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The markets rebounded strongly today with SPX running up $21 to close at $1316. RUT closed at $765, up $17. VIX pulled back to 22% today after being up over 25% intraday on Friday. Trading volume declined to 2.8 billion shares of the S&P 500. Trading on the NYSE was down 33% and trading volume on NASDAQ decreased 31%.
Today's move on SPX takes us back above the $1305 support level. But one day does not end a correction. There weren't any domestic economic data reports today, and, to my knowledge, we didn't get any new encouraging news out of Europe. So I'm not sure why the markets rallied today. Some positive comments came out of China over the weekend and that was said to have encouraged traders, but that seemed thin.
My June RUT 690/700 and 880/890 iron condor stands at a P/L of +$400 with delta = +$54 and theta= +$75. Now for the big question: can the markets trade upward two days in succession?
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There was a glimmer of hope in the markets this morning, mostly driven by the Facebook IPO, but then the bears started to take control once again. SPX closed down $10 at $1295 and RUT broke through its 200 dma and closed at $747, down $7. Today's close on SPX confirmed yesterday's break of support at $1305; now we look to about $1265 for the next support level. The 200 dma is at $1278. Even more bearish is the trading volume level which increased again today to 3.4 billion shares of the S&P 500; trading on the NYSE increased 23% and trading volume increased 30% on NASDAQ. Some of this volume increase can be attributed to options expiration, but I still see it as predominantly bearish.
VIX increased again today, closing at 25.1%. We aren't seeing the free fall of last August or the volatility swinging back and forth as it did then, but this correction is getting nasty. In fact, I started to wonder today if the trend has shifted. Perhaps it is the beginning of a bearish trend rather than a minor correction within a bullish trend.
The remaining 910/920 call spreads in my May iron condor will expire worthless with RUT settling at $753.60 (I closed the 720/730 put spreads yesterday). I hedged the June 690/700 and 880/890 RUT iron condor today with July 700 puts. This position closed today with a P/L = -$100 with delta = +$11 and theta = +$12. Our hedge will serve to hold losses to a minimum while we buy time for the index to either slow down and trade sideways or pull back. With the closing of our May position, the year to date results for the Flying With The Condor™ stand at +26% with the S&P 500 up 3% for the year. If SPX trades down to $1258, the market will have given up all of 2012's gains, but we are making money.
So now I put the hectic expiration Friday behind me and look to dig some holes to plant whatever my wife bought at Costco - I'm the unskilled labor this weekend. Enjoy.
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Today marked the second day that the bears took control around 2 pm and closed the markets near the lows for the day. This morning, the S&P futures were positive and the market opened up in positive territory, but it didn't last long. SPX closed down $8 at $1331, definitely breaking support at $1340. RUT lost $2 to close at $777 (too bad it isn't a slot machine). Trading volume bumped upward today with 3.0 billion shares of the S&P 500 trading. Trading on the NYSE was up 12% and volume on NASDAQ increased 10%. VIX rose as high as 23% and then closed at 22%. Today marked a ten session losing streak - where's the bottom? SPX hit a temporary high in late January around $1325 before heading higher - that is the most logical support level at this point. All in all, not a good day for the bulls: bears driving the market to lows at the close on higher volume - not good.
Most of the economic data was positive today, but that didn't seem to matter as much as worrying about Europe and Greece in particular. The CPI came in flat and the National Association of Home Builder's survey of members bumped up to 29 for May from April's 25. The Empire manufacturing survey came in stronger than expected at 17.1, up from 6.6 in April.
My May condor stands at a P/L of +$1,400 with delta = +$32 and theta = +$378. The put spreads remain well OTM at 720/730. The June position stands at +$840 with delta = +$35 and theta = +$75. Assuming the May spreads expire worthless, our year to date returns will hit just under 26%.
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Sounds like we are dancing the limbo, doesn't it? Unfortunately, this isn't a harmless pastime, it's real money. SPX tumbled again yesterday after rising in early trading. SPX closed at $1325, down $6 and RUT gave up $5 to close at $772. Trading volume of the S&P 500 rose to 3.2 billion shares while volume dropped 1% on the NYSE and rose 7% on NASDAQ. SPX is nearing that congestion area of $1310 to $1320 of late January. We have now given up about half of 2012's gains. The most troublesome aspect of the chart the past two days is the fact that SPX hits highs during the day, but cannot hold anywhere near those highs. The bears are in charge. As I write this blog, the futures are basically flat, but those long upper shadows on the candlesticks of SPX the past two days are bearish signs. We may not have seen the bottom of this correction yet. Consistent with that view, VIX rose to 22.3% on Wednesday.
Most analysts see Greece leaving the EU, but analysts are divided on the effects of that eventuality on the global economy. And that uncertainty is driving the markets lower. European chaos is also strengthening the dollar and that increases the downward pressure on US markets.
My May condor on RUT stands at +$1,700 with delta = +$10 and theta = +$135. The put spreads remain outside of two standard deviations. The Jun condor stands at a net P/L of +$940 with delta = +$41 and theta = +$64.
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The markets played out what has become the usual game plan up to a point today: the S&P futures were down last night, the markets opened downward this morning, and then started strengthening. But then the markets broke the pattern by selling off in afternoon trading, driving the closes to values near the lows of the day. SPX broke support and traded below $1337 this morning before rebounding. About 2 pm this afternoon, SPX reached $1347 and then sold off into the close at $1338, down $15. RUT closed at $779, down $11. This was not the usual bullish support pattern we have been seeing of late. On the other hand, trading volume fell off today, after being above the 50 day moving average for the past four sessions, it dropped below the 50 dma to 2.6 billion shares today. Trading volume was flat on the NYSE and down 4% on NASDAQ.
Support and resistance levels are a bit fuzzy, so it isn't obvious that SPX has broken the support level at $1340 with today's close. I felt better this morning, seeing SPX bounce back above $1340 after flirting with $1336. If the markets open weakly again tomorrow, we could be searching for the next support level - $1310? To continue that pessimistic thought, note that the VIX spiked up and closed at its high today of 21.9%. The big institutions are starting to hedge themselves and that worries me.
I find it interesting that only a few weeks ago, traders had decided the European debt problems didn't pose a problem for the global economy. Even when S&P downgraded Spain's debt by two categories, the markets yawned. But that has all changed. Now the sky is falling. Of course, the bungling over at J.P. Morgan doesn't help.
My May iron condor on RUT continues on toward expiration with a net gain of $1,280 with delta = +$37 and theta = +$315. Even with the recent market weakness, the put spreads at 720/730 remain well OTM; the delta of the 730 puts is 4. The June condor stands at a P/L of +$700 with delta = +$33 and theta = +$80.
