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Oil prices and rioting in Libya were almost the only focus of the financial news outlets today. Oil stayed near $99 throughout the day, but declined to $97 late in the day. That seemed to calm the equity markets a bit. SPX broke through the $1300 line many were watching (including me), but after touching $1294, it recovered most of the day's losses to close down one dollar at $1306. RUT fared better, gaining $5 to close at $804. RUT also traded down to find support at $795 before rebounding in late afternoon trade. Both indexes appear to be consolidating to form a bottom here, but any negative news out of Libya will change that posture quickly. Many of the market leading stocks are posting a similar pattern of either establishing a new support level or pausing at an old support level; take a look at AAPL, GOOG, GS and NFLX. That isn't to say that this evening's news from Libya may not take the market lower. But absent that news, stocks appear to be finding support. Trading volume was down from the high levels of the past two days, but still above average; 3.9 billion shares of the S&P 500 traded today, down from yesterday but above the 50 dma. Trading was up 1% on the NYSE and down 16% on NASDAQ.
Today's economic news was a mixed bag, but the market ignored it in any case. Initial unemployment claims went down to 391k from last week's 413k, while continuing claims rose by 55k to 3.8 million. Durable orders increased 2.7% but new home sales in January dropped to 284k from December's 325k.
My "mixed bag" March iron condor on RUT stands at a P/L of +$2,020, position delta = +$56 and theta = +$128. I am waiting to close one of my put spread positions for a profit, but the recent rise in IV has made that more difficult. So we watch and wait patiently for the market to make its move.
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The continued unrest in Libya and the Middle East cast a pall over the markets this morning, but traders were trying to buy the dip until oil hit $100 per barrel. That brought the sellers back into the market in strength. The S&P 500 Index hit $1300 in the early afternoon and found support there, closing at $1307, down $8 on the day. The Russell 2000 Index (RUT) appeared to be hurt by the prospects of $100 oil more than SPX today. RUT broke through support at $810, hit the 50 day moving average and bounced, closing at $800, down $13. Trading volume was up again today with 4.5 billion shares of the S&P 500 changing hands. Trading volume was up 2% on the NYSE and was up 10% on NASDAQ. The only economic news of any consequence today was positive: a 2.7% increase on existing home sales for January, but $100 oil and revolts in the Middle East held traders' attention. From my perspective, the panic that seemed commonplace in the markets yesterday was more subdued today with more traders expecting that the worst was over - of course, that could be wishful thinking. But there were glimmers of hope, e.g., the tech bellwethers, APPL and GOOG traded up $4 and $1, respectively. That isn't much more than a glimmer, but...
My PCLN Mar/Apr call calendar was closed for a 4% gain today; the big price drop over the past two days erased most of my profit. I was playing the volatility increase in front of tonight's earnings announcement, but the market collapse of the last two days wasn't part of the plan. The RUT iron condor position stands at a P/L of +$960, delta = +$45 and theta = +$180. This position is unbalanced with 20 call spreads at 875/885, 20 put spreads at 730/740 and 20 put spreads at 690/700. I will be looking for opportunities to close one of the put spread positions before I open the April condor.
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Today's trading session started as has become typical for this market: stocks open and trade down on some negative news and then the bulls show up and buy the dip. But today, the bears surprised us and showed up in the early afternoon and took the market south. All of the major indexes rebounded and preserved some modest gains for the day. SPX closed up $3 at $1343 and RUT held onto an increase of less than a dollar to close at $835. The CBOE Volatility Index (VIX) reflected the roller coaster ride, opening at 16.6%, and dropping as low as 15.5% before rebounding and closing essentially unchanged from the open. Trading volume was up, as might be expected for options expiration, with 3.1 billion shares of the S&P 500 trading today, up slightly from yesterday, but still below the 50 dma at 3.4 billion. Trading on the NYSE was up 31% and also up 9% on NASDAQ.
