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The markets opened strong this morning and steadily traded upward all day. The RUT and SPX have both reached critical areas on their respective price charts. SPX broke through the 200 day moving average (dma) at $1108 and closed at $1115. During much of May, the SPX traded in the range of $1100 to $1175. Today's close places the SPX right at the bottom of that range; tomorrow's price action will show whether it has truly entered a new trading range or whether it pulls back into the range of $1040 to $1105 of the past few weeks. The RUT chart is somewhat different in that RUT is well above its 200 dma at $634 and it has not yet broken out of its current range of $615 to $670. But RUT is similar to SPX in that it is sitting at the edge of the trading range - will it break out or pull back?
Trading volume continues to be rather weak and this does not bode well for a continued advance. Trading volume was up 2% on the NYSE and up 18% on NASDAQ, but the S&P 500 stocks traded about 3.8 billion shares, well below the 50 dma of 5 billion shares. I interpret this as a lack of conviction by the broad market that this rally has legs.
In the meantime, my condor positions are in excellent shape. The June 590/600 and 710/720 RUT iron condor stands at a P/L of +$1,096, delta = -$20 and theta = +$285. Normally, I wouldn't be in a condor position during expiration week, but the extreme volatility of the past few weeks has forced me to leave this trade open to salvage a gain. The put spreads are well outside of two standard deviations and the calls are just inside of two standard deviations, so this trade is well positioned.
My July 520/530 and 750/760 condor stands at a P/L of +$1540, delta =
-$26 and theta = +$88. This position is in excellent shape; if this rally continues, I will consider closing this position to lock in our current gains.
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Sorry to be late with the blog, but my web site had some back room
problems this afternoon and I could not get into the admin pages.
This morning the SPX appeared determined to
break through the 200 day moving average at $1108, but just fell short
at $1106. From about noon on, the markets slowly traded downward, giving
back virtually all of the early gains. RUT was unique among the major
indexes in that it retained some positive gains, closing up $3 at $652.
SPX traded up to $1106 and then gave it all back, closing down $2 at
$1090. Moody's downgraded Greece debt this afternoon and that didn't
help, but the market was already trading down. Trading volume remains
low, which argues against the substance of any possible bullish
break-out like this morning's run upward. Trading volume was up 10% on
the NYSE, but flat on NASDAQ and also flat on the S&P 500 stocks. The market appears to be holding in this basing pattern.
My iron condor positions are sitting pretty with the June iron
condors on RUT standing at a P/L of +$756 with position delta = +$16 and
theta = +$368. The July position stands at a P/L of +$1,180 with
position delta = -$5 and theta = +$96. But I expect today's market
volatility will continue this week, so it would be a mistake to assume
these trades are safe.
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The markets opened up strong this morning and steadily rose throughout the day, with the major indexes closing at their intraday highs. Strong China export data may have helped shift the mood and the unemployment data showed modest improvement. Initial unemployment claims came in at 456k, down three thousand from last week, and continuing unemployment claims were 4.462 million versus the previous revised figure of 4.717 million. But this data takes on a different look if you graph the trend; initial unemployment claims peaked in March of last year, slowly declined to November and have been basically drifting sideways in the range of 440k to 460k since then. RUT closed at its high for the day at $640, a gain of $22. SPX also closed at its high for the day at $1087, a gain of $31. However, trading volume declined 14% on the NYSE and dropped 5% on NASDAQ. Trading in the S&P 500 fell back below the 50 day moving average to 4.2 billion shares.
My June iron condor on RUT at 590/600 and 710/720 stands at a net loss of $1544 with position delta = +$93 and position theta = +$326. This position still retains a profit potential of about $1300 if the RUT continues to trade in this sideways consolidation range. The July iron condor on RUT at 520/530 and 750/760 is now nearly perfectly delta neutral with a net gain of $700, position delta = +$2 and position theta = +$90. Today's strong gains on lower volume appear to support the postulate of the markets trading in a consolidation or basing pattern. For the SPX, that range is $1040 to $1107. For RUT, that range is larger, from about $607 to $670. A break-out to the downside on increased volume would signal a new bear market, while a break-out to the upside on increased volume would signal the end of the bull market correction. In the meantime, we may continue to see these large swings back and forth.
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The markets traded up again today on conflicting economic news, and the major indexes closed at the their highs for the day, just like yesterday. This action would normally be seen as very bullish, but trading volume dropped dramatically today with a 22% drop on the NYSE and a 16% drop on NASDAQ. Only 3.5 billion shares of the S&P 500 stocks traded today, down from 4.2 billion yesterday and well below the 50 day moving average at five billion shares. This makes me wonder about the strength of this rally. Economic news was mixed with retail sales disappointing by dropping 1.2%, but the University of
Michigan Consumer Confidence Survey came in at a two year high.
RUT closed up $9 at $649 while the SPX closed at $1092, for a gain of $5. Both indexes are now just above the midpoints of their recent consolidation ranges. Today's rally in RUT pushed both my June and July iron condors into positive territory. The June position now stands at a P/L of +$256 with position delta of +$50 and theta = +$247; July stands at a P/L of +$1140 with position delta of +$6 and theta = +$78. So now we wait to see what Monday brings; this market is very susceptible to headline risk at this point. So the weekend could bring some surprises. The decreasing trading volume of the last two days concerns me; this seems like a rally that lacks conviction.
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Yesterday's bullish close at the day's highs seemed surprising, but today's sell off into the close was all too familiar. From about noon on, the markets steadily traded lower. The Beige Book didn't seem to affect the market one way or the other. RUT ran as high as $632 before falling to a close at $618, up less than a dollar for the day. SPX also traded up in the morning to $1078 but then gave up all of its gains to close down $6 at $1056. This is the low previously set in February this year and touched again on May 21. Will it bounce off that support level? Today's trading action was certainly bearish in tone; when the market can't hold its highs, it is a bad sign. But yesterday's trading patterns were bullish, so perhaps this is the look of a sideways consolidating trading pattern - some analysts would call it building a base. Trading volume dropped across the board, with a 3% drop on the NYSE and a 14% decrease on NASDAQ; the S&P 500 stocks dropped to five billion shares traded, right at the 50 day moving average.
I removed the July hedges on my June condor this morning, and the sell off this afternoon pushed this position back to a weak spot with a position delta of+$126 and position theta of +$307; the theta/delta ratio is strong, but that large delta translates to large price risk with further drops in RUT. The July iron condor on RUT moved into the black with the drop in IV and stands at a position delta of +$27 and position theta of +$72. So July is doing well but June is teetering on the edge.
