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The stock markets sold off pretty strongly starting around 2pm ET this afternoon. Some of the selling might have been associated with some index rebalancing, but the reality is that the charts have looked pretty weak the past couple of weeks. SPX lost $24 to close at $1631 and RUT closed down $10 at $984. Trading volume spiked upward with 2.8 billion shares of the S&P 500 stocks trading; trading volume on the NYSE increased 22% and trading increased 6% on NASDAQ.
Support on SPX is around $1635, so today's close was either right at support or SPX has already broken support - we'll see on Monday. The next strong support level on SPX is around $1600. Similarly, RUT's close was very close to support at $985. The next support level on RUT is at $975.
The markets traded more positively this morning after the Chicago PMI surprised traders with a report at 58.7, up from last month's 49.0. The University of Michigan's consumer sentiment values were revised to 84.5 for May, the highest sentiment reading since July 2007. However, traders may be starting to worry early about next week's jobs report.
The Jun iron condor position on RUT closed at a P/L of -$1,620 with delta = -$48 and theta = +$165. The 1030/1040 call spreads are about one standard deviation OTM and the 890/900 put spreads are two standard deviations OTM. Several adjustments have taken their toll on this trade, but it still retains a maximum gain of about 5% with three weeks to go.
Enjoy your weekend.
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The Standard and Poors 500 Index (SPX) jumped up at the open and traded as high as $1662, but a sell-off in the last hour of trading took its toll. SPX closed at $1654, up $6. RUT closed up $7 at $994. Volatility decreased less than a half point to 14.5%. Trading volume was flat with 2.3 billion shares of the S&P 500 trading (the 50 dma = 2.4B). Trading on the NYSE was down 4% and trading volume on NASDAQ was up 1%.
Initial unemployment claims came in about ten thousand higher at 354k while the continuing unemployment claims rose 63k to 2.986 million. First quarter GDP was revised downward one tenth of a percentage point to an annualized growth rate of +2.4%.
I noticed today that the last six trading sessions on SPX had long shadows on the candlesticks - three were higher and three were lower. On those days, traders took the index either higher or lower during the day, but were pulled back before the close. This suggests a great deal of indecision to me. Traders are nervous about the Fed pulling back from stimulating the market and are jumping one way or the other almost every day based on the latest data or the latest rumor.
My June iron condor position on RUT stands at a P/L of -$2,230 with position delta = -$101 and position theta = +$161.
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The markets leaped off to the races this morning, breaking all kinds of records, but then trading started to falter and the major indexes began to give back most of the early gains before the day was over. SPX closed at $1660, up $10 and RUT gained $13 to close at $997. SPX ran as high as $1674 before pulling back. Often these type of days when the bulls push a stock or index price much higher but can't hold those highs is a sign of a weaker market moving forward (the classic shooting star candlestick). At a minimum, one can consider today's intraday highs as a resistance level for break-outs to the upside. The $1660 level on SPX was resistance for a couple of days in mid-May,
but I'm unsure that today's closing there is significant. We have had
too few data points at these lofty levels to have solid resistance
levels. Volatility rose a half point to 14.5%.
There were several positive news items this morning that contributed to the bullish tone of the markets. The Case Schiller housing price index increased 10.9% in March, as compared to a 9.3% increase in February, so housing is hot. Consumer confidence increased to 76.2 in May from 68.1 in April. And Moody's issued a report on the large banks and revised their rating from "negative outlook" to "stable". This was the first improvement in the bank rating since 2008.
My June condor position on RUT stands at a P/L of -$3,220 with delta = -$111 and theta = +$175. The 1030/1040 call spreads are right on the edge of adjustment. We'll see what tomorrow brings. The bullish influence seems unstoppable. Maybe trading sideways is the least bullish behavior this market can display.
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Yesterday's sell off continued today with SPX losing $12 to close at $1648 and RUT closing down $10 at $987. Volatility increased almost a half point to 14.8%. On the SPX chart, there is strong support at $1635 and it may be significant that three times in the past few days, SPX has traded down into the $1635-$1640 range. Today SPX traded down to $1640 before rebounding into the close. On the upper side, $1670 is the resistance level that must be broken to move higher. Corresponding support on RUT is in the range of $970-$975 and resistance is at $1000.
Trading volume was pretty much flat today with 2.3 billion shares of the S&P 500 trading. Trading volume on the NYSE increased 1% and trading on NASDAQ increased 2%.
My June iron condor on RUT stands at a P/L of -$2,360 with position delta = -$81 and position theta = +$176. I will be watching the $1635-$1640 range on SPX to see if this minor pull back gets more serious. By my measure, not much has changed, but traders are getting nervous about the Fed's support of this market.
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A positive economic data point hit the screens this morning with the report that durable goods orders increased 3.3% in April. When contrasted with March's 5.9% decline, this was encouraging. But we are in that bizarre "good news is bad news" world where all positive news is regarded as evidence that the Fed will terminate its quantitative easing programs. So that may have contributed to this morning's weak market performance; but the markets strengthened at about 10:30 ET this morning and continued to climb all day. This resulted in the DJX closing up for the day and SPX closing down $1 at $1650. RUT closed flat at $984. Traders had already left for the holiday weekend today; trading volume was down 28% on the NYSE and volume was down 21% on NASDAQ.
So that leaves us with the "Is this the beginning of a correction?" debate. Trading for the past three days supports the idea of $1650 as support on SPX. Yesterday's snap back is another positive point arguing against the severe correction position. RUT has traded even more strongly, closing unchanged today. So I am inclined toward the viewpoint that traders panicked a bit after Bernanke's remarks and the FOMC minutes Wednesday. After all, the committee members voted 11 to 1 in favor of continued quantitative easing. It seems unlikely to me that we will see the strengthening in the job market that Bernanke has said he will require to begin to pull back on the FOMC stimulus. Therefore, it is highly probable that we won't see any Fed tapering until late fourth quarter or even well into 2014.
My June condor position stands at a P/L of -$2,240 with position delta = -$60 and position theta = +$142.
Enjoy your long weekend. Take a moment to remember the significance of this Memorial Day.
