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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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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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The jobs report disappointed traders before the bell this morning with an increase of 54k jobs while the market was looking for something closer to last month's +232k. The unemployment rate increased to 9.1%. The only glimmer of good news was the ISM Services Index, that came in at 54.6 for May, up modestly from April's 52.8. All of the major indexes closed lower today. SPX lost $13 to close at $1300 while RUT closed at $808, also down $13. Today's close on SPX takes us to a new low during this correction; but is it a correction or a new bearish trend? A close below $1300 will define a new lower trend line for the recent pull back that started on the first of May. RUT would have to drop below $800 to break through its lower trend line for this correction.
Trading volume declined from yesterday with 2.7 billion shares of the S&P 500 trading today. Trading volume declined 5% on the NYSE and was flat on NASDAQ.
I closed my Jun iron condor on RUT for a net gain of $2,216 on 20 contracts, or a 13% gain. That brings my condor trading account to a net gain of 23% in 2011 versus the S&P 500, up 4%. Our Jul RUT condor stands at a P/L of +$1,020 with delta = -$17 and theta = +$86. My 880/890 call spreads are now over one standard deviation OTM and the700/710 put spreads are over two standard deviations OTM.
Have a great weekend.
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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.
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The markets traded back and forth and largely ended the day unchanged on lower volume. I think many traders are waiting to see the jobs numbers in the morning before committing their capital to this market. SPX lost $2 to close at $1313 while the RUT closed at $821, down $1. Trading volume on the S&P 500 dropped to 2.9 billion shares, just below the 50 dma. Trading was down 10% on the NYSE and down 15% on NASDAQ.
Initial unemployment claims were nearly flat week to week with 422k versus last week's 428k. Continuing unemployment claims were flat at 3.7 million. Factory orders were down 1.2% in April, as compared to March's increase of 3.8%. So the economic data today was not really bad enough to send the market down, but not good enough to trigger a rally either. Tomorrow's jobs report will be closely watched.
My June iron condor on RUT stands at a P/L of +$2,216 with delta = +$11 and theta = +$87. My July iron condor on RUT stands at a P/L of -$280 with delta = -$52 and theta = +$110. Implied volatility on RUT remains pretty high at 24%; otherwise, the July position would have broken into the black by now. OK, start the office pool on the jobs report. Actually, predicting the jobs number may be easier than predicting the market's reaction to the number.
