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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1969
Today was a slow day in the markets with no significant economic reports as traders waited on Alcoa's earnings announcement after the close. RUT opened, traded down and then basically sideways the rest of the day, closing at $622, down $8. The SPX behaved similarly, but slowly recovered its losses, closing at $1079, up less than a dollar. Trading volume remained anemic with a 2% decline on the NYSE, but a 11% increase on NASDAQ. The S&P 500 stocks traded even below Friday's 3 billion shares. The 50 day moving average is about 4.8 billion shares. As you probably know, Alcoa beat expectations and has traded up after the close. My guess would be that this will drive the market somewhat higher tomorrow. The remaining risk would be any pessimistic comments during the conference call regarding future growth. Alcoa receives a lot of attention because its products are crucial to much of the industrial economy; if the economy is beginning to pause, Alcoa should be an early indicator.
Today's weakness in RUT was helpful to my Aug iron condor that now stands at a P/L of -$1980, position delta = -$55 and position theta = +$124. The delta of the $680 calls pulled back to 16. So we have begun the earnings season with the market feeling very nervous, so surprises could occur at any time and push this market over the edge. Analysts are especially focused on the guidance being presented by companies due to fear of a possible "double dip" in the economy.
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The markets tacked on another bullish day today, although much of it was added in the last hour of trading. However, the trading volume made record lows for the year. Trading on the NYSE dropped 25% and trading on the NASDAQ dropped 23%. Trading in the S&P 500 stocks was under three billion shares today. You have to go back to the first trading day of the year (traditionally a low volume day) to find a lower S&P trading volume day. This extremely low volume makes me leery of declaring that the worst is over, etc. The big players have not fully endorsed this move up as yet. Any disappointing earnings reports over the next week or two could trip this market very easily (Alcoa is Monday after the close). Be cautious.
My Aug iron condor on RUT is starting to get squeezed on the top side. The delta of the short 680 calls hit 19 today. The position delta stands at -$61 and theta = +$106. The theta/delta ratio is dropping, but still in a good range. If the run higher continues, this position will have to be adjusted.
Have a great weekend.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1939
I am running out of superlatives to describe recent market action. It seems like traders are being jerked back and forth nearly every day. It reminds me of Greek mythology where the Gods toy with the humans - the market Gods are having fun with us. No significant economic news came out today to justify this huge run. In fact, the talking heads on CNBC were having a hard time explaining the move today. Perhaps the absence of bad news was sufficient motivation for traders. Trading volume was light today with a 1% decline on the NYSE and a 3% rise on the NASDAQ. The S&P 500 stocks traded 4 billion shares, flat with yesterday and well below the 50 day moving average.
SPX closed at $1060, up $32, while RUT ran $22 to close at $612. Big moves on light volume shouldn't be trusted so beware of tomorrow's market; don't just blindly start going long. It would not be surprising to see some of today's gains given back. I will be watching to see if SPX can close above the critical $1042 resistance level that was broken today. Closing above $1042 for a couple of sessions will offer some reassurance that a bottom has been reached.
I rolled the 730/740 call spreads of my RUT Aug iron condor down to 680/690 this morning. The put spreads are split between 510/520 and 550/560. At the close today, this position is well positioned with a position delta = -$14 and position theta = +$93.
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As noted in my blog yesterday, I was concerned whether the major indexes could hold as support the resistance levels they broke yesterday, e.g., $1042 on SPX. Well, they did better than that, they closed above yesterday's closing prices. SPX closed at $1070, up $10 after trading as low as $1058, well above the strong resistance level of $1042 that was broken yesterday. RUT closed at $620, up $9. RUT traded down to $612, which was yesterday's close, but then rallied to close at $620. So the DJIA, SPX, and the RUT all traded down and tested yesterday's closing prices before trading higher today. All of this price action was very bullish and supports the idea of a bottom on the correction having been reached. However, it was on even lower volume than yesterday; trading on the NYSE was down 8% and trading was down 5% on the NASDAQ. Less than 4 billion shares of the S&P 500 stocks traded today, down from yesterday and well below the 50 day moving average, which is just below 5 billion shares.
A reduction in the number of initial unemployment claims cheered the market; the numbers came in at 454k this week, down from 475k last week. Similarly, the number of continuing claims dropped by 230k to 4.41 million. However, it is difficult to know how many of those 230k are now employed or whether they simply ran out of benefits.
My Aug condor is pretty much unchanged from yesterday with a P/L of -$1720, delta = -$37, and theta = +$97. The theta/delta ratio is high and the current value of the index is close to equidistant from the OTM call and put spreads. The price action of the past few days may have you looking for bullish trades, but beware of the low trading volume. This market is still dangerous.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1921
The markets opened up pretty strongly this morning, but soon lost their momentum and started selling off. However, the Russell 2000 Index (RUT) stood out from the pack today and just continued to sell off all afternoon. It was the only major index to post a loss for the day. RUT closed down $9 to close at $590, matching the intraday low set last Thursday. SPX traded up and tested resistance at $1042 before retreating to close at $1028, a gain of $5. The price action of RUT and SPX over the past three sessions appears to be establishing a bottom for the correction. The volatility index (VIX) ran up earlier in the day but ended the day essentially unchanged at 30%. The ISM Services Index reported out at 53.8, down from last month's 55.4; economists expected a drop, but not quite that much. That report, at 10 am ET, appeared to start the slow sell off in the markets. Trading volume was mixed; it was 18% higher on the NYSE and 29% higher on NASDAQ, but the S&P 500 stocks only traded 4 billion shares, well below the 50 day moving average.
The strong market action this morning prompted me to remove the Sept put hedges on my Aug RUT condor and I re-established half of my put spread position down at 510/520. As it turned out, it would have been nice to have had those Sept puts in place, but I didn't see the sell-off coming. My condor's position delta and theta are now similar at +$58 and +$41, respectively. When the delta and theta of your position are similar, you are in a weak position and either a market move or an adjustment is imminent. So I will be watching to see if RUT breaks through support at $590 and SPX breaks through support at $1010. If those support levels are broken, we may be seeing the beginning of a bear market trend rather than a bull correction.
