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Bernanke's comments this morning plus a strong second quarter GDP report from China buoyed the markets today but enthusiasm waned as the day wore on. SPX traded as high as $1331 but closed at $1317, up $4. RUT gained $7 to close at $837. Trading volume dropped below the 50 dma with 2.6 billion shares of the S&P 500 changing hands. Volume was down 4% on the NYSE and down 7% on NASDAQ.
Today was a light day for economic data; tomorrow brings the unemployment claims, the PPI and retail sales.
My August iron condor on RUT at 670/680 and 890/900 stands at breakeven with position delta = -$78 and theta = +$100. Perhaps some of the upcoming earnings reports will change the dark mood of this market.
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European sovereign debt issues loomed large in traders' minds today. Late in the day Moody's added to the gloom by downgrading Ireland's debt. SPX closed down $6 at $1314 and RUT lost $4 to close at $830. SPX bounced off of the 50 dma yesterday and earlier today, that support level appeared to have held once again. But late afternoon trading pushed markets lower and SPX broke through and closed below the 50 dma. Given that all of this occurred on higher levels of trading volume is not a good sign. Trading in the S&P 500 stocks rose above the 50 dma to 2.9 billion shares and trading volume was up 12% on the NYSE; Volume on NASDAQ was up 14%. IBD moved from a market assessment of "Confirmed Uptrend" to "Uptrend Under Pressure" yesterday.
IVolatility.com noted the possible head and shoulders pattern in the S&P 500 in their newsletter this week: left shoulder at $1345 on 2/21, head at $1370 on May 2 and right shoulder at $1355 on 6/30. The head and shoulders pattern is a classic upward trend reversal signal. It is confirmed when the price breaks down through the neckline of the pattern. In the case of SPX, that is around $1260 to $1265. My first reaction when looking at this was simply that by the time SPX breaks $1260, everyone will know the trend has turned. However, it isn't the prettiest head and shoulders pattern I have ever seen.
My Aug iron condor is essentially at break-even with a position delta of -$76 and theta = +$109. The delta of the 890 calls has returned to 12 and the call spreads are roughly one standard deviation OTM. So enough of this; now we return to worrying about Europe.
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The jobs report (officially, the nonfarm payrolls report) reported an increase of 18,000 jobs in June. Analysts expected 80k. It seems a little surprising that the market reacted as strongly as it did; a weak economy that isn't creating jobs should not have been a surprise. Unemployment moved up a bit to 9.2%. SPX closed down $9 at $1344 and RUT closed at $853, down $6. We will continue to watch the SPX level of $1370 to see if this bull trend is going to resume. That was the high set back at the beginning of May. A pullback from there will suggest a broad trading range of $1260 to $1370. Pull up a longer term chart of SPX and you will see my point.
The market's explosive run upward caused me to close the 880/890 calls on my July iron condor on RUT yesterday. Today's pull back is frustrating, but you have to follow your rules or risk much larger losses. Assuming that the 700/710 puts expire worthless next week, my July condor has closed at a gain of $820 or 5%. My Aug condor has already been adjusted and is now flirting with forcing me to close the call spreads and re-position the spreads. It is now underwater by $758 and position delta = -$62 and position theta = +$43.
Some analysts recommended today's pull back as a trading opportunity. We'll see next week.
Have a great weekend.
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Traders' concerns turned once again to the European Union and the sovereign debt issues that threaten to tear the union apart. Selling was even more intense today than on Friday after the disappointing jobs report. The SPX closed down $24 at $1319 and RUT closed at $834 for a loss of $19. Trading volume bumped up a bit with 2.6 billion shares of the S&P 500 trading; however, this is still below the 50 dma. Volume was up 8% on the NYSE and was up 10% on NASDAQ.
There were no economic data reports of any consequence today. I tire of the talking heads on CNBC "explaining" today's declines as due to worries about European debt issues when the same analysts told us last week that European debt was old news and the market had moved on. There is no explaining or predicting of human emotions and fear of the unknown.
My Aug iron condor stands at -$218 with a position delta = -$72 and position theta = +$108. I removed the hedge today. Only the 700/710 put spreads remain from the July iron condor on RUT; I will allow them to expire worthless.
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The markets traded largely sideways today. Some of that may have been due to a relatively light economic news day. Some traders may be waiting to see Friday's jobs report before placing their trades. SPX closed at $1339, up $1 but RUT tacked on another $4 to close at $845. Trading volume in the S&P 500 was flat at 2.4 billion shares. Trading on the NYSE was up 2% and trading volume on NASDAQ was up 6%. Challenger reported a 5.2% increase in layoffs for June, up from a 4% decrease in May. This is focusing attention more on the ADP employment report and unemployment claims tomorrow, with the jobs report following on Friday. The ISM Services Index was basically flat at 53.3 for June, down from 54.6 in May.
My July iron condor stands at a P/L of +$3,160 with delta = -$43 and theta = +$74. The steady rise in RUT triggered my adjusting the Aug condor by buying Sept $890 calls; the Aug position stands at a P/L of -$588 with delta = -$52 and theta = +$44.
