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Markets rallied again today, but on lower volume. SPX gained $16 to close at $1254 and RUT closed up $24 at $736. RUT has now closed for the first time outside the trading range formed since early August. SPX closed outside this trading range for the second time today, but the lower volume causes one to pause. The next resistance level is the $1260 low formed in June. The VIX dropped to 29%. This modest drop reinforces the fact that we still have several ticking time bombs in Europe. Overnight news from Europe could tank our markets very easily one of these days, so be cautious. Third quarter GDP data comes out on Thursday - that will be another test of this rally. You may scoff at my caution, but the lower trading volume suggests the large institutional players are on the sidelines of this rally, so I don't think I am alone with my concerns about this market.
Trading volume dropped off today with 3.3 billion shares of the S&P 500 stocks trading; trading volume was down 20% on the NYSE and was down 5% on NASDAQ.
I hedged my November condor on RUT and it stands at a P/L of -$950 with position delta = -$37 and position theta = +$116. Volatility on RUT remains at 40% so that keeps considerable pressure on my call spreads as this rally continues. So, we hold our binoculars with one hand as we keep a close eye on Europe and hold our wallet with the other hand. Let's see what tomorrow brings.
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The markets traded up strongly for the first ten days or so in October but for the past several days, the major indexes seemed to stall at the upper end of the trading range we have been trapped within since August 1. This stall, in itself, was a new wrinkle to the pattern. Previous runs to the upper end of the trading range had just as quickly descended to the lower end of the range. SPX broke through the upper end around $1230 and forcefully closed near its highs for the day at $1238, up $23. RUT gained $16 to close at $712. RUT remains within the trading range of the past couple of months but SPX is in uncharted territory. Traders are still nervously watching Europe for any signs of the sovereign debt crisis being contained. News this weekend could easily undo today's nice bullish run outside the trading range. So we must remain cautiously optimistic. Trading volume bumped up a bit from yesterday with 3.7 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 19% but trading volume declined 2% on NASDAQ.
RUT settled at $709.83, so the remaining 560/570 put spreads in our October iron condor position expired worthless, and that position logged a 9.4% return. The November iron condor on RUT stands at a P/L of +$440 with delta = -$61 and theta = +$163.
So now we pat ourselves on the back for making money in October and focus on enjoying our families and friends for the weekend. Try not to think about the markets until Monday morning.
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Our markets continue to be held hostage to any kind of news or rumor coming out of Europe. Markets traded lower this morning based on a report that Moody's has put France on negative credit watch. Later in the morning, there were positive reports about Germany and France cooperating to make the debt bailout a certainty - but, again, no specifics. But this news encouraged traders and the market rallied throughout the day, but then the earlier news reports were called into question, so the trading became very choppy in the last hour. It is hard to predict where the markets may go tomorrow. SPX tacked on $29 to close at $1230 and RUT closed at $709, up $21. Today's move returns SPX right to the resistance level set earlier in September - tipping point. Trading volume spiked up today with 3.9 billion shares of the S&P 500 trading today; this is slightly above the 50 dma at 3.8B. Trading volume was up 22% on the NYSE and increased 15% on NASDAQ.
My Oct iron condor on RUT stands at a P/L of +$96 with delta = -$90 and theta = +$1,000. The 740/750 call spreads are right at one standard deviation OTM. I tried to close them this morning, but was unable to get a good price before the market rally took over. The Nov condor stands at a P/L of +$60 with delta = -$51 and theta = +$155. So we sit back and watch to see what news report or rumor sends this market soaring or diving tomorrow.
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The latest news from Europe continues to be the dominant factor moving this market day to day. And, unlike most factors we analyze for their effects on stock prices, the European debt crisis defies analysis. Whenever you think it is under control, another rumor, interview or news report sends us all running for the exits. SPX traded downward $16 to close at $1210 and RUT lost $15 to close at $694. Trading volume declined to 3.5 billion shares in the S&P 500; trading was also lower on the NYSE by 12%. Trading volume increased 2% on NASDAQ.
The CPI came in for September at +0.3%, a decrease from last month's 0.4% increase. Housing starts were up at 658k, from last month's 572k, while building permits were down at 594k, from last month's 625k. SPX has been trading just below resistance at $1230 for several days now. Looking only at the price chart, one would observe that we are trading right at upper end of the recent trading range and the index may still break-out to the upside any day. However, VIX continues to rise; it closed at 34.4% today. That is a bearish sign.
I closed the 740/750 call spreads in the October RUT iron condor position for $0.16. That leaves the Oct position with only the 560/570 put spreads, safely far OTM. Assuming the put spreads expire worthless, our October condor finishes at a net gain of $1,516 on 20 contracts or 9.4%. This brings our 2011 track record for the Flying With The Condor™ service to a 32% gain - not bad for a year when the S&P 500 is down 4%. Our November iron condor on RUT with call spreads at 780/790 and put spreads at 560/570 is at break-even with delta = -$28 and theta = +$168.
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The markets pulled back significantly on news from Europe that the optimal solution to their debt crisis may not be materializing overnight - and this was a surprise? Technical analysts will view this as simply a case of the markets hitting resistance and bouncing back downward into the trading range of the past two months. The economic data that came out today wasn't extremely negative, but it certainly wasn't very positive either, so that didn't help traders' moods. The Empire Manufacturing survey came in at -8.48, slightly better than last month's -8.82, but worse than the -5.0 that was widely expected. Industrial production increased an anemic 0.2% and capacity utilization stands at 77.4%. So in the absence of any strong economic date suggesting a strong recovery, everyone is focused on Europe. And that situation isn't going to be resolved anytime soon. SPX opened at yesterday's close and traded steadily downward from there, closing at the lows of the day at $1201, down $24. RUT also lost $24 to close at $689. Lower than average trading volume continues with 2.8 billion shares of the S&P 500 trading today; this is a decline from yesterday and well below the 50 dma at 3.9B. Trading on the NYSE was up 10% and trading volume was up 1% on NASDAQ. The VIX jumped up 5 points to 33.4%, reaffirming the concerns of further bearish trade in the coming days.
My Oct iron condor on RUT stands at a P/L of +$856 with position delta = -$19 and position theta = +$296 on 20 contracts. Both spreads are about two standard deviations OTM. The Nov condor stands at a P/L of +$480 with delta = -$24 and theta = +$142 (also 20 contracts).
Today's trading so steadily downward all day and closing with the major market averages near or at their lows for the day is pretty bearish behavior. This may be the beginning of a run downward to test the support levels of this trading range once again - a great market for non-directional traders, but a very difficult market for directional traders. The fact that these runs both upward and back down are occurring on low volume just reaffirms the market's lack of direction - we are basically trading sideways in a wide range until traders gain confidence to trade strongly one way or the other.
