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Traders headed for the exits today, based on some negative economic reports and ADP's employment report. SPX lost $31 to close at $1315 and RUT lost even more proportionately with a $27 decline to $821. I didn't perform a precise analysis, but a quick glance at the price charts suggests these were the largest downward moves on either of these indexes this year and maybe farther back yet. Yesterday's strong upward move surprised me. After all, think of the negative factors swirling around the global economy: Euro debt problems,
US debt problems, the end of QE II, continuing high unemployment, and weakening
economic data. But the strength of today's downward move also surprised me. If you draw the trend lines on the SPX chart for the downward trend starting in early May, today's move took SPX right back into the middle of that downward trending band.
Trading volume on the broad markets jumped up today with 3.2 billion shares of the S&P 500 stocks trading today. This is the first time in several weeks that the S&P 500 volume has exceeded the 50 day moving average. But trading volume on the NYSE was only up 3% and trading on NASDAQ was actually down 8%.
ADP's employment report started the ball rolling this morning by reporting 38k jobs were added in May, down from last month's increase of 177k. Then the ISM index came in at 53.5 for May, down from April's 60.4. Late in the day, Moody's piled on by downgrading Greece's debt, but to whom was that surprise? Tomorrow morning brings unemployment claims and Friday brings the nonfarm payrolls report (aka the jobs report). ADP's weak showing has analysts worried about the jobs report Friday.
My June iron condor on RUT stands at a P/L of +$2,076 with delta = +$9 and theta = +$104. I removed the hedges on my July iron condor on RUT; it now stands at a P/L of -$120 with delta = -$60 and theta = +$96.
So now the question is: will we have a bounce back up tomorrow? Or will we plunge even further?
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The markets opened sharply up this morning on news of another bail-out pending for Greece. But then the negative economic data started coming in and this moderated the bulls' rally. However, the bulls regained control toward the end of the day and the broad indexes finished at or near their highs for the day. SPX closed up $14 at $1345 and RUT closed at $848, up $12. Trading volume was up sharply from Friday's pre-holiday lows. 2.8 billion shares of the S&P 500 stocks traded, up from Friday but still under the 50 dma. Trading volume on the NYSE was up 60% and was up 46% on NASDAQ.
The Chicago PMI report for May came in at 56.6, down significantly from April's 67.6. Analysts expected a drop, but not this much. Consumer confidence dropped to 60.8 for May from April's 66.0. And the final bit of depressing data came form the Case-Schiller housing price index, with a 3.6% decline for March.
So the market is being pulled back and forth between the bulls and the bears. Traders will be especially sensitive to the ADP employment data tomorrow, the unemployment claims on Thursday, and the jobs report on Friday.
My June RUT iron condor stands at a P/L of +$1,836 with position delta = -$39 and position theta = +$107. The July iron condor on RUT at 700/710 and 880/890 is hedged with Aug $880 calls and stands at a P/L of -$2,130 and delta = -$41 and theta = +$69. With the significant economic data coming out over the rest of this week, the markets may prove to be rather volatile.
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The equity markets still appear to be following the inverse relationship with the dollar; they opened down this morning as the dollar strengthened but then rallied as the dollar weakened later in the day. The SPX closed at $1326, up $5 while the RUT blew ahead for the second day with a $10 increase to close at $831. Trading volume continues to be weak with 2.6 billion shares of the S&P 500 trading today. Trading volume on the NYSE was down 9% and was unchanged on NASDAQ.
Economic news was mediocre and certainly unable to generate much enthusiasm with traders. GDP growth for the first quarter was estimated at +1.8% but an increase of 2.0% was expected by analysts. Initial unemployment claims increased by 10k from last week at 424k while the continuing unemployment claims dropped to 3.69 million from last week's 3.74M.
My June iron condor on RUT stands at a P/L of +$2,416 with delta = -$27 and theta =+$26. The big question with this market is whether it can sustain a rally given the normal slow down in the markets during the summer and the ending of quantitative easing by the Fed. That seems like a prescription for a sideways trading environment at best and maybe a bearish trend at worst. But whenever we all think the answer is obvious, the market will surprise us.
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The markets traded upward today, albeit on very low volume before the holiday weekend. SPX closed up $5 at $1331 and RUT closed at $836, up $5. Only 2.1 billion shares of the S&P 500 stocks traded today. Trading was down 19% on the NYSE and down 13% on NASDAQ. The last several sessions of trading are about to penetrate the upper band of the downward trend formed since early May. Next week will tell the tale.
The Consumer Sentiment Survey from the University of Michigan came in at 74.3, better than analysts expected (up from 72.4 last month). Pending home sales dropped 11.6% in April, a big change from March's 4% increase, but the markets didn't seem too concerned.
My June iron condor on RUT stands at a P/L of +$2,216 and delta = -$27 and theta = +$53.
Enjoy the holiday weekend. The markets will be closed on Monday and the blog will return Tuesday.
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The major indexes opened today's trading in the red but quickly bounced and traded upward. Interestingly, the dollar traded sideways, so the normal inverse relationship of the equity markets and the dollar didn't hold today as it has for the past couple of weeks. SPX gained $4 to close at $1320 and RUT gained $11 to close at $821 - not sure why RUT was so strong... Trading volume was up a little today with 2.8 billion shares of the S&P 500 stocks trading, but this remains below the 50 dma. Trading on the NYSE was up 10% and trading volume on the NASDAQ was up 2%. The only significant economic data was the durable orders report with a 3.6% decline for April, quite a shift from March's increase of 4.4%. The SPX and RUT charts are both still lodged in the downward trend since the beginning of May. My June condor on RUT stands at a P/L of +$2,216 with delta = -$5 and theta = +$50.
This is certainly a market for the delta neutral trade; I have been searching for some directional trade opportunities but those are difficult to find in this environment. But it is better to wait than force the trade.
