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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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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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Yesterday's rally continued this morning on an even stronger pace, but a
Financial Times article this afternoon stopped the rally in its tracks. SPX had
run as high as $1196, but pulled back over $20 in the last hour of trading to
close at $1175, salvaging an increase of $12 on the day. RUT gained $15 to
close at $680. Rumors, news, quotes, interviews and speculation on how the
European debt crisis will be handled or mishandled are driving this market.
Even our own politicians fumbling around has been pushed to the back burner.
Placing directional trades in this environment is very difficult.
The Case Shiller Housing Price Index dropped 4% in July and the consumer
confidence index remains essentially flat at record low levels. Traders
obviously were not alarmed by this weak data, since the markets were moving
strongly higher before and after these reports were publicized.
SPX has been trading in the range from $1120 to $1220. Today’s run took the
index near the high end of the range before pulling back. Looking back over the
past couple of months, it has taken about 5 to 6 sessions to trade from one end
of the range to the other. It will be interesting to see if this upward trend
has now ended after three days or whether it will continue upward in an attempt to break through
resistance at $1220.
My Oct condor on RUT continues with only the 500/510 put spreads. I almost
pulled the trigger to sell some call spreads this afternoon, but decided to
wait – then the market collapsed. I may have missed my opportunity, at least
for this week. But one thing is clear in this market. Trading delta neutral is
much easier than trying to predict the next move of this skittish market.
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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.
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The markets opened weakly this morning but rallied strongly later in the day based on favorable news from Europe that plans were being formulated to handle the Greek debt crisis; however, no official press releases have confirmed that report. On the other hand, from a technical viewpoint, the major indexes had been testing the bottom of this trading range for the past three trading sessions. So, a bounce upward back into the trading range isn't too surprising. SPX gained $27 to close at $1163. RUT closed at $666, up $13. Trading volume dropped with 3.5 billion shares of the S&P 500 stocks trading today; volume also dropped on the NYSE with a 26% drop, but traded flat on NASDAQ.
New home sales for August came in at 295k, down slightly from the previous month's 302k. The Case Schiller Home Price Index comes out tomorrow and will be another measure of the state of the ailing real estate market.
My Oct iron condor position on RUT only consists of the 500/510 put spreads. As RUT strengthens, I will re-establish my OTM call spreads to complete the condor position.
The fear and anxiety in the markets has certainly not disappeared. So, don't let today's rally make you complacent. Between the Euro debt crisis, fears of a global recession and our own Washington debt
squabbles, this market can turn on a dime at a moment's notice.
