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Trading opened up to the downside this morning and then traded upward, hit resistance and traded down all afternoon on lower volume. The only economic news was the initial unemployment claims report of 444k, down slightly from the 448k of last week. The number of continuing unemployment claims rose slightly to 4.63 million from 4.62 million last week. RUT traded as high as $720 in the morning but then declined the rest of the day to close down $6 at $710. SPX tried to break through its 50 day moving average (dma) at $1174 this morning, but was rebuffed and traded down to $1157, a loss of $14. Trading volume was flat to decreased with a 6% decrease on the NYSE and a 2% increase on NASDAQ. Trading in the S&P 500 stocks came in at 4 billion shares, below its 50 dma at about 4.5B shares.
Today I rolled the balance of my May 710/720 calls up to 730/740 and left the June 650 calls in place as a hedge to the up side. This brought the Greeks back in line at delta = -$28 and theta = +$473. The June RUT iron condor is positioned at 580/590 and 790/800 and stands at a P/L of -$520 with delta = -$31 and theta = +$107. So I am left nursing my May position to minimize its losses as we approach expiration week while the June condor is well positioned (for now).
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The markets opened up strongly this morning and slowly but steadily traded higher all day. The Treasury Department reported a deficit for April of 83 billion dollars, much greater than the 53 billion economists expected. This was the largest deficit ever recorded for the month of April. The dollar traded up strongly today, up as much as 0.5% at one point. But the markets traded up in the face of this news. Gold continues to trade higher, reaching $1250 during the day and closing at $1243. I guess I should have listened to all of those commercials promoting gold.
The Russell 2000 Index (RUT) traded up $21 to close at $716 while the Standard and Poors 500 Index (SPX) closed at $1172, an increase of $16. Trading volume declined today across the board, down 15% on the NYSE and down 19% on NASDAQ. Trading in the S&P 500 stocks dropped to about 4.2 billion shares, just below the 50 day moving average. SPX just touched the 50 day moving average during the trading session, but couldn't break out above that level. The 50 day moving average is tracked by many large institutions as a technical support and resistance level. By contrast, RUT broke through the 50 day moving average resistance and is approaching its highs in April. Investor's Business Daily still had the market assessed as "Market In Correction" this morning, but today's action may have changed that rating. Just as last Thursday set historic records for the markets, this market's rapid reversal is also setting records. Yesterday, I wrote, "I think the unbridled enthusiasm that drove the markets in March has
been shaken." What a difference one day can make!
After adjusting my May condor down after last week's crash, my position is now being trampled to the upside! I have closed and rolled half of my call spreads and all of my put spreads; my long June calls are limiting some of the damage, but not enough. Current delta stands at -$59 and theta = +$253. The prospects of salvaging a gain from the May position are diminishing. By contrast, my June RUT iron condor spread is sitting pretty with a delta of -$23 and theta = +$73. The 790/800 calls are over one standard deviation OTM and the 580/590 put spreads are over two standard deviations OTM. But we have 36 days to expiration, and as we have seen recently, that is plenty of time for all kinds of things to happen!
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The EU and the IMF came to an agreement to rescue Greece over the weekend and the European Central Bank and the U.S. Federal Reserve also agreed to play support roles in the bail-out. This news led to a binge of short covering that drove the market up strongly at the open. RUT gapped up at the open and hit $688 within the first half hour of trading, then RUT settled down and traded sideways until the last 30 minutes of trading, when it traded up to close at $690, up $36 on the day. SPX traded similarly, closing up $49 at $1160. Trading volume was down across the board from last week, down 30% on the NYSE and down 35% on the NASDAQ. The S&P 500 stocks traded just under six billion shares, still above the 50 day moving average but down significantly from Friday's levels.
The big question now is whether the Greece bail-out deal is really solid. The EU member countries still have to vote on this package, so we could have some future bad news if one or more EU countries balk - how will the markets respond? Based on last week's trading, one has to be concerned about that possibility.
