after passage of the financial regulation bill. And it didn't help that Google missed earnings, adding to the tech weakness started by Apple Computer and the iPhone antenna problems. RUT dropped over $24 to close at $610 and SPX closed at $1065, down $32. Today's sell-off renewed speculation about a double dip in the economy. Trading volume was up today, rising 34% on the NYSE and up 11% on NASDAQ. The S&P 500 stocks traded 4.8 billion shares, rising above the 50 dma.

Interestingly, the VIX (volatility index) closed the day at 26%, lower than one would expect for such a dismal day in the market. The computation of the VIX is based on the market prices of the near term ATM SPX options, whose prices in turn are driven by demand. For the VIX to remain under 30% today seems to suggest that option buyers were not as panicked as one might have expected. So what happens Monday? Was this drop a bit over done?

On the other hand, given recent economic and sentiment data, looking for a bearish trend in the markets moving forward certainly isn't unreasonable. In fact, as I look at the SPX chart, the move downward since the end of April appears too extreme to explain away as a correction within a bullish trend. So I would be cautious about any bullish trading positions. But as delta neutral traders, we just trade what the market gives us today - we don't attempt to predict tomorrow's move. Today's move was actually helpful for my Aug iron condor on RUT; I removed my call hedges first thing this morning as the bloodbath began. The P/L of the position is now -$1,650, delta = -$12 and theta = +$114. So delta remains small with a large positive theta - a strong position.

Have a good weekend.

The markets traded back and forth today on a variety of economic news, but ended up largely unchanged after the dust settled. RUT initially dropped to $627 this morning and then traded sideways through most of the day. Similarly, SPX dropped to $1080 this morning, but all of the major indexes recovered late in the day. RUT didn't fully recover, closing at $635, down $6, but the SPX closed at $1096, up $1. This is the third day SPX has closed above its 50 day moving average (dma), but it appears unable to break through $1100. RUT has now closed three days above its 200 dma and appears to have strong resistance at $645. Trading volume was modest and mixed. Trading was up 5% on the NYSE, down 9% on NASDAQ, and 3.9 billion shares of the S&P 500 stocks exchanged hands, up slightly from yesterday but well below the 50 dma. All of this suggests great market indecision. Neither the bulls nor the bears have made their case stick.

New unemployment claims fell by 29k to 429k, but continuing unemployment claims rose by 247k to 4.68 million. I can't understand why these two numbers don't move in concert; I read about seasonal adjustments and the like, but the logic escapes me. Feel free to enlighten me. The market appeared to be particularly discouraged by the Philadelphia Fed Index dropping to 5.1 from 8.0 last month; similarly the NY Fed Empire Manufacturing index fell from over 19 to 5. But buyers entered the market in the last thirty minutes and recovered much of the day's losses - maybe some traders heard that the SEC and GS have reached a settlement? That was announced by CNBC after the market closed, but no official announcement is out yet.

GOOG is being punished in after hours trading after missing earnings this afternoon. This makes my Aug 470/480 call spreads questionable; I previously thought that was a pretty conservative position. But the conference call and some time to reflect and analyze the data may make a difference in tomorrow's trading. My Aug iron condor on RUT remains very solid with position delta of -$22 and theta = +$84 - an excellent theta/delta ratio, especially since I have long call hedges in place that reduce the position theta.

The market appears to be teetering at a balance point with neither the bulls or the bears able to maintain control. Today's poor economic data was fuel for the bears, but they couldn't hold the intraday lows. It is difficult to predict who is going to win this tug of war, so delta neutral strategies are an excellent choice here.

SPX closed just above its 50 dma at $1095 yesterday, so all eyes were watching to see if it could hold that key support level today. In the early going, it looked like it wasn't going to hold, but then SPX rallied as high as $1099 before pulling all the way back to $1088. But the bulls came to the rescue and drove SPX to close unchanged at $1095. RUT traded in similar fashion, but was unable to recover all of its losses, closing at $640, down $3. Trading volume dropped today by 7% on the NYSE and dropped 6% on NASDAQ. Trading in the S&P 500 stocks dropped from yesterday to about 3.7 billion shares, well below the 50 dma.

The price charts of RUT and SPX are displaying the harami candlestick pattern (or an "inside day" on a bar chart). Haramis suggest a possible reversal of direction - after a strong up day yesterday, we have a doji candlestick today, suggesting market indecision, and possibly a market turning point. But in these markets, I'm not sure any of my indicators have much value. It seems as though the market is just thrashing back and forth from one extreme to the other. Recent events have made me cautious.

When the market ran up this morning after testing support, I added to the hedges on my Aug iron condor. The P/L now stands at -$2,780 with position delta = -$23 and theta = +$76. Since RUT pulled back, I now am probably hedged more than necessary. BUT, adjusting early and too much is always preferable to adjusting too late. So now we watch to see who will win this bull/bear tug of war.

