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The markets largely traded sideways and slightly downward this morning, but selling pressure took the markets steadily lower most of the afternoon. But the bulls came in and picked up some bargains around 3 pm ET, helping the markets close off of their lows for the day. SPX closed at $1357, down $5, after hitting a low at $1350 earlier in the afternoon. RUT dropped even harder for the second day, closing down $11 at $844. RUT led the markets all of last year, seemed to falter in early 2011, but then again led in this latest bull run upward, but now the RUT is leading in the decline.
There wasn't much economic news today and no news that I know of to account for the markets selling off. Factory orders were up 3% for March, a big improvement over the 0.7% increase in February; but that news didn't seem to affect the markets. Trading volume was up across the board with 3.5 billion shares of the S&P 500 trading; volume was also up 11% on the NYSE and up 7% on NASDAQ.
This pull back by RUT was welcome relief for my iron condor positions. The May condor now stands at a P/L of +$852 with delta= -$25 and theta = +$65. The June condor stands at a P/L of -$1044 with delta = -$77 and theta = +$92. I removed the hedges from this position today; those adjustments cost me $184 but have kept me in the position with an opportunity to salvage a gain down the road. However, as you can see from the theta/delta ratio, this position isn't out of the woods yet.
The fact that SPX hit $1350 and bounced today is somewhat encouraging. It suggests that significant bullish support remains for this market. But we'll see. The only thing certain about this market is its uncertainty.
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Trading was choppy at the open this morning and weakened as the day progressed. SPX closed down $9 at $1361 while RUT gave up $11 to close at $855. The VIX increased a bit to 15.99%, still pretty low for the past several years. The ISM manufacturing index came out at 60.4 for April; this was a drop from last month, but beat expectations. Construction spending was up 1.4% for March while analysts expected no change. Trading volume in the S&P 500 dropped to 3.0 billion shares, well below Friday's volume and below the 50 dma. Trading on the NYSE increased 4% and dropped 15% on NASDAQ. Meanwhile oil remains high at over $113/bbl and gold keeps setting new highs. It seems inconsistent to me that the "flight to safety" continues in gold at the same time that the stock market is soaring. Perhaps this simply shows the effects of the Fed's QE II. If so, what happens when that program ends?
The pull back by RUT took a lot of the pressure off my May and June iron condor positions. My May condor now stands at a P/L of +$212, with a position delta = -$63 and theta = +$99. The June condor is still hedged with July calls and stands at a P/L of -$1,744 with delta = -$40 and theta = +$58. We'll see what tomorrow brings.
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Initial unemployment claims startled traders this morning by going back up over 400k to 429k, up 25k from last week. But continuing unemployment claims dropped by 68k, although many of those are simply running out of benefits and dropping off the rolls rather than becoming employed. First quarter GDP came in at 1.8% which beat expectations of 1.7%. The net result was sideways trading throughout most of the day, but the bulls took charge about 2 pm this afternoon and tacked on some more gains. SPX gained $5 to close at $1360, while RUT set another high at $862, up $3. Trading volume was down on the S&P 500 with 3.1 billion shares changing hands. Trading only increased 1% on the NYSE and dropped 5% on NASDAQ.
My May iron condor stands at a P/L of -$828 with delta = -$74 and theta = +$154 while the June condor stands at a P/L of -$1,984 with delta = -$38 and delta = +$56. Both condors are being pressured on the top side. Current market levels are back to the spring of 2008. Can this bull market take us back to the highs of 2007?
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The markets tacked on a few more points today on average to below average volume. SPX closed at $1364, up $3 and RUT hit a new all-time high at $865, a gain of $4. RUT has now erased all of the damage done in 2008-2009. Trading in the S&P 500 hit the 50 dma at 3.4 billion shares while trading on the NYSE was down 7%. But trading on the NASDAQ was up 23%, perhaps due to all of the activity in RIMM and MSFT. This market is being driven by the Fed's QE II, which is driving the dollar lower and the markets higher. Commodities continue to trade upward without a pause. Oil hit $114/bbl intraday and gold traded as high as $1570 intraday and closed at $1556. More fuel for this bull market has been delivered by the earnings reports thus far. Over 300 of the S&P 500 companies have reported and over 80% have met or beat Wall Street's estimates.
My condors are being pressured by this relentless move upward; both positions are underwater and the theta/delta ratios are about one-to-one on both the May and June positions. The June condor is hedged with July calls, but I will soon have to roll the call spreads upward to remain in this position. We'll see if next week gives us a breather.
Here in Chicago, we are finally getting some warm weather so that means yard work. Enjoy your weekend.
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The markets were rather subdued most of the day, hovering around the open by a few dollars. But after the FOMC announcement, and then especially after Bernanke's news conference, the bulls began to run. SPX closed up $8 at $1356 while RUT ran $5 to close at $858, and that sets a 2011 high for a close on RUT. Trading volume was slightly down from yesterday with 3.2 billion shares of the S&P 500 stocks trading. That is just below the 50 dma at 3.3 billion shares. Trading on the NYSE was up 5% and NASDAQ trading volume was essentially unchanged from yesterday. The FOMC announcement didn't really have any significant new revelations, and I suppose that was what triggered the rally. Bernanke is holding firm that rates will remain low for "an extended period" and is willing to risk moderate inflation to stimulate the economic recovery. So the fuel continues to flow for a bullish stock market.
Gold hit new highs at $1530 per ounce and silver hit a 30 year high at $48 per ounce. Durable orders for March increased 2.5%. This increase in durable goods orders would normally have been seen as bullish news, but it was swamped by all of the attention given to the FOMC's announcement and the first of a series of news conferences by Bernanke.
My May iron condor on RUT moved into the red with a P/L of -$438 and a position delta = -$84 and theta = +$97. I still have 10 contracts of the 890/900 call spreads that are pressuring this position. The delta of the 890 calls hit 18 today. The June condor presented an excellent illustration of the power of a hedging adjustment. Yesterday, I bought July $900 calls to hedge the upside and the net P/L of the position was -$1,814. After another $5 increase in RUT today, that position's P/L is virtually unchanged at -$1,834 with position delta = -$40 and theta = +$45. So the hedge is doing its job for now, but more serious adjustments will be required if RUT continues its upward trek. After the news conference with Bernanke was over, it appeared that all of the talking heads and analysts have decided we have resumed the bull market advance. We'll see. Often the market surprises us when we all run to one side of the ship. But in the meantime, we delta neutral traders will simply trade what the market gives us.
