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The markets opened up positively this morning, probably reflecting some bargain hunting and maybe reacting to a weaker dollar. But the dollar remained weak as the market traded off this afternoon. SPX ran as high as $1277 and then as low as $1266 before closing at $1227 for a gain of less than one dollar. RUT traded down $2 to close at $777. Trading volume dropped from Friday with 2.7 billion shares of the S&P 500 trading, well below the 50 dma. Trading volume dropped 11% on the NYSE and dropped 7% on NASDAQ.
No economic data was reported today; the PPI and retail sales reports are due tomorrow.
My July iron condor on RUT at 700/710 and 880/890 stands at a P/L of +$1,180 with delta = +$40 and theta = +$77. My Aug iron condor on RUT at 670/680 and 890/900 stands at a P/L of +$820 with delta = +$19 and theta = +$38. It is fun to be trading delta neutral in a choppy sideways market such as this, but I am remaining on high alert for a sudden move lower. Nearly all of the technical indicators are signaling "oversold" but that is precisely when the market surprises you and goes the other way.
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Traders found a reason to be bullish today, although there wasn't any obvious news to account for that change in posture. The SPX gained $9 to close at $1289 and RUT closed at $793 for a gain of $5. However, trading volume fell markedly with 2.5 billion shares of the S&P 500 stocks trading, down from yesterday and well below the 50 dma. Trading volume dropped 12% on the NYSE and dropped 18% on NASDAQ. Initial unemployment claims were virtually flat week to week with 427k (from last week's 426k). Ongoing unemployment claims were flat at 3.7 million.
This market is far from turning the corner. Today's rise was certainly encouraging, but the drop in trading volume does not add confidence to today's move.
My July iron condor stands at a P/L of +$2,120 with delta = +$35 and theta = +$41. No significant economic news is slated for tomorrow, so it is anyone's guess where this market goes from here. As long as trading volume remains low, it is hard to build any confidence in a developing trend.
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The markets traded in positive territory all day, but succumbed to selling in the last hour to give up most or all of their gains. SPX lost $1 to close at $1285, but RUT held onto a gain of $2 to close at $798. Trading volume was flat with a 3% decline on the NYSE and a 1% decline on NASDAQ. Some analysts attributed the late day sell off to Bernanke's speech late in the day where he made the case for continued quantitative easing, citing weak economic data. That doesn't quite analyze for me; it seems the prospect of continued Fed support would boost stocks rather than triggering a sell off.
My July iron condor on RUT stands at a P/L of +$1,520 with a position delta of +$8 and position theta of +$76.
My read of the SPX chart tells me we are in a bearish trend, not a correction within the overall bullish trend. Friday, we broke below the lower trend line and have fallen farther since then.
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It is fascinating to me how the markets can ignore bad news for so long and then suddenly focus on the bad news as though it is new and overwhelming. Bernanke spoke the obvious yesterday, viz., the economy is weak and the recovery is slow at best. And the markets behave as though this is an incredible, shocking surprise?? All of the market indexes sank to new lows today with the SPX losing $5 to close at $1280. RUT closed at $788 for a loss of $10. Trading volume was up a bit today with 3 billion shares of the S&P 500 trading; this is right at the 50 day moving average. Trading on the NYSE was up 10% and volume was up 13% on NASDAQ.
The price chart for the SPX is a bit scary; there are no obvious levels of support nearby. The intraday lows at $1295 on April 18 were easily sliced through a couple of days ago. The next strong level of support is the low in mid-March around $1257. That is also the neighborhood of the 200 dma at $1251. Today was the sixth day in succession that the SPX has set a new low each day - quite a string. SPX is now down almost 7% from the high set in early May. Technically, that is still within historical market correction territory but this chart is looking pretty ugly.
My July iron condor on RUT at 700/710 and 880/890 is doing well with a net P/L of +$1,660, delta = +$21 and theta = +$60. The theta/delta ratio of approximately 3 to 1 is very good and the position is still very close to delta neutral in spite of the recent moves downward by RUT. Both spreads remain about 1.5 standard deviations OTM with 36 days to expiration. I must say it feels good to not be adjusting or closing positions as this market collapses. I suppose that is the advantage of far OTM condor positions... or maybe the market gods are smiling on me this week!
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Markets sold off broadly today with all of the major indexes posting losses. SPX dropped $14 to close at $1286 and RUT closed at $795, off $13. Trading volume was flat to declining with 2.9 billion shares of the S&P 500 trading while volume was down 1% on the NYSE and down 3% on NASDAQ. Today held no significant economic news to drive the markets lower. It seems the bearish sentiment is taking hold. The sovereign debt issue in Europe continues to grab headlines and worry traders; this is also driving the dollar higher, and generally, a stronger dollar hurts US equity markets. Today's close on SPX surpassed the lows set in late February and mid-April. Now we are nearing the March low at $1257. This chart is looking more and more like a new bearish down trend rather than a correction in an ongoing bull trend. However, SPX is down about 6% from the May high, so that is still within the historical range of market corrections.
My July iron condor on RUT at 700/710 and 880/890 stands at a P/L of +$840 with a position delta = +$4 and theta = +$101. I set up the July condor somewhat tighter on the call spread side and allowed more safety margin on the put spread side, and that has worked out very nicely. Our position is now perfectly delta neutral with a healthy theta/delta ratio and put spreads that remain about 1.5 standard deviations OTM, even after the severe decline of the past few days. I don't think it is unreasonable to use your judgment of the market trend when establishing the condor position, but never use your judgment to override your adjustment criteria. That can get you in real trouble.
