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Rumors of another round of Fed easing and positive comments out of the ECB boosted markets today. In fact, the bounce back was so strong, it's worrisome. This reminds me of the volatility we experienced last fall: big up days followed by down days, etc. SPX closed at $1315, up $30. RUT closed at $765, up $19. Trading volume spiked up with 3.1 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 20% and volume was up 10% on NASDAQ.
The market must have seen my blog yesterday when I said I would feel better if SPX broke the resistance levels at $1295 and $1305. Well, breaking through those levels in one session doesn't make me feel better - ironic, I know. Now I worry about this spike upward blowing out all of the shorts and then turning back down hard. Some calm sideways trading for a few days might ease my stress. The VIX dropped to 22% today, so we are definitely not yet out of the woods.
My June condor on RUT stands at a P/L of +$1,480 with delta = +$27 and theta = +$99. The Jul condor is up $860 with delta = -$23 and theta = +$73.
I will be watching the futures tonight and tomorrow morning, looking for clues...
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The markets staged a bit of a come-back today, but the trading volume was unenthusiastic. SPX closed near its session highs at $1286 for a gain of $7 and RUT gained $9 to close at $746. Trading volume declined across the board with 2.5 billion shares of the S&P 500 trading; trading on the NYSE dropped 14% and trading volume on NASDAQ declined 9%. The only real economic news of the day was the ISM Services Index which came in at 53.7 for May, up slightly from April's 53.5.
The big question is whether this is just a temporary rally before the market continues downward? One way to address that question is to look for significant resistance levels to be broken. On SPX, the first would be around $1295 where SPX appeared to bounce back upward in mid-May. The next level of resistance would be around $1305 from late January. If SPX can break through those levels with some volume, we could breathe a bit easier.
Today's rally prompted me to remove my hedges on the Jun condor; it now stands at a P/L of +$380 with a delta of +$71 and theta = +$172. The 690/700 put spreads are about 1.5 standard deviations OTM, but that doesn't feel very safe in this market. My July condor stands at a gain of $920 with delta = +$1 and theta = +$62. So the July position is almost perfectly delta neutral, but if the market rebounds strongly, those call spreads will be pressured next - if it isn't one thing, it's another!
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Markets opened lower this morning as some disappointing economic news supplanted worries about Europe. SPX traded as low as $1299 before recovering to close at $1310, down $3 on the day. RUT lost less than a dollar to close at $762. Trading volume spiked upward with 3.1 billion shares of the S&P 500 trading. Trading volume increased 27% on the NYSE and increased 29% on NASDAQ.
ADP reported private payrolls increased by 133 thousand jobs - not great, but not terrible. Initial unemployment claims increased by ten thousand but continuing claims decreased by 36k. The Chicago PMI caused some heartburn by decreasing to 52.7 for May, down from 56.2.
Reports that the IMF is considering programs to help Spain with their debt crisis helped pull the market out of its tailspin. SPX appears to be establishing support over the past few sessions around $1295 to $1300 with those long lower shadows on the candlesticks, but this remains a dangerous, volatile market.
My June iron condor on RUT stands at a net gain of $980 with position delta = +$56 and position theta = +$133. The put spreads are about 1.5 standard deviations OTM and the call spreads are about three standard deviations OTM, so this position is looking pretty strong in spite of the ugly market conditions.
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Traders pondered the question all weekend: is this the low of the correction or do we have more to go? A related question might be whether a new global recession is on the horizon, led by Europe's sovereign debt problems. SPX broke below the 200 dma Friday and really spooked the markets in the process. SPX opened up in the black this morning, but quickly turned south. But an afternoon rally brought the market back to close at $1278, up less than a dollar. RUT behaved similarly, closing flat at $737. The SPX candlestick today was the classic doji, but with a longer shadow to the downside. This principally an indicator of balanced trading between the bulls and bears, but the lower shadow holds out some hope that the bottom of this correction is being tested. The purists will quibble whether this candlestick should be termed a hammer; the bottom line is that the market traded downward very strongly this morning, but then the bulls showed up and started buying - a positive sign, but not definitive. Trading volume was down from Friday at three billion shares of the S&P 500, but still above the 50 dma. Trading on the NYSE was down 15% and trading volume was down 12% on NASDAQ.
Some news over the weekend could be interpreted as positive for the European debt issues, but the fact remains that the debt problems in Europe are much as they are here. No politician has the courage to touch them. But the markets are largely about perception and if European leaders appear to be saying the right things, the market may stabilize here.
My June iron condor on RUT is hedged with Jul 700 puts and stands at a net loss of $710 with delta = +$38 and theta = +$151. My July condor at 610/620 and 850/860 is up $700 with delta = +$8 and theta = +59. If RUT stabilizes here, the June position should be fine; in that case, our two sigma rule will likely close the put spreads on Friday. The July position is almost perfectly delta neutral; I built in a little extra safety margin to the downside and that has proven helpful.
Enter your bets in the office pool for the SPX low...
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Traders turned their attention to Spain's sovereign debt problems today and the markets gave back everything that was gained yesterday. SPX opened up in the red and drifted downward all morning; then it bounced along the bottom all afternoon, hitting lows near $1311. SPX closed just barely above those lows at $1313, for a loss of $19 on the day. RUT gave up $15 to close at $762. Trading volume remained low at 2.5 billion shares of the S&P 500 trading today, well below the 50 dma at 2.8B. Trading on the NYSE was up 4% but volume was flat on NASDAQ with an increase of less than 1%.
The VIX gapped up at the open and rose to 24.1%. This is close to the highs around 25% set about a week ago. To put this in perspective, VIX peaked just under 31% in mid-December when the bull market trend began that took us into 2012 so strongly.
My Jun RUT condor position stands at a P/L of +$1,140 with delta = +$51 and theta = +$107. The jobs report and GDP data later this week may turn traders' attention away from Europe, but I am doubtful. Spain is a much larger economy than Greece. This is getting serious.
