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The markets opened up slightly down this morning, but within a few minutes we were off to the races, with a final push during the last hour of the day. RUT closed at $665, up $15 while the SPX ran $12 to close at $1115. The SPX closed right at its 200 day moving average (dma). Many analysts see that as a key resistance level and will be watching to see if SPX can definitively push through that level tomorrow. A common recurring sign of late is the low trading volume in the markets on these bullish runs; today was no different. Trading on the NYSE was down 12% and basically flat on the NASDAQ (down 1%). Trading in the S&P 500 totaled 3.2 billion shares, down from yesterday and well below the 50 dma at 4.5 billion shares.
New home sales for June came in at 330k, up from 267k in May; this was higher than expected by analysts and appeared to stimulate the buying we saw today. The Euro was strong, and that probably helped as well. Personally, I am puzzled by this market; in my opinion, all of the negatives that were worrying this market a couple of weeks ago are still here: Euro sovereign debt, persistent high unemployment in the U.S., increasing U.S. debt levels, slow economic recovery, and at least a few signs of a possible double dip. But the market appears to have shrugged these concerns off.
Significant adjustments were necessary for my Aug iron condor today. I bought two Sept $680 calls at $17.49 (I should have bought these Friday but I was traveling; however, that is no excuse; I should have used a contingent order). I also closed and rolled half of my 680/690 call spreads to 705/715. This moved the Greeks for the position to a more acceptable level: delta = -$48 and theta = +$87. The delta of the short $680 calls = 38, so I will close and roll the remaining ten contracts if the market continues upward tomorrow. I also adjusted my RUT Aug 580/630/680 butterfly by buying an additional 680 call for $9.70; this keeps my position P/L below my 25% stop loss and flattens the immediate time decay curve so the losses will stay approximately constant up through about $675 on RUT (delta = -$6).
I am on vacation near Bath, Maine - some of the most beautiful ocean coastline I have ever seen! I was on a lobster boat this morning so I was late adjusting my condor. Fishing for lobsters is a tough business - no wimps allowed!
Watch the SPX to see if it can push past the 200 dma tomorrow. That will be a bullish sign, but it would also be nice to see a price increase with increased trading volume.
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I expected today to be a modest or even a bearish day in the markets with all eyes focused on the European bank stress tests. But I was wrong. RUT surged $15 to close at $651 while the SPX punched through the $1100 resistance level to close at $1103. However, as is common of late, the volume was disappointing. The S&P 500 stocks traded down from yesterday to just under 4 billion shares while trading on the NYSE was flat from yesterday. Trading on NASDAQ was up 9%.
Analysts were of mixed opinion on the rally's impetus. Some saw the Eurobank stress tests as positive news; other doubted the veracity of the tests. Some attributed the market's rise to strength in the Euro currency, driving the dollar down in relative terms.
I was on a plane or wandering through airports during much of the trading hours today and was unable to hedge my Aug iron condor. Consequently, it is in a precarious condition with delta = -$131 and theta = +$155; the delta of the $680 calls is up to 27, way past where it should have been hedged. I should have entered an order to buy the Sept hedges contingent on RUT breaking through $645, but I didn't - I broke my own rules of not predicting the market's future action. I was sure today would be a bearish day due to the Eurobank stress tests. Today's action on the SPX chart broke out of the bearish trend that had been prevalent since late April. Can the market hold this level? Given the low trading volumes, one has to wonder.
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The markets were trading sideways today until traders heard Bernanke's remarks to the Senate Banking Committee. To my mind, it wasn't surprising that he was unwilling to specify actions and a timeline for further monetary stimulus, or speculate on Fed actions given various scenarios for the economy. Bernanke and his predecessors have always been very careful with their words because they are keenly aware how much their words can move markets. But traders may have focused on Bernanke's assessment of the economic outlook as "uncertain", but that language was almost verbatim from the FOMC minutes.
RUT dropped $12 to close at $613 while the SPX gave up $14 to close at $1070. The SPX just barely pushed past the 50 dma at $1087 intraday before pulling back. You will recall that SPX stalled at the 50 dma in mid-July. This tentative, indecisive market action is good for my Aug iron condor on RUT, with a P/L of -$750, delta = -$14 and theta = +$125. All of our call and put spreads are now over one standard deviation OTM with 29 days to expiration.
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Traders appeared to realize they had overreacted to Bernanke's comments yesterday and the market rallied out of the gate this morning and traded pretty steadily higher all day. And this came in light of some fairly gloomy economic news. Initial unemployment claims rose by 37k, existing home sales dropped by 290k in June, and the Index of Leading Economic Indicators dropped 0.2%. All signs are pointing to a very slow economic recovery. But you wouldn't know that from today's markets: SPX blew through the 50 dma at $1085 to close at $1094, up $24 on the day. RUT ran up $23 to close at $635. But all of this action occurred on low volume. Trading volume on the NYSE dropped 4% while it was flat on NASDAQ. Trading in the S&P 500 stocks came in flat from yesterday at 4 billion shares, below the 50 dma. So SPX's breakout above the 50 dma remains to be proven as a true breakout.
My Aug condor is nearing an adjustment if this rally continues; the theta/delta ratio is dropping (delta = -$75 and theta = +$128) and the delta of the short $680 calls hit 18. I initiated an iron butterfly on RUT today at $580/$630/$680 (two contracts for a $6,380 credit). This trade won't be included in the blog trading record since that is focused on iron condors, but I will track the progress in this blog.
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Disappointing earnings reports from IBM and TXN resulted in large negative market futures this morning and the markets traded steeply downward after the open, but then slowly recovered and posted impressive gains by the end of the day. RUT gained $11 to close at $624 while the SPX closed up $12 at $1083. Trading volume was up today, rising 16% on the NYSE and 13% on NASDAQ; the S&P 500 stocks traded up to 4 billion shares, but still below the 50 dma. Today's action has the SPX approaching its 50 dma at $1089; this proved to be formidable resistance a few days ago. We will see if SPX can break through this time. Given the market's reaction to the earnings reports to date, that seems unlikely.
My Aug iron condor at 510/520, 550/560, and 680/690 stands at a P/L of -$1190, delta = -$44 and theta = +$139. The market's indecision is giving our theta time to work in our position's favor. VIX dropped again today (under 24%) and this will also work in our position's favor. Can SPX break through $1089 or are we in a bearish down trend that began in late April?