Stocks traded strongly upward today as the earnings reports and guidance from Alcoa and CSX encouraged traders about the strength of the U.S. economy. SPX traded up and hit its 50 day moving average (dma) at $1095 mid-day and pulled back; later in the afternoon, SPX broke through the 50 dma but pulled back and closed right at the 50 dma, $1095, up $17 on the day. RUT ran even more strongly to the upside and closed up $21 at $643. Trading volume rose today, increasing 28% on the NYSE, and 2% on NASDAQ. Trading in the S&P 500 stocks rose to four billion shares, but still well below the 50 dma. INTC reported its highest earnings in ten years after the close. Barring no negative surprises in the conference call, that may continue to fuel this rally tomorrow. Many institutional traders watch the 50 dma and the 200 dma as key levels of support and resistance. SPX broke through the 50 dma briefly today before being pulled back. That $1095 level will be crucial to watch tomorrow for a signal of whether this uptrend can continue.

I added a partial adjustment to my Aug iron condor today with a Sept $680 call. This position now stands at a P/L of -$2,895, delta = -$61 and theta = +$94. The hedge reduced our delta risk, but also reduced our positive theta. If this market run continues tomorrow, I will be adding additional hedges.

Today was a slow day in the markets with no significant economic reports as traders waited on Alcoa's earnings announcement after the close. RUT opened, traded down and then basically sideways the rest of the day, closing at $622, down $8. The SPX behaved similarly, but slowly recovered its losses, closing at $1079, up less than a dollar. Trading volume remained anemic with a 2% decline on the NYSE, but a 11% increase on NASDAQ. The S&P 500 stocks traded even below Friday's 3 billion shares. The 50 day moving average is about 4.8 billion shares. As you probably know, Alcoa beat expectations and has traded up after the close. My guess would be that this will drive the market somewhat higher tomorrow. The remaining risk would be any pessimistic comments during the conference call regarding future growth. Alcoa receives a lot of attention because its products are crucial to much of the industrial economy; if the economy is beginning to pause, Alcoa should be an early indicator.

Today's weakness in RUT was helpful to my Aug iron condor that now stands at a P/L of -$1980, position delta = -$55 and position theta = +$124. The delta of the $680 calls pulled back to 16. So we have begun the earnings season with the market feeling very nervous, so surprises could occur at any time and push this market over the edge. Analysts are especially focused on the guidance being presented by companies due to fear of a possible "double dip" in the economy.

The markets tacked on another bullish day today, although much of it was added in the last hour of trading. However, the trading volume made record lows for the year. Trading on the NYSE dropped 25% and trading on the NASDAQ dropped 23%. Trading in the S&P 500 stocks was under three billion shares today. You have to go back to the first trading day of the year (traditionally a low volume day) to find a lower S&P trading volume day. This extremely low volume makes me leery of declaring that the worst is over, etc. The big players have not fully endorsed this move up as yet. Any disappointing earnings reports over the next week or two could trip this market very easily (Alcoa is Monday after the close). Be cautious.

My Aug iron condor on RUT is starting to get squeezed on the top side. The delta of the short 680 calls hit 19 today. The position delta stands at -$61 and theta = +$106. The theta/delta ratio is dropping, but still in a good range. If the run higher continues, this position will have to be adjusted.

Have a great weekend.

As noted in my blog yesterday, I was concerned whether the major indexes could hold as support the resistance levels they broke yesterday, e.g., $1042 on SPX. Well, they did better than that, they closed above yesterday's closing prices. SPX closed at $1070, up $10 after trading as low as $1058, well above the strong resistance level of $1042 that was broken yesterday. RUT closed at $620, up $9. RUT traded down to $612, which was yesterday's close, but then rallied to close at $620. So the DJIA, SPX, and the RUT all traded down and tested yesterday's closing prices before trading higher today. All of this price action was very bullish and supports the idea of a bottom on the correction having been reached. However, it was on even lower volume than yesterday; trading on the NYSE was down 8% and trading was down 5% on the NASDAQ. Less than 4 billion shares of the S&P 500 stocks traded today, down from yesterday and well below the 50 day moving average, which is just below 5 billion shares.

A reduction in the number of initial unemployment claims cheered the market; the numbers came in at 454k this week, down from 475k last week. Similarly, the number of continuing claims dropped by 230k to 4.41 million. However, it is difficult to know how many of those 230k are now employed or whether they simply ran out of benefits.

My Aug condor is pretty much unchanged from yesterday with a P/L of -$1720, delta = -$37, and theta = +$97. The theta/delta ratio is high and the current value of the index is close to equidistant from the OTM call and put spreads. The price action of the past few days may have you looking for bullish trades, but beware of the low trading volume. This market is still dangerous.