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Obama and his allies are telling everyone that the end is near. It is almost as though he wants the market to crash. But the markets ignored him and traded back upward today with SPX tacking on $12 to close at $1691, coming close to making up yesterday's losses. RUT gained $7 to close at $1078. VIX decreased about nine tenths of a point to 16.7%, still a relatively high level of volatility. The low yesterday represented a 3% pullback on SPX, so the spike to 18% volatility yesterday was roughly in line with the last pullback in late August. Today's bounce also reinforced the support level on SPX at the 50 dma at $1680. So that becomes an excellent "line in the sand" to keep an eye on.
There were no economic reports today; normally the non-farm payroll report would have issued this morning, but that office was shut down. It doesn't appear that we missed it. By the way, one of the lies being knowingly perpetrated by many politicians and their lapdog media friends is that we are in danger of defaulting on the treasury debt. The facts are that tax revenue continues to flow into the treasury during the shutdown at the rate of over two hundred billion dollars per month. One month's interest on our treasury debt is about twenty billion dollars. Therefore, the only way we can default on our debt is if Obama orders his treasury secretary to do just that to further his political agenda. There is plenty of money to pay the interest due on our debt even if the politicians are still fighting over the debt ceiling (the debt ceiling only needs to be raised to accommodate all of the other spending in addition to our interest payments). I encourage you to check my figures.
I closed the put spreads in my October iron condor on RUT a few days ago because of my concern that the markets might melt down amid all of this rhetoric about the sky falling. With today's rally in the markets, I considered adding new put spreads to the position to boost the potential gains, but we only have two weeks left until expiration. I would have had to enter a position around 990 to 1000 on RUT to collect a reasonable credit. I decided the risk wasn't worth the additional gains. If the current call spreads expire worthless, a gain of 8.4% will result. That's more than respectable - no need to walk out on the thin ice.
Enjoy your weekend. It is cooling off here in Chicago. Fall is here.
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We were told the sequester was going to be a huge disaster and it seems we are being told the same story once again. But the markets are basically saying, "Ho hum. It's business as usual". SPX dropped a whole dollar to close at $1694 while RUT dropped $5, closing at $1083. This is the first in several sessions where RUT closed down more than SPX. Of course, as the debt ceiling deadline approaches, the market may not be as benign. SPX opened at $1692 and traded down to the 50 dma at $1680 before bouncing back up to close at its high of the day. If you look at the SPX chart, the last three sessions have reinforced the strength of that 50 dma support line.
Trading volume was basically flat with two billion shares of the S&P 500 trading. Trading on the NYSE was flat and volume declined 3% on NASDAQ. We probably won't have a jobs report Friday, so many traders were focused on the ADP private jobs report today; it came in at 166k and that disappointed analysts who were expecting 170-180k.
It doesn't look like we are going to see an end to this mess in Washington anytime soon, so I bought some VIX calls today. That is a speculative trade, so don't jump into it unaware. I made 25% today, but could lose it all tomorrow if a surprise compromise were reached overnight. But Obama's interview with CNBC after the market closed communicated his continued refusal to negotiate on anything. My way or the highway...
But my trades are doing well, so I can at least take some comfort in that as Rome burns.
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All of the talking heads could only talk about the haggling in Washington today and the prospect of a government shutdown this evening. In the meantime, investors are taking some of their capital off the table, just in case the end of civilization is near, as the Washington politicians are predicting. Remember how catastrophic the sequester was going to be?
SPX lost $10, closing at $1682. RUT remained pretty flat at $1074, down less than a dollar. As one might expect, volatility popped up a bit with VIX increasing a little over one point to 16.6%. Trading volume increased with trading on the NYSE up 16% and up 9% on NASDAQ.
SPX broke down through its 50 dma today, but recovered to close just above that support level. Breaking through that level in the morning (assuming the government does shut down tonight) could lead to some serious damage. I will be watching the May high at $1670 and the low from the last pullback around $1630 for possible support levels. RUT opened this morning just above its highs in August, backed off a few points and then recovered to close near yesterday's close, only down about forty cents. RUT's 50 day moving average (dma) is at $1047 with a weaker support level at $1040 and the August low at $1010. It is interesting that RUT continues to lead this market, in spite of a host of negative hand wringing over the past several weeks. That is evidence of a strong bullish underside to this market. A resolution in Washington could stimulate a strong rally.
My Oct iron condor on RUT at 910/920, 1110/1120 and 1130/1140 stands at a net P/L of -$720 or -4% with delta on 20 contracts at -$89 and theta = +$172.
I have yet to hear a single media outlet today observe that this shutdown is at least partly rooted in Obama's absolute refusal to negotiate. Instead, the media lap dogs consistently tell us the threat of a shutdown is due to some "extremists" who want to rid us of ObamaCare, a law that over 50% of Americans dislike, according to several polls. I suppose government by the people is an old fashioned idea.
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Economic data has been rather positive both yesterday and today with the Chicago PMI increasing to 55.7 in September from August's 53.0. The Dallas Fed manufacturing survey jumped significantly from the August report of 5.0 to September's 12.8. And then today, the ISM manufacturing survey reported 56.2 for September, up from 55.7. So the economic data has been encouraging traders and apparently, they don't see the Washington political impasse to be a tradable issue. Or, more correctly, perhaps they don't see it as an impasse that will last long or cause any real economic damage.
I closed the 910/920 put spreads in my RUT Oct iron condor today. The remaining position stands at a net P/L of -$1,100 or -6%.
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SPX finally ended its five session losing streak with a $6 gain today, closing at $1699. RUT also gained with a close at $1078, up $5. The two charts are quite different. SPX has dropped well below its August highs and is nearing its 50 dma. By contrast, RUT is still flirting with its recent all time highs. If you look at the intraday highs, RUT set a new all time high yesterday at $1082, but the intraday high today was $1081. I personally prefer to focus on closing prices and on that basis, RUT set its all time high today. However you look at it, RUT is leading the markets and that is bullish. Volatility was flat with the VIX at 14.1%.
Unemployment claims decreased by five thousand to 305k, but continuing unemployment claims jumped up by 35 thousand to 2.823 million. In contrast to yesterday's robust report of new home sales, today's report of pending home sales posted a 1.6% decline for August.
Is the market pausing for resolution in Washington to the great spending/debt debate? Or is it just consolidating the rather large gains it has made this year? One thing is apparent: in spite of many opportunities to sell off strongly, the bullish support for this market has continued unabated. Buying the dips this year would have been very profitable. In spite of weak economic data, continued high unemployment, and a feckless Washington, the market has held up rather well.
My Oct RUT iron condor position stands at a net P/L of -$830 (-4.5%) with delta = -$103 and theta = +$129.
Many are predicting another up market day tomorrow, reflecting optimism for a continuing resolution being passed over the weekend. As always, that is hard to predict, but we'll see.
