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The markets opened modestly higher this morning but quickly weakened and traded lower. SPX hit a high of $1690, matching yesterday's high, but then closed very close to its low of the day ($1682) at $1683, down $6. RUT lost $7 to close at $1049. Volatility rose a bit with VIX closing at 14.3%, up a half point. Trading volume was flat to down with 2.0 billion shares of the S&P 500 stocks trading (flat from yesterday). Trading on the NYSE dropped 2% and trading volume declined 3% on NASDAQ.
This week's unemployment data showed some additional improvement with initial unemployment claims of 292k, down 31k from last week. Continuing unemployment claims declined 73k to 2871k. Maybe that is what drove the initial spurt in the markets at the open this morning. But that bullishness didn't last.
My September iron condor on RUT stands at a P/L = +$2,360 or +13.5% with position delta = +$5 and position theta = +$85. Both spreads are over two standard deviations OTM; the maximum gain for the 20 contract position is $2,560 or 14.7%.
Retail sales, PPI and consumer sentiment all report tomorrow - will those reports move the market? I doubt it. I think the FOMC announcement next Wednesday is the market's focus at this point.
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The major market indexes traded higher today, but on lower volume. SPX gained $5 to close at $1689 but RUT closed unchanged at $1055. RUT's price behavior together with decreased trading volume suggests a slowing of this rally as traders look forward to the FOMC meeting next week. Trading in the S&P 500 stocks decreased to 2.0 billion shares while trading on the NYSE declined 12%. Trading volume on NASDAQ dropped 6%. As concern about Syria falls off, we may start to see increased taper anxiety in advance of the FOMC announcement and Bernanke news conference.
No substantial economic data were reported today. The big news was Apple's large drop in stock price to roughly where it was before Carl Icahn's famous tweet. In fact, Icahn said today on CNBC that he was buying more shares at this lower price. It will be interesting to see where this story goes.
My September iron condor on RUT stands near its maximum gain with a net P/L of $2,420 or +14% and a position delta of -$7 (nearly perfectly delta neutral) and position theta = +$49. The temptation at this point to close for much of the potential gain, but if you are trading larger numbers of contracts, the trading commission costs become an inhibiting factor. Allowing spreads to expire worthless is attractive as long as you don't allow that to draw you into taking too much risk. So we will watch these spreads closely between now and expiration next week and close if the market starts to threaten either side.
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Some positive economic news out of China boosted Asian markets and that appeared to spread across the globe. It probably also helped that reports from Washington suggest that a compromise solution to avoid a government shutdown is in the works so the debt and spending debate participants can have more time to craft a solution. I think Fed tapering is effectively priced into the markets with all of the debate over the past couple of months, so I don't think that is a significant risk issue at this time. But that leaves Syria. Is Obama willing to forge ahead without support from Congress or the American people? That risk remains, but may be diminished somewhat. SPX spurted ahead $17, broke through its 50 dma at $1667 and closed at $1672. RUT also traded strongly higher, tacking on $17 to close at $1046. RUT opened right at its 50 dma at $1033 and never looked back.
The cautionary note on the day was that volatility remained pretty high in spite of these bullish advances. VIX only decreased about two tenths of point to 15.6%. Everyone isn't totally relaxed and comfortable in trader-land even with a one percent gain on the day.
My iron condor position on RUT for September stands at a net gain of $2,200 or +13% with position delta = +$10 and position theta = +$73. This position is nearly perfectly delta neutral with ten days to go to expiration.
I think the big question, in view of VIX remaining relatively high, is pretty simple: will today's advances hold tomorrow? Maybe Apple's new iPhones will cause an uncontrolled exuberance in the markets, but I doubt it.
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Positive economic data out of China and cooling of the rhetoric about Syria gave the market reasons to trade higher today. SPX gained $12 to close at $1684. RUT traded upward as well, closing at $1056 for a $10 gain. VIX dropped a little over one point to close at 14.5%. And these gains occurred on higher trading volume with 2.2 billion shares of the S&P 500 stocks trading; trading increased 15% on the NYSE and increased 8% on NASDAQ. Strong increases on higher trading volume are good signs for the bulls.
SPX gapped open upward this morning and sliced through resistance at $1680. Yesterday's trading broke out above the 50 dma, and today's trading left the 50 dma in the dust. If one draws a trend line on SPX from mid-November of last year to the present, touching all of the pullbacks except the low on June 24, then we won't be back on that bullish trend until around $1710 on SPX. If SPX peaks and pulls back before reaching $1710, beware of the head and shoulders reversal pattern that will result.
This is a light week for economic data. Not much happens tomorrow and then Thursday brings the unemployment claims. Friday is the heaviest day this week with retail sales, the PPI and the University of Michigan Consumer Sentiment report. Now that we have Syria out of the way, the news will probably start to focus on the debt ceiling and spending arguments. Allow me one observation on the debt ceiling debate: if my son were spending more than he earned and he hit the credit limit on his credit card, the solution wouldn't be to raise the credit limit on his card.
As you consider any new trades based on this bullish euphoria, remember that the FOMC meeting and announcement are next week. September 18 is likely to be a volatile trading day.
My Sept RUT condor position continues to be very strong with P/L of +$2,360 (+14%) with position delta = -$4 and position theta = +$59. Even with RUT's recent strong push upward, the Sept 1120/1130 calls are over two standard deviations OTM.
The higher price volatility of the past few months has many traders feeling a bit paranoid. I see the very bullish signs on the charts, but I still fear some surprise coming out of left field. I will go see my shrink, lie down on the couch and talk about my childhood. Or maybe it would be cheaper to have a glass of wine with dinner and go to bed early. We'll see if those bulls can hold this position.
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SPX opened higher this morning in spite of a weak jobs report, probably thinking that bolstered the case for tapering (now the market seems ready for tapering). But it quickly reversed and dropped $20 to the low of the day at $1641, based on Putin's comments about supporting Syria. Then it regained its previous highs by noon and traded higher in the early afternoon. But then all of this exuberance appeared to weigh on the markets so it gave it all back with SPX closing flat at $1655. RUT followed suit but managed to close up one dollar at $1030. Volatility also ran higher before settling to close with no change with VIX at 15.8%. All of this occurred with higher trading volume, up to 2.0 billion shares of the S&P 500. Trading volume increased 9% on the NYSE and increased 11% on NASDAQ.
The jobs report came out with 169 thousand new jobs and unemployment dropped a tenth of a percent to 7.3%. But the unemployment drop was principally due to a lowered labor force participation rate. Many analysts viewed the report as mediocre, but probably adequate for the FOMC to justify a beginning to tapering the stimulus programs. Others believe Bernanke will wish to begin tapering before his term runs out, but that doesn't make sense to me. If Bernanke believes stimulus is needed until unemployment drops below 6.5%, then why would he remove stimulus and risk a recession? If he doesn't think stimulus is required with unemployment at 7.3%, why did he specify 6.5% as the target (repeatedly)?
I re-established my Sept condor position with the 940/950 put spreads and that position now stands at a net P/L of +$1,760 or +10% with delta = +$25 and theta =+$99.
Have a great weekend.