My May iron condor on RUT is skewed a bit too close to the upside after today's big move with position delta = -$146 and theta = +$428. The advantage we have at this point is the acceleration of time decay as we near expiration. The June iron condor on RUT has moved into the black with a P/L of +$580, delta = +$39 and theta = +$60. Both the 580/590 put spreads and the 790/800 call spreads are well outside of one standard deviation from the current RUT value of $690. The VIX dropped from 41% to 29% today; if volatility continues to come in, the profitability of the June position will increase. I am inclined to think the fundamental attitudes on the trading floors have been changed by last week's wild ride. We should not interpret today's short covering as an indicator of continued bullish trading to the upside.
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The markets opened up under continued concerns about Europe's financial problems, but soon turned positive and traded up most of the day; shortly before the close, much of the earlier gains were given back. RUT ran as high as $704 before turning back to close at $695, a gain of $6 for the day. SPX traded as high as $1170 but then gave it all back and then some to close at $1156, a loss of $4 on the day. Gold hit new highs for 2010 at $1220, a continuing response to the possibilities of financial problems in Europe spreading across the globe. Trading volume was down or flat today: down 19% on the NYSE and essentially flat on the NASDAQ. The S&P 500 stocks traded about 4.8 billion shares, just above the 50 day moving average.
Take a look at the RUT chart; I see a strong up move through most of February, then a brief period of consolidation before another strong push up for the first couple of weeks in March. That was followed by consolidation in the range of $675 - $690. Then we had a strong run upward in April, followed by the correction of the past couple of weeks. Therefore, that consolidation range $675 - $690 in late March is significant. I would see a strong close for RUT above that area as a bullish sign. And that appeared to be in the works today, but then RUT was pulled back into that consolidation range. SPX has traded in a similar pattern, but was pulled back even more strongly than RUT today. All of this suggests a cautious, sideways market for now; I think the unbridled enthusiasm that drove the markets in March has been shaken.
In summary, I think this market is rather fragile at this point in time; the wrong news report out of Europe could send it back down in a hurry. So be careful out there; be sure your stops are in place. But, in the absence of significant news, we may just chop up and down similar to what we saw today.
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The markets opened this morning and actually traded upward for a few minutes before the dance to the downside began and lasted the rest of the day. The Nonfarm Payroll Report actually set a record with 290k jobs added in April, the highest since March of 2006. About 66k of those were temporary census workers. But the bad news was the unemployment rate as it ticked up to 9.9%. Apparently, a large number of people re-entered the market to search for jobs, pushing this number higher even as more jobs were being added to payrolls. Trading volumes remained at the record levels set yesterday; volume on the NYSE exceeded two billion shares both yesterday and today. Trading in the S&P 500 stocks exceed eight billion shares yesterday and was just under eight billion shares today (the 50 day moving average (dma) is about 4.5B). RUT closed at $653, a loss of $19 on the day while the SPX closed at $1111 for a loss of $17. RUT touched its January high of $650 during the day but rebounded a bit. SPX broke through its January high of $1150 yesterday and touched its 200 dma at $1096 before bouncing back upward. Gold set a new 2010 high at $1215.
As you might expect, my iron condors have been trampled in this stampede. The May put spreads were stopped out yesterday; today I opened new put spreads at 590/600 and rolled the calls down to 710/720. This positions both spreads outside of one standard deviation OTM and leaves us with a possibility of a gain of about $1000, based on the shaky assumption that the carnage is over. The greeks are excellent with delta = -$21 and theta = +$306. My June 640/650 put spreads were also stopped out yesterday. I closed the put hedges and established new put spreads at 580/590 today. This leaves my June RUT condor greeks at delta = +$30 and theta = +$67.
The question now is whether we have neared the bottom of this correction. The fact that the trading action both yesterday and today hit intraday lows and then bounced back upward is a positive sign, but we'll see.
