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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 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.
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Some preliminary data from Europe and China suggest those economies may be slowing. When you add the European sovereign debt concerns, you get a market full of worries and understandably cautious about buying. These concerns also drove the dollar higher and this traditionally pulls the stock markets downward. The markets gapped down at the open and traded sideways from there. The major indexes closed off their lows for the day, but not by much. SPX dropped $16 to close at $1317 and RUT closed at $814, down $15. Trading volume was down; only 2.5 billion shares of the S&P 500 traded today, well below the 50 dma. Trading on the NYSE was down 14% and trading volume on the NASDAQ was up 1%.
If one draws the trend lines on the SPX chart for the down trend since May 2, today's action puts us either on or very close to that lower trend line. So we appear to be at the tipping point. If the broad markets dive lower tomorrow, we may be defining a new bearish trend lower. On the other hand, we will need some significant upward movement to decisively break-out of this downward trend. On SPX, this will require a close above $1345, $28 higher.
All of the May options expired worthless. My June RUT condor stands at a P/L of +$2,056 with delta = $0.50 and theta = +$54. I believe this theta/delta ratio sets a personal high - I have never had a position delta so close to zero. So now I watch to see if this market is headed lower, or will we just muddle sideways?
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Traders started today on a positive track, bouncing back from yesterday's losses. But it didn't last long before the bears took over. But, after putting on my rose-colored glasses, I note that the bears couldn't really drive the market down much. SPX closed the day at $1316, only down a dollar. RUT lost $4 to close at $810. Trading volume remained lackluster as it has for weeks now. 2.6 billion shares of the S&P 500 traded today, still well below the 50 dma at 3.1B. Volume was down 1% on the NYSE and was up 4% on NASDAQ. So the SPX chart is looking more and more like a downward trend (closed at a new low for the month today).
My June iron condor on RUT stands at a P/L of +$2,216 with a delta = +$5 and theta = +$39. Both spreads are about two standard deviations OTM, even with the expanded volatility of the past couple of days. It may be tempting to close this position early at this rate, but both spreads are far OTM and time is on our side at this point in the trade.
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The dollar's strength, coupled with concerns about European debt, held the equity markets down today. SPX traded down $10 to close at $1333 and RUT traded down $6 to $829. The SPX settled at $1342.55 for May options and RUT settled at $831.14. Thus, the remaining 720/730 and 920/930 May RUT spreads from my condor have officially expired worthless. So the May position closed with a 7% gain and my condor trading is up 19% for the year; by comparison, SPX is up about 5%.
One can read the SPX price chart in two somewhat different ways. One would be to identify the trading range of $1320 to $1370 that SPX seems to be trapped in for the past month or so. An alternative view would draw trend lines along the tops and bottoms of the bars since May 1 and propose a new downward trend. A trader with the first perspective would be looking for a break-out either above $1370 or below $1320 to define a new trend to trade. The latter perspective would be looking for a break-out above $1345 to resume the bullish trend.
My June iron condor on RUT stands at a P/L of +$1,716 with delta = -$17 and theta = +$75.
Have a great weekend. It is finally warm in Chicago!
