The markets opened weakly this morning but the existing home sales report at 10 am ET sent the markets plunging. But on the positive side, the markets recovered quickly, although the major indexes still closed the day in the red. RUT fell to $589 before recovering to close at $596, down $7 on the day. This matched RUT's low in early July, so it strengthened that support level and can be seen as offering some encouragement; but the flip side is that if RUT breaks through $589... look out below! SPX lost $15 to close at $1052. Both indexes sold off into the close. Trading volume was up across the board today with a 35% increase on the NYSE and a 28% increase on NASDAQ. Trading in the S&P 500 stocks jumped up to 3.8 billion shares today; that is slightly above the 50 day moving average at 3.7 billion shares. The 50 dma has been steadily dropping since mid-June.

My Sept condor stands at a P/L of +$290, delta = +$70 and theta = +$61. This theta/delta ratio of about one-to-one shows that we are nearing the adjustment edge of this position. But after RUT rebounded, the delta of the Sept $540 puts had recovered to 16. This morning's plunge in RUT scared me. I immediately bought two Oct $540 puts, but the sold them about 30 minutes later for a loss of $180 after RUT rebounded. It was the classic whip saw - but better safe than sorry.

The economic data appears to strongly support the premise of a faltering recovery at a minimum. The question now is: has the market's drop of the past three months been the forward looking market response or is there more downside to come? Today's sharp drop after the existing home sales report would argue there is more downside to come as the data worsens, but the rapid intraday recovery appears to refute that interpretation. In the meantime, be sure you are managing your risk and not "betting the farm" on your prediction.