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The bulls took charge today and drove markets significantly higher. SPX opened up and steadily tacked on gains as the day wore on; this is unusual; it has been a winning strategy for the past several weeks to simply watch the open and then place your bets for the opposite direction intraday. SPX gained $14 to close at $1308 and RUT also gained $14 to close at $779. This is the first time RUT has closed above the highs set in late October. Trading volume increased a bit but still remains rather anemic for a strong bull market. 3.2 billion shares of the S&P 500 traded today, just above the 50 dma at 2.9B; trading volume on the NYSE was only up 1%, but trading on NASDAQ was up 12%.
If you ascribe to the seasonal patterns in the markets, a strong showing in the first two weeks of January often forecasts a positive year for the markets. But that pattern also includes a weak patch of trading in late January into February before the bullish trend takes over for the year. I am still skeptical that the European debt crisis can be ignored, but we seem to be doing just that for the past couple of weeks.
The PPI dropped 0.1% in December, so no signs of inflation yet; industrial production increased 0.4% - not huge but positive. Capacity utilization increased a bit to 78.1% in December; those levels haven't been seen since 2008. This dose of economic data was certainly positive, but not as strong as the market's rise today (at least in my opinion). The VIX opened up higher this morning at 23.2% but moved down throughout the day to close at 20.9%.
My Feb RUT iron condor was pushed back a bit by this strong run upward; the P/L stands at +$1,740 with delta = -$58 and theta = +$95. The Feb 840 calls are still under nine delta. The Jan RUT 670/680 put spreads are almost $100 OTM at this point. Unless something dramatic happens tomorrow, I will allow them to enter expiration and expire worthless.
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The markets jumped up at the open today and held most of those gains into the close. SPX once again closed above support at $1294, up $5, and RUT closed at $766, up $1. Interestingly, RUT has yet to break the resistance set in late October last year. One other anomaly was the VIX, closing at 22.2%, up over one point on a positive, upbeat market day. That divergence worries me a bit. Today's upbeat day was a bit surprising after all of the downgrades in Europe and the negative news surrounding Greek debt refinancing. Are we becoming immune to news concerning European sovereign debt? Or is the stock market just too inexpensive to ignore at these prices? Many measures suggest multi-year low prices, such as the price/earnings ratio of the Dow Jones Industrials at a five year low of 11.9. While stock prices have been trending sideways, corporate earnings have been growing. This may be fueling the bullish sentiment that appears to hold this market up even in the face of negative news from Europe.
The Empire Manufacturing Index reported 13.5 for January, up significantly from the previous reading of 8.2. The PPI, industrial production and capacity utilization data will be reported tomorrow.
My Feb iron condor on RUT at 590/600 and 840/850 stands at a P/L of +$2,260 with position delta = -$33 and theta = +$73. I still have the Jan RUT 670/680 put spreads open.
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Most traders were expecting good economic news this morning with lower unemployment claims and robust retail sales for December. But that wasn't the case. Unemployment claims rose to 399k, up from last week's 375k and retail sales for December rose a tepid 0.1%. Thus, markets traded down and hit lows mid-morning. However, the bulls then started buying and drove the markets slowly higher the balance of the day. SPX closed at $1296, up $3 and RUT also rose $3 to close at $770. Trading volume was flat from yesterday with 2.8 billion shares of the S&P 500 trading. Trading volume was up 2% on the NYSE and down 3% on NASDAQ.
The bullish news is that SPX has now closed above support at $1285 for three trading sessions. Support was tested yesterday and today, but it held in both cases; note the long tails on yesterday and today's candlesticks. By contrast, RUT only today has finally reached the late October highs around $770. So the same story continues to play out in the markets: there is sufficient moderate to good economic news here in the states to support the markets, but the specter of European sovereign debt holds the markets back. If you follow the seasonal trends of the stock market, you know that we are entering a traditionally weak part of the year following the Santa Claus rally. But this year may be different. The market seems to do its best to surprise us just when we think we have it figured out.
My Feb RUT iron condor at 590/600 and 840/850 stands at a P/L of +$1,700 with position delta = -$50 and position theta = +$79. The 840/850 call spreads are just outside of one standard deviation OTM. The 670/680 put spreads are all that remain of my Jan RUT iron condor position.
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The long awaited downgrades of the sovereign debt of nine European countries were announced today and talks broke down for negotiating Greek debt to avoid an outright default. With those headlines alone, you might have expected a bloodbath in our markets, but that wasn't the result. SPX dropped as low as $1278 but recovered much of the early losses to close at $1289, down $6. RUT also lost $6 to close at $764. The other surprise was trading volume. Trading in the S&P 500 was flat from yesterday at 2.8 billion shares; this is just below the 50 dma at 2.9B. Trading on the NYSE was up 4% and volume was down 1% on NASDAQ.
A similar story was told in the VIX. It jumped early today to 22.4% but closed at 20.9%, for an increase of 0.4 points. The University of Michigan Consumer Sentiment report came in for January with a 74.0 reading, up from last month's 69.9.
I must admit to being surprised at this market's reaction to the negative European debt rating news. One must conclude that the fears of a spreading "European contagion" are not as strong as I once thought. GS only traded down by $2.25 today. And remember we had a potential "double hit" to financial stocks with the European debt news and the disappointing earnings announcement from JPM.
Today's slight pull back actually helped my Feb iron condor spread on RUT with 20 contracts. It now stands at a net gain of $2,020 with position delta = -$38 and position theta = +$74. I don't always mention it, but remember that position Greeks are dependent on the number of contracts, so if your position Greeks don't match mine, that is likely the reason. Earlier today, I was a bit concerned about negative developments in Europe over the weekend impacting world markets Monday while our exchanges are closed. A couple of years ago, something similar happened, leaving us with hugely negative futures for Tuesday morning. But today's recovery from intraday lows shows significant underlying strength in this market. I still worry, but not quite so much...
Enjoy your weekend. If you get a chance, download Martin Luther King's "Dreams" address. I think you will be surprised how far afield we have drifted from his dream. Now, more than ever, we focus on a man's color, not his character.
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Just as I was starting to think our markets had shaken off fear of the European sovereign debt crisis, we start the day with the major indexes down based on concerns from across the pond. But the markets fought back to close flat or with small gains by the end of the day. SPX closed unchanged at $1292 and RUT gained $2 to close at $767. Trading volume dropped off with 2.9 billion shares of the S&P 500; this is right at the 50 day moving average. Trading was down 10% on the NYSE and was down 6% on NASDAQ.
Today was a light day for economic news here in the states, but tomorrow will bring unemployment claims and retail sales for December.
AAPL finally took a breather from its upward climb today. If you are considering trading AAPL in advance of their earnings announcement, you might check out my blog today over at Traders' Library.
My Feb RUT iron condor stands at a P/L of +$1,700 with a position delta of -$41 and theta = +$80. I haven't mentioned it lately, but I am still carrying the Jan RUT 670/680 put spreads as the remnant of the latest January condor position. That trade stands at +$720 with position delta = +$7 and theta = +$21. The short puts have a delta of 2 and stand nearly three standard deviations OTM with eight days remaining. I will probably close the remaining put spreads next week and initiate the March condor.
