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.