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The markets gapped open to the downside this morning and the losses just mounted as the day went on. The underlying drivers are being debated, but analysts point to talk of the U.S. entering the war in Syria and the coming debate in Washington surrounding budgets and the debt ceiling.
The interview with Secretary Lew on CNBC today where he drew a hard "no negotiation" line in the sand, appears to be leading the country to some ugly brinksmanship. Perhaps that exacerbated the nervousness over Syria. Another viewpoint is to cite this as simply a continuation of the decline that began August 5th. Whatever the underlying drivers are, it was an ugly day with SPX losing $26 to close at $1630 and RUT closing at $1013, down $25. As one might expect, volatility increased with the VIX at 17%, up almost two points on the day. Trading volume popped up to the 50 dma with 2.2 billion shares of the S&P 500 stocks trading today. Trading on the NYSE increased 25% and trading volume increased 16% on NASDAQ.
Consumer confidence surprised analysts by increasing a bit to 81.5 in August; analysts expected a slight pull back from the previous reading of 81.0. The Case Schiller Housing Price Index increased 0.9% on a seasonally adjusted basis (+2.2% non-adjusted), thus reinforcing the continuing housing recovery. But this reasonably positive news this morning did not seem to support this market as it opened down and just traded lower as the day wore on.
Today's drop in RUT and the volatility increase pulled my Sept condor down a bit to a net gain of 10% with delta = +$39 and theta = +$67. But the delta of the 940 put remains relatively low at 11.
So now we look to tomorrow to see if this slide continues or the bulls see these prices as a buying opportunity. You could argue that this bout of market weakness may make it less likely that the FOMC will taper this year and that could stimulate some bullish behavior. But that assumes that the FOMC takes market levels into account in their decisions?
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The markets rose this morning in spite of durable goods orders falling off by 7.3% in July - quite the contrast from the 3.9% increase in June. But the market shrugged off the bad news and traded higher until a little after 3 pm ET, when the tensions in Syria appeared to be heating up with some strong words from Secretary Kerry. News reports of an impending debt crisis fight in Washington are also starting to take their toll. But I think that crisis will be pushed to the back burner behind the September FOMC meeting. When all the traders return after Labor Day, FOMC will be the focus (absent a blow up of some kind in the Middle East).
SPX closed down $7 at $1657, after trading ten points higher most of the day. RUT was unchanged at $1038. Volatility fell below 14% early in the session, but rose in the last hour, with VIX closing up one point to 15%. Trading volume in the S&P 500 stocks fell to 1.6 billion shares. Trading volume fell 7% on the NYSE and dropped 6% on NASDAQ. Today's close on SPX took it back below the 50 dma that it struggled to break last week. In a similar fashion, RUT cannot break resistance at $1040. The market is mildly bullish at this point, but those bulls are cautious. It won't take much to spook them.
My Sept RUT iron condor at 930/940 and 1120/1130 stands at a net gain of 13% with position delta on 20 contracts at +$10 and position theta = +$69. Tomorrow brings the consumer confidence numbers and the Case Schiller housing price index.
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As expected, the FOMC minutes resulted in a lot of price volatility this afternoon. Immediately upon the release, SPX dropped $9 in less than 10 minutes, and then reversed on a dime and shot up almost $18 in the next 40 minutes. If that wasn't enough, then SPX turned and dropped over $14 before the close at $1643 for a net loss of $10 on the day. RUT gave up $7 to close at $1022. SPX tried unsuccessfully once again to regain the 50 dma at $1658. The most pessimistic signal I saw today was a one point increase in the VIX to 15.9%. This shows that traders are beginning to be concerned that this pullback may gain momentum; we are now down 4% from the early August highs. Are we heading for a more serious correction of 10% or more? As a reminder, the correction in August of 2011 was over 20%.
The Fed minutes seemed to throw cold water on the notion that the committee is poised to begin tapering in September. The consensus of economic analysts, at least as represented by interviews on CNBC over the past week or so, appeared to favor tapering beginning in September. Many of the guests acted as though this was a foregone conclusion. But it appears that the committee was largely divided on that issue, at least at the last meeting. As I read the minutes, it appears that multiple viewpoints are represented on the committee on the timing and duration of tapering, as well as adherence to the 6.5% unemployment "line in the sand". Maybe that is why the market's reaction this afternoon was so volatile. It will be interesting to observe the market at the open tomorrow after thoroughly digesting the minutes. HP's earnings announcement may tend to favor the bears tomorrow. We'll see.
Does this continuing lack of clarity lock us into a sideways consolidation until the September Fed meeting? Or does it give the bears control?
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This was a relatively slow week for
economic data, with the exception of the Fed minutes being released. But economic reports continue
to be mediocre or weak with the notable exception of real estate. Earlier this
week, existing home sales hit a three-year high, continuing a stream of
positive data supporting the notion of a recovery in real estate. But some
negative news appeared this morning when new home sales tumbled in July to
394k, down from 455k in June. But the markets gapped open upward this morning. Are we back to a point where bad news is interpreted as
good news with the reasoning that it will cause the
Fed to continue pumping money into the markets? The release of the FOMC minutes made it quite clear that a diversity of views exist in the FOMC on whether to taper now or later, or even what data should trigger a decision.
SPX ran up $7 to close at $1664 while RUT only increased $2 to close at $1038. Today's close by SPX finally broke above the 50 dma. SPX had unsuccessfully challenged that level for the past four days. Volatility dropped again today with the VIX closing at 14%. Trading volume was up a bit with 1.9 billion shares of the S&P 500 stocks trading. Trading volume was flat on the NYSE and appeared to be huge on NASDAQ with +63%, but that was an anomaly following the NASDAQ outage yesterday.
My Sep iron condor on RUT stands at a 14% gain with delta = +$9 and theta = +$48. This should be an interesting ride between now and September 18th (the FOMC announcement). Hold on tight.
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The markets bounced back upward strongly today and it was hard to say why. Many analysts pointed to the earnings announcements from Best Buy, TJ Maxx, and other retailers, but closer analysis reveals a mixed bag. Actually, this is becoming a common theme for this market: big moves up or down with the market analysts struggling to understand the drivers. SPX closed up $6 at $1652 and RUT soared $15 to close at $1029. However, it is interesting that volatility did not decrease by any meaningful amount. VIX closed at 14.9%, down only two tenths of a point. Hmmm...
SPX tried to move back above the 50 dma at $1658, but failed to hold it. By contrast, RUT blew through the 50 dma at $1020, closing well above at $1029. This strong performance by RUT would seem to be a bullish sign, but I'm not sure any of our conventional wisdom holds in this market.
Trading volume was pretty flat with 1.9 billion shares of the S&P 500 stocks trading, up from yesterday's 1.8B but well below the 50 dma. Trading volume on the NYSE dropped 0.2% and trading volume on NASDAQ decreased by 9%.
I have resisted adding any new positions this week because of the release of the minutes from the last FOMC meeting tomorrow afternoon. It should be a "yawn", but who knows with this market? Everyone is trying their best to read the tea leaves and that often leads to imagined boogeymen.
My Sept iron condor on RUT stands at a net gain of 8% with position delta = +$17 and position theta = +$89. Now we wait on the market's reaction to the Fed minutes...
