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I am running out of superlatives to describe this market. Yesterday was very ugly; based on the extent of that down move, I was expecting a bit of a bounce this morning, but no, it just wasn't quite as ugly. By noon, the market moved into positive territory, but then slowly sank, nearly to the lows of the day. Then around 3:15 pm EDT, the SPX ran from its low at $1080 to the close at $1124 in 45 minutes - wow! SPX gained $25 on the day, closing at $1124; RUT was even stronger, gaining $39 to close at $649. RUT stayed in positive territory most of the day and traded up about $40 in the last 45 minutes of the day. Why? I am unsure anyone knows. Even the talking heads on CNBC, who always seem to have an answer, appeared befuddled. The bottom line is that the extreme volatility of this market is downright frightening. Trading volume spiked upward again today with 5.1 billion shares of the S&P 500 stocks trading; volume was up 25% on the NYSE and was up 19% on NASDAQ.
Traders were expecting Apple to announce the iPhone5 today, but instead received an improved iPhone 4s. Thus, Apple shares were punished. Is this a buying opportunity for AAPL? Tomorrow will be interesting.
A bigger question is whether we have seen the bottom of this market decline. Today's spike upward on increased volume is certainly a bullish sign, but this market turns on a dime (or a rumor). Buying this market would be an aggressive speculation.
My Oct RUT condor with its put spreads at 500/510 stands at a net loss of $1204 with delta = +$14 and theta = +$67. If we have a few more positive days, perhaps I can get the call spreads back in place to complete this position.
Until we get some calming news out of Europe, it is hard to imagine this market settling down. VIX is still high, at 41%. I don't see an end to this volatility for some time. The jobs report Friday could be a significant market-moving event, or it could be ignored depending on what news is coming out of Europe.
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More negative news from Europe sent traders to hit the sell button. It strengthened the US dollar and that also pushed the equity markets lower. SPX lost $32 to close at $1099 and RUT closed at $610, down $35. Trading volume in the S&P 500 stocks spiked upward with 4.4 billion shares trading; this is above the 50 dma of 3.9B. Trading volume on the NYSE increased 11% and trading on NASDAQ jumped up 25%. We had positive economic news this morning with the ISM manufacturing index coming in at 51.6 for September, up a small amount from August's 50.6. Construction spending was up 1.4% in August, as compared to a decline of 1.4% in July. But these data points were widely ignored. Every major market index booked losses. Many stocks hit 52 week lows.
Today's action broke the support levels that were set in the August crash and had been repeatedly tested, so this was significant. SPX broke through $1200 to close at $1099, and it closed at the low of the day - very bearish. RUT was even more bearish, closing at $610, well below the August lows at $650. For a couple of months we have been wondering if this was a correction in a bull market or the beginning of a bear market. Today's action strongly suggests the latter.
My Oct condor is unchanged with my holding only the 500/510 put spreads. I am still looking for the opportunity to re-position the call spreads.
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A friend of mine has an expression, "Nervous as a long tailed cat in a room full of rocking chairs". The current market environment is difficult to describe; recent volatility has set records. The market shifts by several percent in a matter of minutes based on unsubstantiated rumors. In short, it is a scary place to be. Today's market opened to a lot of good news. The German parliament voted to support the proposed European sovereign debt bailout structure. Initial claims for unemployment in this country dropped by 37 thousand to 391k while continuing unemployment claims dropped by 20k to 3.729 million. Second quarter GDP grew by 1.3%, beating expectations of 1.2% and the first quarter's 1.0%.
All of this positive news resulted in strong open to trading this morning; SPX traded as high as $1176 during the first hour of trading, but quickly started to give it all back, hitting a low of $1140 about 3 pm EDT. Then the markets rallied for the last hour of trading to post gains for the day. SPX closed at $1160, up $9 and RUT gained $11 to close at $663. Trading volume was up modestly with 3.6 billion shares of the S&P 500 trading; trading volume was up 8% on the NYSE and was up 19% on NASDAQ.
