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Traders appear to be forgetting about their concerns over the European sovereign debt crisis. SPX broke resistance at $1285, set in late October and closed at $1292, up $11. RUT followed suit, running up $11 to close at $765. Unlike SPX, RUT didn't break the October highs at $770. These new highs were set on increased volume with 3.2 billion shares of the S&P 500 trading today; the 50 dma is at 3.2B. Trading volume was up 16% on the NYSE and increased 2% on NASDAQ. The VIX dropped down to 20.7%, the lowest level since late July, just before the August crash.
There was no significant economic news to boost the market today. The true test of this bullish rally will be a negative news item out of Europe. Has the fear of "European contagion" been completely eliminated? Or do traders just have a short memory? Perhaps the prospect of continuing to sit on the sidelines is just proving too frustrating.
My Feb iron condor on RUT stands at a P/L of +$1,780 with position delta = -$41 and position theta = +$74 (20 contracts). The 840/850 call spreads remain outside of one standard deviation with 37 days until expiration, but the theta/delta ratio is deteriorating as the index heads higher. The question on everyone's mind is simply whether the broad indexes can continue higher or if deteriorating US and European debt issues will drag the market back into a tight trading range.
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Today was another low volume, largely no-movement kind of day. This becoming the norm for this market. SPX gained $3 to close at $1281 while RUT gained $4 to close at $754. SPX chopped largely sideways today; it traded as low as $1274, so support held even on an intraday basis. RUT is stalled at the long-term resistance level around $750 - $755. This is the portion of the RUT chart that corresponds to the $1270 level on SPX, so while SPX has broken that long term resistance level, RUT has been unable to close decisively above that level. Trading volume in the S&P 500 declined again today to 2.6 billion shares; the 50 dma is at 2.9 billion shares. The 50 dma has been steadily declining since roughly mid-October of last year. Trading volume on the NYSE was up 2% and increased 6% on NASDAQ. The VIX moved up about a half point to 21% today - probably not significant.
Today was a light news day, so there wasn't much to push traders one way or the other. The bulls continue to be held back by fears of the European sovereign debt issues, while the bears have to admit to strong corporate earnings. In fact, on a P/E basis, the S&P 500 is about as inexpensive as it has ever been. So the markets are trapped in this trading range. If something decisive were to be accomplished in Europe, there is a strong pent-up bull market lurking in there.
My Feb RUT iron condor 590/600 and 840/850 continues to build profits with a net P/L of +$1,920 and position delta of -$27 and theta = +$71. Although the current gains are tempting, this position has the potential for a $3,400 gain, so I will be patient and allow time decay to do its thing.
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One might have expected a bit of a sell-off after such a strong showing yesterday, and this morning appeared to be playing out in just that way. But then the bulls reasserted themselves. SPX pulled back to $1268 this morning but then fought back to close unchanged at $1277. So SPX managed to stay above that $1270 support level. RUT couldn't hold the line, losing $5 to close at $747. Trading volume fell back from yesterday with 2.8 billion shares of the S&P 500 trading. Volume decreased 9% on the NYSE, but increased 2% on NASDAQ.
No significant economic news came out today, but tomorrow will bring the ADP private payrolls report, unemployment claims, and the ISM Services Index.
I keep wondering when the next shoe may drop in Europe - another bond rating downgrade or an actual default in Greece? That's why I can't get too excited about this bullish rally starting the new year. European sovereign debt just seems to be hanging over this market, keeping traders on edge.
My Feb iron condor on RUT at 590/600 and 840/850 stands at a P/L of +$1,350 with delta = -$24 and theta = +$76. With a strong theta/delta ratio and a modest gain tentatively in place, this position is working well thus far.
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The markets traded down today on a good jobs report - that is not a good sign. If the bulls can't take control when they get good economic news handed to them, what happens when we get the next bit of bad news from Europe? SPX lost $3 to close at $1278 and RUT closed at $750, down $3. So SPX manages to stay above the support level at $1270, but it appears to be just treading water. By contrast, RUT has not been able to break through the resistance at $755. Trading volume fell back today with 2.8 billion shares of the S&P 500 trading. Volume dropped 16% on the NYSE and decreased 8% on NASDAQ.
The jobs report for December came in very positively today with an increase of 200 thousand jobs and a decrease in the unemployment rate to 8.5%.
My Feb iron condor on RUT stands at a P/L of +$1,640 with delta = -$23 and theta = +$75.
Looking back at the first week of trading in 2012, one has to be impressed by the lack of direction in this market. It seems the bulls cannot make headway even with good economic data. On the other hand, the bears have not made their case stick either. My condors love this market.
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The markets roared off to a very bullish start to the new year this morning. SPX tacked on $19 to close at $1277 and RUT closed up $11 at $752. SPX closed above resistance at $1270, a very bullish sign. But SPX bounced off resistance at $1285, the high set in November. Trading volume changes from Friday are not very instructive since trading volume was so low last week. But it was interesting that volume in the S&P 500 did not quite get to the 50 dma at three billion shares - not so bullish a sign.
The Dec ISM Manufacturing Index rose a bit in December to 53.9 (was 52.7 in November). Construction spending rose 1.2% in November. Several analysts cited these reports as the reason for the bullish rally, but this data doesn't seem to be that impressive. The FOMC minutes were released this afternoon, but there wasn't much news there. Some FOMC members believe additional Fed accommodation will be required to boost the economic recovery.
I closed the RUT Jan 770/780 call spreads today; assuming the 670/680 put spreads expire worthless, this will result in an $800 gain on 20 contracts or a 7% gain. But that assumes this rally continues; we'll see. The Feb iron condor on RUT stands at a P/L of +$760 with delta = -$32 and theta = +$87. So now we watch and see if this rally has legs. I have my doubts.
