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Markets jumped up at the open, but gave back the gains by noon and traded weakly into the close. Most of the major market indexes closed virtually unchanged for the day on lower volume. SPX closed at $1124, unchanged for the day and RUT was also unchanged at $651. Trading volumes dropped from Friday, which was expiration Friday; options expiration normally results in higher volumes. 3.7 billion shares of the S&P 500 traded today, just above the 50 dma of 3.5B. Trading was down 20% on the NYSE and was down 18% on NASDAQ.
The charts appear to show a building of support at $1120 on SPX and $650 on RUT. Today's candlestick on SPX was a shooting star; that may be ominous for tomorrow. Instead of building a support level, we could be pausing for the next leg down in a bear market.
RUT settled Friday at $651.70 so both of the remaining spreads in my RUT iron condor for August expired worthless for a loss of $356 on 20 contracts or a 2% loss on the capital at risk. The Sept condor stands at a P/L of +$700 with delta = -$4 and theta = +$14. Now we go back to watching to see which way this market turns: building support or about to tip over into a bear trend downward?
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The markets logged another huge trading range day, so the price volatility records continue to be broken. SPX closed at $1138, down $56 while RUT lost $42 to close at $663. The major indexes didn't close at their lows, but they were not far off the lows of the day. Trading volume spiked back up, with 5.1 billion shares of the S&P 500 trading today. Trading volume rose 63% on the NYSE and rose 45% on NASDAQ. The European debt crisis continues to dominate the news and worry traders. But the Philadelphia Fed survey for August spooked them even more with a drop from +3.2 to -30.7 in one month. Existing home sales also dropped to an annualized rate of 4.67 million. Leading indicators rose 0.5%, providing one glimmer of good news.
Many market observers expected a retest of the recent lows, but I think the strength and range of today's move was unnerving. The lows on SPX were around $1120 and SPX only traded as low as $1131 today. Many stocks are trading at bargain basement levels; will this tempt the bulls to reappear? Or is the fear over European debt too compelling?
My Aug 600/610 put spreads were three standard deviations OTM, and the 750/760 call spreads were even farther OTM, so I allowed both spreads to go into expiration and presumably expire worthless. This will complete my Aug iron condor on RUT with a loss of $356 on 20 contracts or a 2% loss. The Sept position is hedged and stands at a P/L of +$460 with delta = -$12 and theta = +$2. I wonder what surprise the market will bring us tomorrow?
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The S&P 500 couldn't hold above the $1200 resistance level, but it didn't falter badly. SPX closed at $1193, down $12 for the day, but it closed well above its low of the day at $1181. RUT closed at $705, down $14. Trading volume was down on the NYSE by 6% and was down 7% on NASDAQ, but trading of the S&P 500 stocks was flat at 3.4 billion shares, right at the 50 dma. Economic data started the market off on the wrong foot this morning. The annualized rate of housing starts dropped to 604 thousand for July, down from 613k. Similarly, building permits dropped to an annualized rate of 597k. However, industrial production rose 0.9% in July and capacity utilization rose to 77.5% in July from 76.9% in June.
The fact that the SPX traded as low as yesterday's opening, but could not hold those lows was a good sign today. It may not be a bullish sign, but it may be a sign of a base-building pattern. That certainly beats beginning a downward trend. The VIX popped back up a bit today to 33%, reflecting continued trader anxiety - not too surprising. We certainly have a long list of sovereign debt issues with very little hope that anyone in any of the affected governments have the courage to deal with the issues (including here at home).
My Aug condor stands at a P/L of -$956 with delta = -$42 and theta = +$742 on 20 contracts. The call spreads are about two standard deviations OTM and the put spreads are over five standard deviations OTM. The Sept condor on RUT stands at a P/L of +$720 with delta = -$39 and theta = +$154 (also 20 contracts).
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The S&P 500 index couldn't hold above $1200 once again, closing at $1194, up $1. RUT closed down $1 at $704. Trading volume declined once again to 3 billion shares of the S&P 500 stocks. Trading volume on the NYSE dropped 15% and volume dropped 8% on NASDAQ. When one looks at the SPX chart, it is easy to postulate two very different conclusions: either a sideways consolidation pattern is developing or a downward trend is underway. The strong bullish trend ended in mid-February and we have been trading sideways ever since; of course, the decline of the past couple of weeks was a rude departure from that sideways trend. So now either of two cases can be made: 1) we are still in the sideways consolidation pattern, but just had a slight hiccup courtesy of the S&P bond downgrade, or 2) we started a downward trend on May 1. It is becoming harder to see this as a temporary respite from the bullish trend. The U.S. and European sovereign debt issues are the dark clouds hanging over this market; it is hard to imagine a strong bullish trend resuming.
The markets have cooperated with my August iron condor with put spreads at 600/610 and call spreads at 750/760. The put spreads are 7 standard deviations OTM and the call spreads are 3.5 standard deviations OTM. Thus, unless something dramatic happens tomorrow, I will allow both the call and put spreads to expire worthless this weekend. Currently the P/L for the 20 contract position stands at -$516, delta = -$10 and theta = +$550. The Sept iron condor on RUT is positioned at 600/610 and 780/790. Both spreads are outside of one standard deviation OTM and the P/L on 20 contracts is +$1,780 with delta = -$21 and theta = +$130. Watch that $1200 level on SPX for your clue on this market.
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The markets rallied again today, appearing to confirm at least a short term bottom to the market declines of the past several weeks. SPX closed up $26 at $1204. RUT closed at $719, up $21. The strength and breadth of this rally is strikingly strong; it makes me wary of a retest of the recent lows sometime soon. Trading volume has declined every day since it peaked on August 8th. Today's markets saw 3.4 billion shares of the S&P 500 trade; this is right at the 50 day moving average. Trading volume declined 17% on the NYSE and declined 13% on NASDAQ. There wasn't much economic news today; the Empire Manufacturing Index dropped to -7.7 for August from last month's weak -3.8. But traders appeared to shrug that off today. Another bullish sign today was SPX's ability to break through resistance at $1200 and hold for a close above that level. But will it hold tomorrow? VIX dropped to 32% today, but is still elevated, reminding us of the recent carnage.
My August iron condor on RUT with the 600/610 put spreads and the 750/760 call spreads stands at a P/L of -$1236 and delta = -$89 and theta = +$492. Delta of the $750 call is 7, so I may be able to nurse this trade along a bit before having to close the call spreads. The put spreads are over two standard deviations OTM, so I will allow them to expire worthless. My Sept RUT iron condor consists of the 600/610 put spreads and the 780/790 call spreads. This position stands at a P/L of +$280 and delta = -$52 and theta = +$152. The delta of the $780 call = 15, so I may have to adjust this position soon if this strong rally continues.