Directional trading in this environment is extremely difficult. Even stocks with stellar financials and future prospects, like AAPL, are being jerked around on a daily basis. I normally think of IBM as a slow and steady blue chip stock. During the month of September, IBM's share price has traded over a wide range, from $159 to $181. Implied volatility of IBM's options has been running around 30-35% since the August crash - a big change from the "good ole days" when it ranged around 15%.
So what's working now? Legging into iron condor spreads has been successful for me, but it is a dangerous business. Normally, I position both sides of my iron condor on the same day. If you can place your put spreads on a weak day when you believe the market has hit bottom and vice versa for the call spreads, you can end up with condor positions that are quite wide. For example, my Oct GOOG iron condor is placed at 480/490 and 580/590, $90 wide. But timing your entries is tricky. Probably the best advice in this market is to be much more picky than usual about your trades - there is nothing wrong with passing up opportunities and waiting for a higher probability play.
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This is becoming all too familiar. Trading in Asia and Europe seemed to set the stage for our markets as they opened weakly and never made it into positive territory all day. SPX closed at $1131, down $29 while RUT gave up $19 to close at $644. This places RUT right at the lower end of the trading range of the past two months. SPX is close the lower end of the range at $1120. Next week will tell the tale: either the markets strengthen and bounce back upward, or break through support to make new lows and confirm a bear market trend. From my perspective, mediocre to poor economic news abounds, but it doesn't seem to me that much of anything has significantly changed from two months ago - D.C. has deteriorated into a Hatfield and McCoys soap opera, the European Union is in disarray about the sovereign debt crisis; but we knew that two months ago. It seems the general mood of traders has simply turned pessimistic. The Chicago PMI came in at 60.4 today, up from August's 56.5 and the University of Michigan's consumer sentiment survey came in at 59.4 for September, a small improvement from the previous 57.8. But traders ignored this data and sold the market. Even more disheartening, the markets sold off strongly in the last hour of trading. Trading volume declined from yesterday with 3.5 billion shares of the S&P 500 trading, below the 50 dma at 3.9B; but trading volume was up 6% on the NYSE, and down 11% on NASDAQ.
My October iron condor on RUT continues to limp along as a 500/510 put spread. I closed the call spreads and have been waiting for the market to strengthen so I could re-position the call spreads and eventually roll up the put spreads. But so far, I have been trapped. Fortunately, the put spreads remain over two standard deviations OTM, but I am starting to run out of time.
Next week should be interesting, but now we turn our attention to our families, chores around the house and healthy recreation. Have a great weekend.
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Traders sold off pretty strongly today, probably in anticipation of Germany's Parliament voting on the European bailout proposal tomorrow. It's hard to predict how the markets will respond if the bailout proposal fails to get through the parliament. Will we break through the bottom of this trading range? SPX lost $24 to close at $1151 while RUT lost even more, closing down $28 at $652. RUT had set a low end of the range around $650 but broke through to about $635 last Thursday, so today's close at $652 is near the low end of the recent trading range. By contrast, SPX is just below the midpoint of its recent trading range. Trading volume declined again today with 3.2 billion shares of the S&P 500 trading, well below the 50 dma. Trading volume was also down on the NYSE and NASDAQ, down 11% and 8%, respectively.
AMZN was one of very few stocks that posted gains today; they introduced their new tablet computer, Kindle Fire. They hope to compete with Apple's iPad, but the competitive landscape is littered with the corpses of the other wanna-be tablets. AMZN hit a 52 week high today at $230 and will announce earnings Oct. 20. That might present some interesting trading opportunities.
My Oct iron condor remains "half a man" with only the 500/510 put spreads. I missed the opportunity yesterday to get the call spreads in place. But with RUT's weakness today, I am glad to at least be safely OTM. Tomorrow's market is bound to be a roller coaster ride based on news from Europe. It will be interesting.