My Feb GOOG 590/600 call spread and the Feb PCLN 390/400 call spread both will be exercised at expiration for their maximum profits of 31% and 38%, respectively. The GS Feb 155/160 put spread expired worthless for a 14% gain. This brings the trade recommendations from Dr. Duke's Trading Group to a 39% gain for 2011 and an 83% gain since this service began in April 2010. Check out our detailed track record.
My Mar condors on RUT remain essentially unchanged from yesterday. The position at 690/700 and 875/885 stands at a P/L of -$440 and delta = -$101 and theta = +$126. The condor at 730/740 and 860/870 stands at a P/L of -$880 with delta = -$137 and theta = +$136. The upcoming three day weekend should help these positions a bit, but next week may necessitate some adjustments or repositioning if this bull market continues without pause.
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The unrest in Libya and the prospects of oil supply disruptions worried traders today and they sold stocks throughout the day to lock in gains and lessen their risk exposure. SPX lost $27 to close at $1315 and RUT traded down to $822, a loss of $22. Solid support for both indexes stands at $1300 and $810, respectively. Traders will be watching those levels closely. The Conference Board's Consumer Confidence Index rose to 70.4 from last month's 64.8, and the Case Schiller Housing Price index dropped 2.4% for December; the confidence index value is the highest reading in about three years, but the unrest in the Middle East overshadowed everything else. Crude oil rose 6% to close over $95/barrel, but that was a bit lower than the $98 level hit in overnight trading.
Volatility (VIX) spiked up to 21% today - this was even higher than on "Egyptian Friday" a few weeks ago. The flight to safety was reflected in gold prices hitting just below $1407 mid-day before pulling back to about $1398. Trading volume jumped 13% on the NYSE and 7% on NASDAQ - not nearly as high as one might expect for a market like today - is this a positive sign? Trading in the S&P 500 stocks jumped up to 4.3 billion shares, above the 50 dma at 3.4B but below the volume traded on "Egyptian Friday".
I closed the Mar RUT 760/770 call spreads today for a small gain; I will now wait for an opportunity to close my put spreads at 690/700. This will effectively reposition my Mar condor on RUT to 875/885 and 730/740. The combined position now stands at a P/L of +$1120, delta = +$13 and theta = +$192. The question on traders' minds now is whether the unrest in the Middle East will trigger further market correction or whether this will be similar to the "Egyptian Friday" a few weeks ago with a pretty rapid recovery??
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The uptick in unemployment claims and a slight increase in the CPI sent stocks lower at the open today, but the buyers quickly took over and pushed the major indexes higher. SPX closed at $1340, up $4 and RUT gained $6 to close at $834. But the gains occurred on lower volume; trading in the S&P 500 dropped to three billion shares while trading on the NYSE dropped 4% and volume on NASDAQ was down 15%. Initial unemployment claims increased to 410k from last week's 385k while the number of continuing unemployment claims was essentially unchanged at 3.9 million. The Consumer Price Index (CPI) rose 0.4%, slightly higher than the expected 0.3%. On a more positive note, the Philadelphia Fed Survey hit a multi-year high at 35.9.
Today's increase on RUT wasn't kind to my March condors. The position delta and theta values on both condors are approximately equal, thus I am nearing the decision point to adjust and/or significantly reposition the spreads. The RUT 690/700 and 875/885 condor stands at a P/L of -$240 with delta = -$101 and theta = +$105. The 730/740 and 860/870 position stands at a P/L of -$800 with delta = -$135 and theta = +$131.
RUT has retaken the market lead. Earlier this year, RUT was trading pretty flat while SPX was gaining - the opposite of last year's pattern. But now RUT is gaining proportionately more than the SPX and setting new 52 week highs. Does this reinforce the bullish market trend? Historically small and mid-cap stocks tend to lead the early stages of the bull market. With everyone calling for a correction, this bull market may just continue to trample the bears.
