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The jobs report this morning set a negative tone for the markets that snowballed as the day worn on. About 431k new jobs were reported, but 411k of those were temporary census workers. The unemployment rate dropped a bit to 9.7%, a reduction of 0.1% but the data probably isn't sufficiently precise to claim this represented a reduction. RUT dropped $33 to close at $634, near the low closes last week and just above the 200 day moving average (dma) at $632. SPX closed at $1065, down $38. Trading volume jumped up with a 28% raise on the NYSE, and a 7% raise on NASDAQ. The S&P 500 stocks traded over 5.3 billion shares - an increase of over a billion shares.
Today's downward move was a little too much for my June condor but positioned the July condor nearly perfectly. The June position now stands at a P/L of -$2500, delta = +$63 and theta = +$203. Today's jump in volatility is principally responsible for the increased red ink in the June position (condors are negative vega positions). July stands at a P/L of -$100, delta = +$11, and theta = +$76.
Today's market action took us back to the bottom of the trading range of the past eleven trading sessions. Will we break through to new lows or bounce off support? We'll see on Monday.
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The markets appeared to be seeking direction today, trading in choppy fashion up, down and up again. RUT preserved most of its intraday gains and closed at $667, an increase of $7. SPX gained $4 to close at $1103. Trading volume was basically flat with a 6% decrease on the NYSE and a 2% increase on NASDAQ. Trading volume on the S&P 500 stocks was flat. Traders are focused on tomorrow's unemployment report; a preview was today's ADP payroll report with an increase of 55k jobs, which encouraged traders. Initial unemployment claims dropped about 10k while continuing unemployment claims increased slightly to $4.666 million. The commercial office vacancy rate fell for the first time since the third quarter of 2007. The VIX dropped to just below 30%, encouraging some traders to believe the worst is behind us. All of this economic data can be interpreted as support for the economic recovery, but all attention is now focused on unemployment, the last major economic indicator to show improvement. The market's reaction to the unemployment report is likely to be volatile.
Time decay is having more impact on the June RUT iron condor position. The P/L has improved to -$1700 with a position delta of -$63 and position theta = +$289. The July iron condor stands at a P/L of +$700 with delta = -$24 and theta = +$71. Now we focus on the unemployment report.
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The markets traded downward this morning but then recovered and traded choppily up and down the rest of the day until the last hour of trading, when the market sold off strongly and closed at new lows for the day. RUT closed at $641, down $20 after trading as high as $663 this morning. The SPX behaved in a similar pattern, closing down $19 at $1071, after trading as high as $1095 this morning. We are surprisingly close to the intraday "flash crash" low set at $1066 May 6. The most common explanation for the sell-off was the Attorney General's announcement of a criminal investigation into the Gulf oil spill. That certainly should affect energy stocks but it isn't clear to me why that should cause a broad based sell-off in the markets. This is one more example of the extreme nervousness and volatility characteristic of this market. Favorable economic news boosted stocks this morning; construction spending was up 2.7% and the Institute for Supply Management index came in at 59.7 for May, greater than expected by the analysts. Trading volume was essentially flat with a 4% increase on the NYSE and a 3% increase on NASDAQ. The S&P 500 stocks traded 4.2 billion shares, flat from yesterday and below the 50 day moving average.
Our markets strike me as behaving in classic day trader fashion with the frequent late-day sell-offs. Day traders close all of their positions at the end of the day to avoid any overnight risk exposure. In similar fashion, traders may be taking money off the table to avoid any overnight announcements or events from Europe, Israel, North Korea, etc.
My June RUT condor now stands at a P/L of -$2100, delta = -$7 and theta = +$233. So the greeks for this position look good, but the volatility of this market is a constant threat. My July condor actually sits in the black with a P/L of +$380, delta = -$22, theta = +$72. Now we wait to see if this market rebounds or follows through to the downside in the morning.
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The markets opened in positive territory this morning and traded gradually upward until about 2:30 ET, when the exact opposite of yesterday's market action occurred - a strong rally to close at the highs of the day. RUT closed at $661, up nearly $20 and the SPX ran $28 to close at $1098. The S&P 500 traded at a slightly decreased volume from yesterday at about 4 billion shares (below the 50 dma). Trading was down 7% on the NYSE and was flat on NASDAQ. This strong performance on the U.S. markets came after weak performances in Asian and European markets. Pending home sales data may have helped set a positive mood. Pending home sales for April are up 6% from March, and up 25% from April of last year.
So the extreme back and forth swings of this market continue. It is probably more profitable right now to be selling antacids than trading. My condors are in pretty good shape at this point with the June RUT 590/600 and 710/720 iron condor underwater by $2200 with position delta = -$17 and position theta = +$285, so this position is nearly delta neutral but is building some large positive theta decay. The July RUT 520/530 and 750/760 iron condor stands at a P/L of -$240, position delta = -$21 and position theta = +$95, so this position is also very delta neutral and the theta/delta ratio is strong at over four to one.
If you are a delta neutral trader, this market is probably causing you a serious case of self-doubt. But hang in there. The probabilities are on your side. If you decide to sit out July because June went badly, and then July looks like it would have been profitable if you had been in the trade, what will you do? A delta neutral trader must trade every month and must control his losses in the bad months. Predicting the direction and volatility of the markets is very difficult at best. Trading delta neutral is the alternative approach to the crystal ball.
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The holiday weekend began early for many traders; volume was light in the markets today. Trading was generally sideways and downward with many traders taking off some positions rather than be exposed to surprising news over the long weekend. SPX closed down $14 at $1089 after bouncing off $1085 late in the day. That makes $1085 a "early warning" trip wire on Tuesday. RUT ran down $9 to close at $662.
Today's pullback eased my condors into a better position with June's greeks at a position delta of -$75 and theta = +$201. With about three weeks to go, theta is starting to build in the June position. The July condor is roughly at breakeven with delta = -$35 and theta = +$78.
Those of you who watch Fast Money on CNBC listened to Dennis Gartman of The Gartman Letter discuss this market last evening and say he has never seen anything like these wild swings back and forth in over 35 years of trading. Check out his newsletter; he is well known among hedge fund and institutional traders. Hopefully, the craziness is over, but only time will tell.
Have a restful and thankful holiday weekend.
