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The Producer Price Index (PPI) increased 0.8% in January, down a bit from December. This appeared to calm some developing fears of inflation raining on the economic recovery parade. Housing starts also jumped up 14.6% in January, another encouraging piece of data; but building permits dropped 10.4%. The FOMC minutes were released this afternoon and didn't really contain any new information, so the markets didn't react. Concerns about the stability of the Middle East continue as the hot spot for this market; around noon, the report of Iranian war ships entering the Suez Canal caused some selling pressure. But the market shook that off and recovered to post gains for the day. It seemed to be another example of any dip bringing in the buyers for this market. SPX gained $8 to close at $1336. RUT also gained $8 to mark a new 52 week high at $828.
It is difficult to read the price charts for the overall market when you have to go back two and a half years to find the levels one might consider as resistance. SPX has been pretty consistently tracking along the upper edge of its Bollinger bands since early December - one more data point feeding the growing number of analysts expecting a correction. But the contrarians are often right on target - when everyone appears to be looking for a correction, the market may just continue higher. This underscores one of my personal investing principles. In both my directional trades and my delta neutral trades, I resist making bold price predictions. In my experience, that is very hard to do successfully. Take a current example: GS established a strong support level at $161 in late January. On 2/1/11, I sold the GS Feb 155/160 put spread on the premise that that support level was likely to hold even if we had a minor mishap (like the Egyptian riots). Contrast that position with buying an OTM call spread on AAPL, predicting its continued move upward. Everyone finds their own trading style, and mine is no better than another trader's - but it is important to find the style you find most comfortable and consistently apply it every day. Some traders are spinning their wheels searching for the Holy Grail or the "secret".
My March iron condors are in a reasonable position as time marches on. I tried to close the 690/700 puts today and take those gains, but wasn't able to get filled at a good price. If I treat these Mar options as a single position on RUT, the P/L = -$280, delta = -$192 and theta = +$249. Most of that negative delta is coming from the 860/870 call spreads; I will look for an opportunity to close those spreads as well as the 690/700 put spreads.
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Disappointing retail sales data caused the markets to open in the red this morning and, unlike recent trading sessions, the markets didn't recover from the doldrums. SPX lost $4 to close at $1328 and RUT closed at $820, down $6. Retail sales dropped 0.3% in January, but analysts were expecting a 0.5% increase. The New York Fed Empire Manufacturing survey reported 15.43 for February, up from January's 11.92. Trading volume increased modestly from yesterday but remained below average. 3.0 billion shares of the S&P 500 traded, up a bit from yesterday but still below the 50 dma of 3.4 billion shares. Volume on the NYSE was up 12% and was also up 4% on NASDAQ.
Today's minor pull back was helpful to my two March iron condors on the Russell 2000 Index. My RUT Mar condor at 690/700 and 875/885 stands at a P/L of +$620 with a
position delta = -$49 and position theta = +$92. My other Mar condor on
RUT at 730/740 and 860/870 stands at a P/L = +$320 and delta = -$85
and theta = +$133. FOMC minutes, housing starts and the PPI numbers are released tomorrow; these all have the potential to move the market, especially the PPI with all of the debate about the Fed's monetary policy and inflation.
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Mubarak's resignation boosted markets to new multi-year highs. SPX closed up $7 to $1329 while RUT closed at $822, up $9. RUT has not been at this level since October 2007. But trading volume dropped off from yesterday's highs. Trading in the S&P 500 dropped below the 50 dma to 3.3 billion; volume dropped by 7% on the NYSE and decreased 18% on NASDAQ. Volatility dropped to 15.7%, close to the lows of mid-January and late December. The bull market in equities has been fueled by the Fed and shifts of capital out of the bond market back into equities. The rise of commodity prices will eventually take its toll on corporate profits and eventually the FOMC will start to increase interest rates. But the street is littered with the bodies of traders who have tried to short this market. It is hard to argue with the logic of a correction being overdue, but so far this market just shrugs off bad news. Egypt is an excellent example; the situation in Egypt is far from resolved, but the market has continued to drive higher.
My Mar RUT iron condor stands at a P/L of +$260,with a position delta of -$59 and position theta = +$95. I established a second Mar condor for RUT earlier this week at 730/740 and 860/870, and that position now stands at break-even with delta = -$87 and theta = +$122. Both of these positions are beginning to be squeezed by this bull market. We'll see what next week brings.
Enjoy the weekend.
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Today was a slow day for economic data and the markets traded modestly higher on lower volume. All of the major indexes, except for the Dow, posted gains today. SPX closed at $1332, up $3 and the RUT tacked on $4 to close at $826. Both were new 52 week highs for these indexes. Trading volume was down from Friday with 2.9 billion shares of the S&P 500; volume dropped 14% on the NYSE and declined 5% on NASDAQ.
My RUT Mar condor at 690/700 and 875/885 stands at a P/L of +$300 with a position delta = -$70 and position theta = +$93. My other Mar condor on RUT at 730/740 and 860/870 stands at a P/L = -$160 and delta = -$104 and theta = +$127. I will need to reposition these condors soon if this market continues its trend higher.
Don't forget your Valentine...
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Trading volume jumped up significantly today, but the overall market averages didn't change too much by the end of the day. SPX opened up well into the red this morning, but recovered early and traded sideways for small losses throughout the day. Then, in the last 15 minutes, it barely broke into the black, closing up one dollar at $1322. RUT traded similarly, but moved back into positive territory this morning and stayed there all day, closing up $3 at $813. CSCO's disappointing earnings announcement last evening certainly didn't help the tech stocks today; trading on the NASDAQ was up 31%. Trading in the S&P 500 was also up significantly, jumping to 3.8 billion shares, well above the 50 dma. Trading volume was up 10% on the NYSE. News out of Egypt near the close of trading regarding Mubarak's continued role in the government created some volatility as the market closed and it is unclear how that may affect the open in the morning as that news is analyzed. News reports on the reaction of the Egyptian people will be a critical part of that analysis. It is hard to predict the effect on the markets.
Initial unemployment claims fell dramatically to 383k, down from last week's 419k and well below the expectations of 410k. Continuing unemployment claims also dropped to 3.88 million from last week's 3.93 million. But that positive news didn't appear to move the markets.
My Mar iron condor stands at a P/L of +$200, delta = -$43 and theta = +$94. The call spreads are greater than one standard deviation OTM and the put spreads are over two standard deviations OTM, so this condor is in a pretty good position.
