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Stocks traded lower again today and it appeared early today that the bears were gaining control of this market, but stocks rebounded this afternoon to erase about half of the losses for the day. SPX closed down $5 at $1364 and RUT gained $1 to close at $804. There wasn't much economic data reported today. Factory orders fell 1% in January and the ISM Services Index came in at 57.3 for February, slightly up from January's 56.8. Trading volume was mixed with 2.5 billion shares of the S&P 500 trading today which was up a bit from Friday. Trading volume on the NYSE was up 1% and volume was down 4% on NASDAQ.
Although many analysts have been expecting a correction after the market's strong run this year, the last few days certainly don't yet qualify. SPX has yet to even threaten its strong support level at $1340. SPX traded down to $1359 this morning but then rebounded to close at $1364. Even though RUT traded down more strongly than SPX on Friday, RUT actually gained a bit today. The $800 level on RUT appeared to offer resistance in late January before it broke out higher; now $800 appears to be offering support. RUT traded down to $796 today before rebounding higher to close at $804.
My Mar condor on RUT stands at a P/L of +$2,830 with position delta = +$4 and position theta = +$176. The put spreads are over two standard deviations OTM and the call spreads are just under two standard deviations OTM. The Apr iron condor on RUT stands at a P/L of +$780 with delta = +$20 and theta = +$50. Both condors are "sitting pretty" at this point, delta neutral and making money. But that can change with a moment's notice.
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Another down day - it gives one pause. However, SPX is still holding up rather well. SPX closed down $4 at $1370, but that is still above where it opened yesterday and not far off of recent highs set for this year. On the other hand, RUT has been weak since early February and has not been following SPX's lead higher. Today, RUT broke down out of its recent trading range from $810 to $832. RUT lost $13 today to close at $802. The next support level for RUT is at the 50 dma at $790. Is RUT the leading indicator for this market? Keep an eye on the $1340 support level for SPX; if that breaks, we may be in for the long-awaited correction. On the other hand, the market rarely does what the majority expect.
Trading volume in the S&P 500 fell off significantly today to 2.3 billion shares. Trading was down 14% on the NYSE and down 8% on NASDAQ. Today was a slow day for economic news, so most analysts attributed the market weakness to concern over rising oil prices and the uncertainty in the Middle East (that's new?).
My Mar iron condor on RUT at 730/740 and 860/870 stands at a P/L of +$2,530 with position delta = +$5 and position theta = +$149. My Apr condor on RUT at 700/710 and 910/920 stands at a P/L of +$280 and delta = +$10 and theta = +$63. The recent decline on RUT has brought both of these positions back to delta neutral, so we are well positioned. March is now down to less than two weeks to expiration, so that position looks good. But markets can change quickly, so we will continue to watch our positions carefully.
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The familiar pattern reoccurred today - a weak open followed by buying that drives prices higher. Going long at the open and closing later in the day is a strategy that would have worked well for many of the trading sessions the last several weeks. SPX closed up $5 at $1372 while RUT lost $3 to close at $824. This pattern of SPX steadily gaining while RUT has traded sideways has been going on for nearly a month. How does this end? SPX corrects? Or RUT rallies? I'm inclined toward the correction, but this rally has proven very resilient thus far this year. Many bears have been run over. Trading volume in the S&P 500 was down a bit at 2.6 billion shares; trading on the NYSE was down 2% while volume was up 2% on NASDAQ.
Durable orders dropped 4% in January after a 3.2% increase in December. The Case Schiller housing price index dropped 4% in December, but consumer confidence spiked up in February to 70.8 from January's 61.5.
My Mar iron condor on RUT continues to ride along near the edge with P/L = +$470 and position delta = -$102 and position theta = +$238 on 20 contracts. Today's pull back in RUT reduced the 860 call delta to 15, so that accounts for the more positive P/L today. If RUT spikes up to become more aligned with the S&P 500, we will be forced to hedge this position once again; on the other hand, if RUT is the harbinger of a correction in SPX, a pull back a bit further will put this position in a sweet spot. But the key to success in the non-directional trading business is to only trade what the market gives me today - predictions are forbidden.
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Bernanke's comments to the effect that another round of quantitative easing was not in the works appeared to impact the markets negatively today, but one has to wonder if this is only a transient effect. I am inclined to think it was a knee-jerk reaction that is likely to be reversed tomorrow. SPX lost $7 to close at $1366 and RUT lost $13 to close at $811. But SPX is still well above the significant level of support at $1340, so it is much too soon to call it a correction (even though everyone is expecting one). Trading volume spiked up with 3.3 billion shares of the S&P 500 trading. Trading increased 27% on the NYSE and increased 18% on NASDAQ.
Economic news was actually pretty positive today with 3% growth in GDP reported for the fourth quarter and the Chicago PMI increased to 64.0 from 60.2. But those positive numbers appeared to be ignored by the traders today.
My Mar iron condor on RUT stands at a P/L of +$1,870 with delta = -$8 and theta = +$183. Today's move downward on RUT took this position back to delta neutral, which accounts for the large improvement in its profitability. But we'll see what tomorrow brings - it is too early to count our gains for March..
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Markets opened weakly this morning based on renewed concerns over the European debt crisis coupled with concern about high oil prices. But the buyers appeared and drove the market averages back up to close the day approximately even or with modest gains. SPX closed at $1368, up $2 while RUT was unchanged at $827. Trading volume in the S&P 500 bumped up to 2.8 billion shares; trading jumped 20% on the NYSE and was up 8% on NASDAQ. SPX has been rising slowly for the past few days, but a glance at the chart is impressive: SPX has gained 14% since mid-December. The price move has been very consistent and steady. By contrast, RUT has been bouncing up against $830 since early February and has made no progress at all this month.
The only economic news of the day was pending home sales, which were up 2% in January - quite the contrast from December drop of 1.9%.
My Mar condor on RUT stands at breakeven with delta = -$115 and theta = +$228. The delta of the short 860 calls is 18, so we are still under pressure on the top side. That fact that RUT has stalled at $830 for this entire month has been very helpful for this position. We will see what tomorrow brings.
