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The markets opened strongly up this morning in spite of a disappointing ADP jobs report of a loss of 10,000 jobs. The August ISM Manufacturing Index reported out at 10 am and surprised traders with a value of 56.3 for July, up from 55.5 for June. This fueled the market's rise for the balance of the day. Undoubtedly, the market's strong rise this morning was fueled by traders covering their short positions, but it was a surprisingly strong day for the markets. The major indexes closed at or near their highs for the day. SPX bumped up against the 50 dma at $1081 and closed at $1080, up $31. RUT ran up $23 to close at $625, near its 50 dma at $628. Trading volume was down a bit from yesterday, with a 7% decline on the NYSE and a 3% increase on NASDAQ. The S&P 500 stocks traded 3.9 billion shares, slightly down from yesterday but still above the 50 dma.
Both RUT and SPX convincingly broke out of the trading ranges of the past several days; if SPX can break through its 50 dma at $1081, the next resistance level will be $1100. RUT's next strong resistance level is in the area of $640 to $645.My Sept RUT condor is strongly positioned with a P/L of +$1,950 with position delta = +$16 and position theta = +$94. The "sweet spot" for this condor is around $640; both spreads are now greater than two standard deviations OTM with 15 days to go. The Oct condor is being stressed by this large upward move. It stands at a P/L of -$280 with position delta = -$56 and position theta = +$90. The delta of the $690 call is up to 14. The reduction in the theta/delta ratio shows the weakening of this position as RUT rallies. It will be telling if the traders open the day taking profits tomorrow, as has been typical of recent rallies. And, of course, the bogeyman of the unemployment report is lurking around the corner.
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Watching today's market reminded me of Shakespeare's quote. The markets opened down, then recovered and chopped sideways until weakening after the FOMC minutes were released. Then the markets recovered to close essentially unchanged for the day. SPX closed unchanged at $1049 after trading as low as $1041 and as high as $1055. RUT, in a similar pattern closed unchanged at $602. Even more surprising is that all of this thrashing back and forth occurred on a large surge in trading volume - just when we thought everyone had left for the weekend. The S&P 500 stocks traded 3.7 billion shares, right at its 50 dma. Trading volume on the NYSE was up 54% and up 30% on NASDAQ.
This morning's market reacted to the plunging Chicago PMI at 56.7, the lowest reading since last November but then was encouraged by the Consumer Confidence numbers increasing to 53.5 from last month's 51. More positive news came from the 4.2% increase in housing prices from the Case Schiller Housing Price Index. Just after the FOMC minutes were released, the market didn't appear to have much of a reaction. But then the markets sold off pretty hard but recovered before the close. Apparently, reading some of the FOMC committee's comments wasn't really news, but it reinforced a sobering view of the economy. RUT is almost exactly in the middle of the $588 - $617 trading range it has established recently. SPX tested support at $1040.
My Sept iron condor sits at a P/L of +$1,290, delta = +$44 and theta = +$106 and the Oct iron condor has a P/L of +$40 (essentially breakeven), with delta = -$22 with delta = +$91. Both trades are well positioned with strong theta/delta ratios. As long as we trade within the range of the past few weeks, these trades should remain strong. However, this market is still a very volatile, tricky market; it could fall off the edge at any moment. Watch your positions carefully.
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The markets appeared encouraged initially this morning after seeing that the report of initial unemployment claims wasn't as high as expected (came in at 473k, down from last week's 504k). But that didn't last. The Federal Reserve bank at Kansas City reported stalled manufacturing activity in their district. Whether it was that news or just continued double dip fears, the markets traded off the rest of the day, closing near the day's lows. The SPX closed at $1047, down $8, while RUT traded down $5 to $600. Trading volume also declined 20% on the NYSE and dropped 10% on NASDAQ. Trading in the S&P 500 stocks declined to 3.3 billion shares. Both RUT and SPX appear to be building strong support levels, but it would be premature to take this as bullish. The double dip could still be lurking out there.
My Sept condor stands at a P/L of +$490, position delta = +$54 and position theta = +$102; the freshly minted Oct position stands at a P/L of -$460, delta = -$17 and theta = +$84. The theta/delta ratios of both positions are strong and both positions have ample safety margin at this point.
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Friday's gains were slowly but surely taken back in a light volume trading day. Trading volume may continue to drop as we near the holiday weekend. Trading on the NYSE and the NASDAQ were both off 26% today. Trading in the S&P 500 stocks dropped dramatically to 2.6 billion shares from Friday's 3.7 billion shares. The broad indexes all closed at or near session lows; SPX dropped $16 to close at $1049, but still well above support at $1040. RUT also traded off to close at $602, down $15, but still above support at $588. I have pointed out support because I believe the market is caught in a trading range that will probably last through the holiday weekend; if SPX breaks $1040, then we are in trouble. Personal income was reported to have risen 0.2% while personal spending rose 0.4% and the PCE price index rose 0.1%. So the economic data wasn't the problem. Perhaps the traders are in a "wait and see" mode until after Labor Day.
In the meantime, my Sept and Oct condors are well positioned. The Sept iron condor on RUT stands at a P/L of +$950, delta = +$53 and theta = +$112, while Oct stands at a P/L of +$240, delta = -$20 and theta = +$78. Trading ranges are good for condors! Time decay continues while we wait for the market to find its direction.
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Today began with a heavy dose of disappointing economic data: new home sales fell 12.4%, durable goods orders only increased 0.3% (analysts expected 3%), and Standard and Poors downgraded Ireland's debt. That sent the major indexes tumbling, but, surprisingly, the drop was short-lived. The markets recovered all of the drop and closed with reasonable gains. The SPX dropped as low as $1040 before rebounding to gain $3, closing at $1055. RUT dipped to $589 again today, reinforcing that support level. Then RUT recovered its losses and closed up $9 at $605. Trading volume decreased across the board with a 4% drop on the NYSE, and a 5% drop on NASDAQ. The S&P 500 stocks traded down to 3.7 billion shares, just below the 50 dma.
After watching RUT rebound off strong support at $589 for the second day, I decided to open my Oct RUT iron condors today at 480/490 and 690/700 for a credit of $2,900 (20 contracts). The Sept position at 530/540 and 740/750 stands at a P/L of +$690 with position delta = +$50 and position theta = +$91. Today's rise of RUT moved my theta/delta ratio back to a more healthy value.
Today's recovery was encouraging, but one has to temper that with the decreased trading volume.
