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Our markets opened lower this morning and traded lower until around noon when the buyers started picking up the bargains and actually recovered all of the losses before the close. SPX closed the day at $1244 with a small $2 gain. RUT gained $2 to close at $740. Trading volume was flat to slightly downward with 3.0 billion shares of the S&P 500 stocks trading today; this is down from yesterday and below the 50 dma. Trading was flat on the NYSE and up 4% on NASDAQ, propelled by trading in the tech stocks after the disappointing Oracle earnings report.
Existing home sales for November came in at an annualized rate of 4.42 million, up from last month, but well below the five million expected by analysts. Early softness in the market was attributed to an ECB report that suggested several European banks would be in need of additional funding.
Today's market action can be considered bullish, in my opinion. SPX traded down as low as $1230 before recovering to end the day with a small gain. However, there is strong resistance in the $1260 to $1270 range, including the 200 dma at $1260. IBD moved to a market rating of "Confirmed Uptrend" yesterday, which surprised me. Certainly yesterday's move was impressive, but it takes more than one day to define a trend. So my view of this market remains that we are trapped in a narrow trading range until sufficient good economic data builds to eliminate the European debt worries or some surprising bad news pushes us over the edge. Of course, this is wonderful news for us non-directional traders, but tough for stock pickers. The VIX closed down at 21.4% today, a little surprising since the market traded down most of the day. In spite of the lower VIX, I still regard this market as an extremely volatile monster that can turn on a dime in either direction. Perhaps I am jaded from the wild swings we have seen this year, or maybe I have learned a valuable lesson.
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The stock markets opened up strongly this morning and steadily rose to close near their highs of the day. SPX rose $36 to close at $1241 and RUT tacked on $30 to close at $738. The talking heads cited the favorable Spanish bond auction and the favorable housing starts data for this rally. Housing starts for November came in at 685k, up from last month's 627k. Building permits also rose to 681k from the previous month's 644k. These are good signs, but hardly extraordinary. If this is the long awaited Santa Claus rally, it would be expected to continue into the new year, but that would be surprising behavior for this market. Maintaining an upward or a downward trend for more than two or three trading sessions has been unusual this year. The European debt crisis is far from resolved and while our own economy is showing signs of recovery, it is a very slow recovery at best. So I have to conclude that this rally will last only until the next negative news item comes out of Europe.
Trading volume spiked up today with 3.1 billion shares of the S&P 500 stocks trading, although this is slightly below the 50 day moving average at 3.2B. Trading on the NYSE rose 7% and volume increased 14% on NASDAQ.
Well, let's see what Santa brings us for the balance of the week...
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The bulls just can't seem to make their case. They had a couple of opportunities this week, but the runs to the upside fizzled out each time. This morning, the markets opened up in the black and traded upward, but it didn't last. SPX traded as high as $1231 before falling back and closing at $1220, up $4. RUT followed suit, running to $731 and then closing at $722, up $6. This was quadruple witching week, with expiration of the index options, index futures, stock options, and single stock options. Consequently, trading volume spiked with 4.1 billion shares of the S&P 500 changing hands. This is the first time in December that trading volume on SPX has broken the 50 day moving average; it only broke the 50 dma three times in November. Trading on the NYSE was up 48% and volume jumped 44% on NASDAQ.
Economic data was in short supply today. the CPI rose 0.2% in November and Fitch downgraded several large European and international banks, including BAC and GS. They also warned of possible downgrades for several European countries.
RUT settled at $721.85 and SPX settled at $1225.05. Thus, the remaining 560/570 put spreads in my December iron condor expired worthless, confirming a gain of $2,000 on 20 contracts or 12% on the capital at risk. That brings the 2011 track record for the Flying With The Condor™ to +39%. The Jan SPX iron condor stands at a net gain of $2,100 with the 970/980 put spreads remaining open. I will probably close them next week and make room for a new condor for the January expiration month.
I have kept a spreadsheet of the Thursday closing prices and the settlement prices for SPX and RUT for the past five years. That data is the basis of my Two Sigma Rule for closing positions before expiration week. The average difference between Thursday's close and the settlement price on Friday for SPX is $8.40 and $6.02 for RUT for the eleven months of 2011. That works out to approximately one half of a standard deviation for the overnight move, on average. But averages can have some outliers hiding in the data; thus, the Two Sigma Rule on the Friday before expiration week is a safe guideline.
Enjoy your weekend.
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The markets opened up weakly in the black today but began giving the gains back within a few minutes and slowly declined all day, closing near the lows of the day. SPX closed down $14 at $1205 and RUT lost $13 to close at $709. Trading volume dropped dramatically with only 2.7 billion shares of the S&P 500 stocks trading today. Volume dropped 39% and 38%, respectively, on the NYSE and on NASDAQ.
There wasn't much economic news today, but financials seemed to lead the market weakness, but it wasn't clear what news precipitated that move. Band of America shares dropped below $5 today. I used to think of $5 stocks belonging to some little company few had heard of, but no more.
I closed the 970/980 put spreads in my January iron condor on SPX; with the earlier close of the 1350/1360 call spreads, that locks in an 11% gain.
The Santa Claus rally is remaining elusive so far. Maybe this will be one of the "exception" years.
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The markets were caught today between fears of the next shoe dropping in Europe and some improved economic data here at home. SPX gained $4 to close at $1216 and RUT closed at $716, up $8. Trading volume dropped from yesterday with 2.8 billion shares of the S&P 500 stocks trading. Trading volume dropped 10% on the NYSE and dropped 2% on NASDAQ.
Initial unemployment claims came in at 366k, down from last week's 385k, while continuing unemployment claims held steady at 3.6 million. We seem to be steadily holding the initial claims number below 400k - a welcome trend. The PPI for November increased 0.3% and capicity utilization remained flat at 77.8%. The Empire Manufacturing Index increased to 9.53 for December from last month's 0.61. All in all, this wasn't resoundingly good news, but it wasn't bad either.
I chose to close the 1350/1360 call spreads in my Jan SPX iron condor today. I was able to take them off for a small gain and basically lock in a reasonably high probability gain for this position. The SPX Jan 970/980 put spreads are far OTM and should expire worthless unless we have a global meltdown of some kind. Assuming the put spreads expire worthless, that will result in a 13.5% gain for this condor - not a bad start for 2012.
