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Normally, traders would be euphoric after a bullish day like today, but the nervousness still overhangs the market. In my own accounts, I closed some bullish trades for nice gains that should, in more rational times, be expected to continue on for more profits, but I decided to take my money off the table and wait and see what tomorrow brings. On the other hand, in my delta neutral trading, I sold the June 710/720 call spreads today to complete the June 590/600 and 710/720 iron condor on RUT and also established my July 520/530 and 750/760 iron condor on RUT before the holiday weekend. June's greeks stand at a position delta of -$68 and theta = +$135 while the freshly minted July position stands at a delta of -$38 and theta = +$80.
Today's strong open and steady gains throughout the day began with China denying the rumors from yesterday about reconsidering their Euro debt holdings. This fueled increases in the European markets, strengthened the Euro and set the stage for the US markets. Initial unemployment claims declined by 14k to 460k and continuing claims dropped almost 30k to 4.607 million. GDP grew 3% in the first quarter and while this was less than the 5.6% growth in the fourth quarter, analysts regarded this as more good news supporting an economic recovery, albeit a slow one. RUT ran up $28 to close at $671 and the SPX closed at $1103, up $35. Both indexes closed at their highs for the day - a rather bullish indicator. After the recent volatility, one might have expected some profit taking after such a strong move upward, but it didn't happen. Trading volume declined with a drop of 23% on NYSE and a 3% increase on NASDAQ. Trading in the S&P 500 stocks dropped below the 50 day moving average to about 4.5 billion shares.
So, now what? Will traders take money off the table before the holiday weekend? We'll see. As yesterday demonstrated, it only takes a rumor to bring this market down in a hurry.
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High volatility continued today with the major indexes gapping up at the open and climbing from there before selling off in the late afternoon. An unexpected boost of 15% in April's new home sales and a 2.9% increase in durable goods orders helped fuel the early optimism. Many attribute the sell-off to a Financial Times article suggesting China is considering lightening their substantial Euro holdings, driving the Euro lower late in the day. RUT held up better than the other indexes, closing up $3 at $643 while the SPX dropped $6 to close at $1068. Trading volume was down at the major exchanges with a 9% decline on the NYSE and a 7% decline on NASDAQ; but the S&P 500 traded almost 6 billion shares, near yesterday's high levels. Today's trading action just reinforced the nervousness we have seen on the trading floors so often of late.
Today's candlestick on the SPX chart was the classic shooting star, a common reversal signal when it occurs at the top of a bullish trend; SPX is certainly not in a bullish trend, but it is disconcerting that the buyers who took the markets up early in the day could not hold those highs. So today's trading action may not be an indication of a further leg downward, but it does suggest we may have difficulty resuming a bullish trend anytime soon.
I sold the RUT June 590/600 put spreads this morning to begin to recreate my June iron condor. But the late day trading reversal certainly worries me after establishing that position. We'll see what the market brings tomorrow.
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The markets opened up a bit this morning but then just chopped up and down, largely sideways through most of the day. But the traders sold off in the last few minutes, perhaps taking some of their positions off the table to reduce exposure to the markets in the morning. Most European markets were closed today, so there is some concern about how they will trade tomorrow. If the European markets trade downward, they will probably carry the US markets with them. RUT closed down $8 at $641 and the SPX lost $14 to close at $1074. Trading volumes dropped off from Friday; the NYSE was down 44%, and NASDAQ was flat. The S&P 500 stocks traded down to about 4.2 billion shares, below the 50 day moving average.
Existing home sales jumped up more than expected with a 7.6% increase in April, presumably due to the Federal buyer's credit offered through April 30. But the number of existing homes for sale rose to the highest level since July, 2009. That will pressure sales prices downward. A few weeks ago, the focus on this news would have been the positive spin of the surprising increase in sales; but in today's market, the focus is on how this large inventory will depress sales prices and create more foreclosures. The mood in the markets has dramatically shifted.
I tried to add new call spreads to my June condor position today, but missed the opportunity as the market just traded down in the late afternoon. So I bought some July $650 puts at the close to hedge against a gap downward tomorrow morning. Now we wait and see what happens in Europe.
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The level of volatility in recent markets is unprecedented. Today was one more example: we opened sharply down and traded further downward; the markets were in near panic. Then it stabilized and slowly but surely traded upward all afternoon to close nearly flat on the day - Holy Cow! RUT traded as low as $618 but closed the session at $641, down $1.19 on the day. SPX traded down to $1041 before retracing the losses and closing at $1074, a gain of $0.38 on the day. The $1041 low on SPX was close to the lows set last November, while RUT broke through the support level formed by its double top last fall. The trading pattern on both indexes displayed the classic hammer candlestick pattern with a long lower shadow and little or no upper shadow. This would be considered a reversal pattern to those who study candlesticks and I might also interpret it that way normally. But these are not normal times. I'm not sure what technical indicators can be trusted. This may be the bottom of this correction, but beware. As you might expect, trading volume jumped up significantly today with a 44% increase on the NYSE, and a 39% increase on NASDAQ. The S&P 500 stocks traded six billion shares, way above the 50 day moving average around 4.3 billion.
My stop loss orders triggered on my June RUT condors this morning; then after the market appeared to be stabilizing, I sold my July $650 puts. That helped mitigate my losses, but I am still underwater. Now the crucial question: should I attempt to re-position my June condor spreads or just wait on the sidelines? The futures are up a bit right now...
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Just before the open this morning, the futures were deep in the red and trading started fast and furious downward. It appeared to be a continuation of yesterday's flight to cash. SPX broke through the lows set on May 6 ($1065) and even the low set in February at $1057 before rebounding as high as $1090. The markets staged a strong rally into the close in the last twenty minutes - a bullish sign going into a weekend when you might expect caution to rule. RUT closed at $649, up $9 and SPX rose $16 to close at $1088. Financial stocks led the market's gains, based on both the German Parliament approving the Greece bailout plan as well as the US Senate's passing of a financial reform bill, removing some of the associated uncertainty. Trading volume was high, but not too much higher than yesterday with a 10% increase on the NYSE and flat on NASDAQ; over 7 billion shares of the S&P 500 stocks traded today, slightly up from yesterday.
A piercing candlestick pattern was displayed on both the SPX and RUT charts today. Today's candle did not extend (or pierce) more than halfway into yesterday's black candle, which would be the strongest reversal signal, but it was significant. But this market has been prone to sudden and wide swings back and forth, so one has to be very cautious about assuming a reversal is signaled. However, one sign that yesterday was the end of the correction was simply the extremely dire tone that was universal on all of the financial news programs yesterday. Everyone I heard on CNBC was insisting it was going lower and going to get worse before it improved.
I closed the 790/800 call spreads of my June RUT iron condor this morning for $0.15, but I didn't roll the calls down. I decided it was wise to take a little bit of a "wait and see" attitude before rolling those spreads downward (my recent scars are tender). So now I am just holding the 580/590 put spreads and am about $2k underwater; but if I do nothing more and these put spreads expire worthless, I will be up about $2k. I will look for an opportunity to open new call spreads next week.
