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S&P futures were down significantly again last evening due to reports that China's exports were down for April. But somehow, by the time our markets opened this morning, the futures were back in positive territory. The recent intraday trading pattern was reversed today; it has been common for the markets to open down, trade farther down and then rebound to recover most of the losses. Today reversed that pattern - we opened higher, traded higher yet, but then gave back a large portion of those gains. SPX traded as high as $1366 before closing at $1358, up $3. RUT closed up $3 at $792. This price action is disconcerting; it suggests the bulls had control early in the day, but they couldn't hold it and the bears pulled it back down. This is basically the opposite of the price action of the past two days. The earlier pattern where the market trades downward, but is pulled back up, suggests the strengthening of support; today's action suggests just the opposite - as soon as the market traded higher, the bears took it back down. So don't let your guard down just yet.
Another interpretation of this price action is that this market is effectively in balance between the bulls and bears, which suggests some choppy sideways action until some news or event tips the market one way or the other. Trading volume declined today with 2.9 billion shares of the S&P 500 trading. Trading on the NYSE was down 16% and trading declined 3% on NASDAQ. The VIX declined to 18.8%, suggesting some lessening of tension, but still on the high side.
Initial unemployment claims for last week were flat at 367k and continuing claims declined 61k to 3.23 million.
My May iron condor stands at a gain of $1,260 with delta = +$31 and theta = +$133. The June position is up $1,220 with delta = +$16 and theta = +$72. Tomorrow I will run the Two Sigma Rule on the May position, but it looks like we will allow both spreads to expire worthless at this point - but that could change overnight!
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Much like yesterday, the markets opened and traded lower in the morning. Then the bulls started buying and pulled the markets back up. SPX closed down $9 at $1355 after trading as low as $1343. RUT closed down $4 at $789. Trading volume rose again today with 3.1 billion shares of the S&P 500 stocks trading. Volume on the NYSE rose 4% but volume dropped 5% at NASDAQ. The candlesticks on RUT and SPX for yesterday and today have long lower shadows; often this pattern is indicative of a support level being solidified. $1340 is a solid support level on SPX from February and early March. The $785 level on RUT was touched in early March and twice in April; the price action the last two days has dipped below $785 and then rebounded higher. The bottom line is that we are sitting on support waiting for the indexes to either definitely bounce and move higher or break support and hit new lows. But we may be waiting a while before the news from Europe settles down a bit, so watch your positions carefully; if in doubt, hedge yourself or go to cash.
My RUT iron condor for May stands at a P/L of +$1,140 with delta = +$30 and theta = +$136. The June condor is up $1,200 with delta = +$17 and theta = +$67. So far, both positions are handling this pull back without any problems, but if support breaks, I may have to get busy dodging the truck. It will be interesting to see what the unemployment claims report brings tomorrow - more fuel for the fire, or a calming effect?
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The socialists won in France and the S&P futures were down 22 points last evening when I went to bed - I didn't sleep very well. But somehow, the markets got over their anxiety overnight. SPX opened lower this morning, but recovered and spent most of the afternoon in positive territory. SPX closed flat at $1370 and RUT closed up $2 at $794. Trading volume fell off a bit with 2.6 billion shares of the S&P 500 trading today. Trading on the NYSE was down 6% and volume on NASDAQ was down 10%.
I find it fascinating how the European debt crisis worried the markets sick last fall, but then we got over that and didn't even blink an eye when S&P downgraded Spain's debt by two notches about a week ago. Last evening, it appeared we were back to wringing our hands, but then today, we got over it again. I fundamentally believe the markets are rational, but we can wander all around the barn before we get to the "rational" conclusion. And that is the essence of why directional trading is so difficult. And that is especially true with options, because we have to predict the correct price and the correct time period. The challenge of non-directional trading is handling days like today was setting up to be last evening.
My iron condor on RUT for May stands at a P/L of +$1,060 with delta = +$35 and theta = +$102. The June condor shows a gain of $1,300 with delta = +$11 and theta = +$62. The theta/delta ratios of both positions are very strong. We will apply the Two Sigma Rule to the May position Friday; if we were doing that today, we would leave both spreads open into expiration week - unusual. But Friday is a long ways off.
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Traders worried again today about the consequences of the elections in France and Greece. The markets opened and traded significantly lower this morning before recovering much of the losses late in the day. SPX traded as low as $1348 before bouncing to close at $1364, down $6. RUT behaved similarly, but recovered almost all of the early losses, closing down $1 at $793. Trading volume spiked upward with 3.0 billion shares of the S&P 500 stocks changing hands. Trading volume was up 20% on the NYSE and was up 24% on NASDAQ. There was no economic news of any consequence, so all of the focus was on the European debt crisis.
The strong recovery after trading so low today was very bullish. It is premature to relax, but in the absence of some new troubling news, it appears the bulls have the edge. The VIX closed at 19% after spiking as high as 21% during the day.
My May RUT iron condor at 720/730 and 910/920 stands at a P/L of +$1,320 with delta = +$37 and theta = +$50. Both spreads remain over two standard deviations OTM. The June RUT iron condor at 690/700 and 880/890 stands at a P/L of +$1,300 with delta = +$2 and theta = +$69. This position is almost perfectly delta neutral at this point. This is a spooky market, so keep your eye on the ball - follow your rules and resist the urge to predict tomorrow's action (if you're trading delta neutral).
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The jobs report coincided well with ADP's earlier report this week on private payrolls, citing a weak increase in new jobs and a slight decrease in the unemployment rate to 8.1%. But many analysts noted that the labor participation rate has hit historic lows, thus making the unemployment rate look better than it actually is. Investors reacted negatively and this was fueled by concerns about upcoming elections in Europe. Many traders chose to pare down their exposure. SPX dropped $22 to close at $1369 and RUT dropped $15 to close at $792. SPX solidly broke through support at $1390; the next major support level to watch is $1360. The analogous support level for RUT is $785. I suspect today's severe drop won't continue into next week, but we'll see.
Surprisingly, trading volume was only slightly up from the previous session, at 2.7 billion shares of the S&P 500. Trading on the NYSE dropped 3% on the NYSE and rose 4% on NASDAQ.
My iron condor on RUT for May now stands at a P/L of +$680 with delta = +$41 and theta = +$110. The June condor stands at a P/L of +$1140 with delta = +$2 and theta = +$60. The volatility spike today reduced our P/L temporarily, but they are both well positioned.
Have a great weekend.
