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The markets opened a little weakly this morning, but began to build all morning and hit highs in the early afternoon before giving back some of the gains. SPX rose as high as $1414 before pulling back to close up $6 at $1410. RUT gained $8 to close at $838. Today was the first time RUT has been able to break through that $832 barrier that has formed the upper end of the trading range since early February. Will RUT now drive higher to catch up with the broader markets? We are still well below the 2011 highs at $865.
One would expect trading volume to pull back somewhat after expiration Friday, and it did with 2.7 billion shares of the S&P 500 trading; this is right at the 50 day moving average. Trading volume fell 44% on the NYSE and dropped 24% on NASDAQ. Today was a quiet day for economic news. The primary news that had everyone talking and speculating was Apple's announcement that they will pay a dividend later this year and are instituting a stock buy-back program. Initially, APPL pulled back a bit but strengthened later in the day to close at $601, a new all time high.
My April iron condor on RUT is now up about $1,800 with a delta of -$16 and theta = +$62 on 20 contracts. The 910/920 call spreads are now 1.4 standard deviations OTM and the 710/700 put spreads are 2.4 standard deviations OTM. So this position is doing well so far. We are up about 11% with a potential gain of about 16%.
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The markets largely chopped sideways today, albeit slightly in positive territory. SPX closed at $1404, up $2 while RUT lost $1 to close at $830. This was a new 2012 high for SPX but RUT is still mired down in the February trading range and has yet to match its 2011 highs. As you might expect for quadruple witching, volume spiked up with 3.7 billion shares of the S&P 500 trading. Volume jumped 58% on the NYSE and rose 21% on NASDAQ. VIX closed at 14.5%, so it remains at pretty low levels. One advantage of the low volatility is that you can buy protection for your stock portfolio at relatively inexpensive prices. Given this strong run by the bulls since mid-December, that may be prudent.
The consumer price index rose 0.4% in February, although most of the rise was due to energy costs. Capacity utilization remained essentially flat at 78.7% and the consumer sentiment survey from the University of Michigan dropped a bit to 74.3. So the latest economic news supports the message of the past few months: the economy is not roaring upward, but it isn't sinking either.
RUT settled at $833.17 for March, so the remaining 730/740 put spreads in my March iron condor will expire worthless tomorrow. This completes the March position with a 20% gain and brings the Flying With The Condor™ results to a year to date gain of 17%. The S&P 500 has been on fire this year, but it is only up 12%. My Apr iron condor on RUT stands at a P/L of +$1,680 with delta = -$10 and theta = +$60. The largest risk to this market at this time, in my opinion, is the prospect of a correction. Fortunately, this Apr position has its put spreads down at 700/710, so I feel reasonably safe. But that doesn't mean I relax - except on weekends.
Have a great weekend.
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After such a stellar performance yesterday, I expected some profit taking to pull the markets back a bit today, but that wasn't the case. SPX chopped along largely sideways all day and then weakened in the last two hours to close down $2 at $1394. RUT lost $8 to close at $823. RUT continues to trade weaker than SPX and this is a concern for me; it tells me this market isn't as strongly bullish as it appears. Trading volume bumped up a little today with 3.4 billion shares of the S&P 500 trading, but was basically flat to slightly down on the NYSE (-4%) and NASDAQ (-2%). Weak volume is the other odd aspect of this year's rally; does this suggest many traders and institutions remain on the sidelines? Or have a large number of individuals simply left the stock market?
The VIX popped up a bit today, closing at 15.3%, still quite low as compared to the past two or three years. This is a low level for the VIX, but remember: even if it is low, it can go lower yet. So I wouldn't trade this market bearishly based on the VIX. But the low levels of volatility do make buying put protection for your stock portfolio relatively inexpensive.
My April RUT condor is sitting perfectly delta neutral at a P/L of +$1,480 with delta = +$1 and theta = +$57.
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SPX managed to close above that $1400 level everyone had been watching for some time this year. The bears have to be frustrated; anyone who has shorted this market is taking it on the chin. SPX gained $8 to close at $1403 and RUT closed up $8 at $831. Trading volume was down a bit from yesterday with 3.2 billion shares of the S&P 500 trading. Trading volume on the NYSE was down 3% and trading was up 1% on NASDAQ. RUT managed to close right at resistance; it has been trading in a range for the last 30 days or so and has failed to match its highs of 2011 while the SPX continues to march higher. VIX was largely unchanged at 15.4%.
Initial unemployment claims came in at 351k, a decline of 14k and continuing claims fell 81k to 3.3 million. The Empire manufacturing survey came in at 20.2, up from last month's 19.5 while the Philadelphia Fed survey reported 12.5, up from 10.2. PPI was reported as increasing 0.4%, which was a bit less than analysts expected, which is good in this case. I still marvel that inflation is so low with all of the printing of money going on.
My Mar condor will close out this weekend with the expiration of the 730/740 put spreads. The April condor on RUT is in good shape with a P/L of +$1,500 and position delta = -$19 and position theta = +$63 with 35 days to go.
The questions I am left with that have been bugging me for several weeks are: 1) Why is RUT lagging behind SPX? and 2) How will RUT and SPX get back in sync?
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The bulls took charge from the opening bell today and then tacked on a strong surge during the final hour of trading to complete a huge bullish run. SPX gained $25 to close at $1396. RUT traded up $17 to close at $831. SPX is trading in territory that it hasn't seen since early 2008. Consistent with the strong gain, VIX dropped below 14% intraday and closed at 14.8%. By contrast, RUT has yet to even close near the highs of 2011.
As always, the talking heads had many theories about the driving force behind such a strong move today. It isn't quite so obvious to me - if it were, I would have loaded up on calls yesterday. JPM announced a quarterly dividend and some interpreted that as an indicator that the government's bank stress test had gone well (and good results were announced after the close). Maybe that report was leaked early and that drove the bulls. Bernanke's remarks didn't appear to have much effect on the markets; the Fed's observations were very similar to previous reports. Nothing was revealed about any plans for future quantitative easing programs or whether that is even a possibility. Retail sales gained 1.1% in February and that beat analysts' estimates. But that report came out early, so the cause for the last hour's surge is a mystery.
My Apr iron condor on RUT stands at a P/L of +$1,460 with delta = -$12 and theta = +$59. Today's move in RUT brings us back to the starting line for this position. The decline in IV also helps. Now the big question: will we see a bit of a pull back tomorrow after such a record day? We'll see. Fortunately, my delta neutral positions don't require me to predict that.
