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When SPX dropped below $1200 this morning, I started to take the weakness of the past few days seriously. It traded as low as $1194 before strengthening a bit to close at $1199, off $14. RUT lost $12 to close at $719. The weak market began this morning with concerns that China would raise interest rates to combat inflation; that sent China's markets down and the fear spread across to us. The dollar actually traded down today, but that was ignored by the markets as was the improved consumer sentiment report from the University of Michigan. Trading volume was generally flat; 3.6 billion shares of the S&P 500 stocks traded, which is just above the 50 dma and down slightly from yesterday. Trading volume on the NYSE was up 8%, but was down 17% on NASDAQ. The fact that SPX didn't plunge through $1200 on increased volume is a positive sign, but we'll see what Monday brings. It appears that the sovereign debt worries are taking center stage again. The bullish effects of QE II appear to be forgotten; or one could argue that was already priced in with the early November rise in the markets. In any case, it is a little early to panic; we were overdue for some type of correction. I closed one of my aggressive long trades today (a Dec 310/320 risk reversal on AAPL) but otherwise have left my other long positions as is.
I closed the 770/780 call spreads in my Nov condor since those call spreads were less than two standard deviations OTM; I will allow the put spreads to expire worthless. The Dec condor stands at a P/L of +$320, delta = +$19, and theta = +$106.
Have a great weekend.
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Cisco's poor earnings announcement and cautionary outlook set the market back today, but the bulls didn't turn and run. The major indexes made steady improvements throughout the day. SPX was down as low as $1204 but closed at $1214, down $5. RUT behaved similarly, closing down $3 at $732. Trading volume was mixed with an increase in trading the S&P 500 stocks to 3.7 billion shares, a 13% decrease on NYSE, but a 33% increase in trading on NASDAQ (probably an artifact of the Cisco debacle). There were no economic data reports of any consequence today, so everyone focused on Cisco.
My iron condors on RUT in November and December are pretty much unchanged. The Greeks of the Nov position are pretty good with delta = -$52 and theta = +$130. The Dec condor is in excellent shape with delta = -$19 and theta = +$109. In spite of the pull back in the markets the last couple of days, I still see signs of a strong bullish sentiment among the traders. A common pattern of trading recently has been a weak open, followed by a slow recovery of much of the initial losses. So we may be correcting a bit, but the market's bias appears to be toward the upside. The bulls are still buying any pullbacks.
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Strengthening of the dollar began yesterday and continued today. This pulled all of the major market indexes back a bit, although some buyers appeared in the last few minutes to recover some of the losses. SPX closed down $10 at $1213 and RUT lost $11 to close at $726. Trading volume was generally up, but trading in the S&P 500 stocks was flat from yesterday and remains below the 50 dma. However, trading on the NYSE increased 22% and also increased 22% on NASDAQ.
My Nov condor continues its underwater journey with delta = -$24 and theta = +$80. I rolled the put spreads up on the Dec condor to better position its Greeks with delta = +$4 and theta = +$111.
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It is dangerous to short this market. After yesterday's weakness, the markets opened lower this morning in spite of an improved unemployment claims report. One might have been tempted to go short. After all, I read everywhere that a correction is imminent. But the weakness was short lived; by noon the market was back in positive territory, headed for gains on the day. SPX closed at $1219, up $5 and RUT was even stronger, rising $9 to close at $735. Trading volume was flat to down with 3.5 billion shares of the S&P 500 stocks changing hands (right at the 50 dma). Trading volume on the NYSE was down 2% and volume was down 9% on NASDAQ. Initial unemployment claims came in at 435k, down 24k from last week and continuing claims dropped 90k to 4.3 million. This wasn't a great report, but it is starting to show a slow, but steady improvement. As data of slow improvement continues to accumulate and the Fed continues their QE II, it is hard to bet against the bulls.
Not much is changed for my condor positions. The Nov condor is slowly trimming its losses as time decay kicks in. The Dec condor is very well positioned with delta = -$19 and theta = +109. Next week, I am going out to Las Vegas for the Traders Expo; I hope to see you there. If you can't make the trip, my talk will be webcast.
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Today was a slow day for economic reports or other market moving news. That combined with a stronger dollar held the bulls in check. The markets opened in negative territory and chopped sideways all day. SPX never fully recovered, closing down $3 at $1223. RUT recovered its losses and closed unchanged at $737. Trading volume reflected the malaise with a decline across the board. The S&P 500 stocks traded 3.2 billion shares, below its 50 dma. Trading volume declined 28% on the NYSE and dropped 14% on NASDAQ. But the underlying bullish strength was revealed in that bears were unable to create a sell-off; it was basically an even match between the bulls and the bears today. So while the bulls may be resting, they have not left the table.
My Nov condor sits at a delta = -$105 and theta = +$254. That large theta will continue to reduce the loss in this position, but it will be a loser for the month. The Dec condor sits at a delta = +$73 and theta = +$73, so the theta/delta ratio is a bit weak. However, the delta of the $780 calls is only 15. The put spreads are about 2.5 standard deviations OTM, so I may consider rolling them up this week.
