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The markets appeared to be losing their bullish steam today. SPX opened down and just slowly sunk throughout the day, closing at $1686, down $6. RUT lost $8 to close at $1044. Volatility increased about half a point with the VIX at 13.2% - still a relatively low number. Trading volume increased quite a bit, adding to the bearish mood. Trading in the S&P 500 stocks increased to 2.3 billion, still below the 50 dma. Trading on the NYSE increased 9% and volume on NASDAQ increased 13%, probably driven by a spike in AAPL trading after its earnings announcement.
Since the recent rise in the S&P 500 has been largely straight up, it is hard to cite strong support levels to watch in a pull back - perhaps $1680? The peak from May was around $1670 and the high in mid-June was around $1652.
The European PMI was issued today, reporting 50.4 for July. This was the first expansionary number (greater than 50) for 18 months, so it was a pleasant surprise, but Europe is far from out of the woods. Euro Zone unemployment stands at 12.2%. This pushed European markets higher but apparently reminded our traders that Europe remains a problem. New home sales came in at 497k for June, up from 459k, but I suppose good news in the real estate markets is old news.
The stellar run up since June 24 has proven difficult for my August iron condor on RUT. I started with the 860/870 put spreads and the 1050/1060 call spreads. I have hedged with Sep 1040 calls (sold today) and have rolled the call spreads twice, now at 1080/1090. The put spreads were rolled up to 970/980. The position currently stands at a net loss of $4700 with delta = -$71 and theta = +$189. Now I am simply managing the trade to minimize the loss for this month. We have a shot of coming out near break-even, but we'll see.
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Markets slowed a bit today and basically wandered sideways. SPX dropped $3 to close at $1692 and RUT lost $1 to close at $1052. So RUT continues to lead SPX in a bullish fashion, pulling back a bit less on a dull trading day. Trading volume was mixed with only two billion shares of the S&P 500 stocks trading. That is an increase over yesterday, but well below the 50 dma. Trading volume increased 8% on the NYSE and increased 6% on NASDAQ. Volatility was largely unchanged with VIX at 12.7%, up less than half a point.
The only hard economic news today was the FHFA Housing Price Index, reporting an increase of 0.7% in May, up from April's +0.5%. This is consistent with all of the real estate data of the past 2-3 months. The granddaddy of real estate pricing data, Case Schiller, comes out July 30.
The most exciting thing going on in an otherwise boring market was anticipation of Apple's earnings announcement and how to play it. The ATM straddle was pricing in a move between $397 and $449. Thus, the question: would the move be greater or less? If you were in the "greater" camp, the straddle was the right play. But I couldn't believe that the large crowd of Apple naysayers would surrender easily. On the other hand, playing a lesser move with an an iron condor did not appeal to me. It just seemed too probable that AAPL might surprise the market with something clever or simply surprise the naysayers with even greater piles of cash. So, in the end, I sat on my hands - when in doubt, preserve your cash. As of this moment, AAPL is trading up $15 at $434. So, once again, the options market had it priced rather well. The iron condor would have been a good play.
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Bernanke completed his two days before Congress today and apparently succeeded in not spooking Wall Street. SPX gained $8 to close at $1689 and RUT closed at $1050 for a gain of $8 on the day. Volatility was unchanged with the VIX at 13.8%. Trading volume in the S&P 500 jumped up to the 50 dma at 2.4 billion shares. Trading volume on the NYSE was unchanged, but was up 10% on NASDAQ.
Today's economic news was reasonably positive with initial unemployment claims dropping 24 thousand to 334k. Continuing unemployment claims declined 63 thousand to 2.96 million. The Philadelphia Fed survey moved to 19.8 for July, up significantly from June's 12.5.
So it appears that the formulas of mediocre economic growth coupled with Fed stimulus continue to push this market higher. It doesn't seem like the current level of economic recovery is sufficiently robust to drive a bullish market as strong as what we have witnessed, but it has...
We don't have any major economic data being reported tomorrow and presumably we won't hear from Bernanke for a while. So will Friday be a dull nowhere trading day? Or will the bulls continue their buying spree? Or will Google cast a shadow on the market? (They missed earnings after the bell today.)
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The major market averages all tacked on a few more points today as this bullish run continues. SPX closed at $1696, up $3 and RUT gained $3 to close at $1053. The VIX dropped a quarter of a point to 12.3%. Trading volume declined, although part of that is misleading since trading volume on this past Friday was unusually high, as it always is on expiration Friday. Trading volume in the S&P 500 dropped to 1.9 billion shares and trading on the NYSE dropped 16%. Trading on NASDAQ declined 15%.
Existing home sales for June came in at 5.08 million (annualized); this was down from the previous month's 5.14 million and lower than analyst predictions at 5.28 million. Several analysts I read claim the drop was primarily in the category of distressed sales, and therefore wasn't significant.
SPX gapped open this morning, but ended the day with a candlestick similar to a doji, representative of a trading day where neither the bulls or the bears were in strong control. The question on traders' minds is: Where should this market trade in the absence of Fed stimulus? The FOMC meeting is coming up next week. It should be interesting to see what they say and how the market responds.
This is a light week for economic data, so we may continue to see this slightly bullish slow climb higher continue this week.
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Bernanke will be testifying before Congress Wednesday and Thursday. It appears as though traders were taking some of their profits off the table just in case his comments spark another rout like we had in May and June. On the other hand, his comments could spark an incredible rally like we saw last week after his speech in Cambridge. One thing is clear: it is impossible to predict the market's reaction.
SPX closed at $1676, down $6 and RUT lost $5 to close at $1039. Volatility rose almost a full percentage point to 14.4%.
The economic data that were reported today didn't help the markets. Industrial production increased 0.3% (better than last month's zero, but still poor). Capacity utilization was flat at 77.8% and the CPI rose 0.5%. Increasing inflation could put a serious cramp in Bernanke's efforts to shore up this economy. That wouldn't be fun for anyone, whether you are a Bernanke fan or not.
When the RUT opened up weakly this morning, I took that opportunity to close my July 1060/1070 call spreads. For those of you with more patience, you would have received a much better price later in the trading day. Assuming the Jul 870/880 puts expire worthless this weekend, this results a gain of 10.7% for July and pushes the year to date results for Flying With The Condor™to +5.2%. Normally, I pride myself on beating the S&P 500 index performance, but I still lag far behind this year. Hopefully, I will continue to close the gap in the coming months.
Grab your popcorn and let's watch the Bernanke games...
