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The market opened weakly this morning, then climbed to an intraday high around 1 pm ET and then lost almost all of its gains only to recover most of the gains in the last hour. You may wonder - what's my point? Traders continue to come in and buy any weakness; it isn't hard to find nervous traders - nearly everyone is on high alert for a correction. But it is also true that no one wants to miss out on any more of this bull market. SPX ended up $8 higher at $1659 and RUT gained $3 to close at $989. Trading volume was essentially flat with 2.4 billion shares of the S&P 500 trading; trading volume on the NYSE rose 4% and trading on NASDAQ was up 1%.
There was a large amount of economic data released today, but most of it was mediocre to poor. Perhaps that explains the early weakness in the markets today. The Producers Price Index (PPI) decreased 0.7%, but the Empire Manaufacturing Survey dropped from +3.1 to a negative 1.4. Industrial production for April declined 0.5% and capacity utilization declined a half percentage point to 77.8%. The only bright spot was the NAHB Housing Market index that increased 3 points to 44 for May. One of the bizarre aspects of this particular bull market is that poor economic news is often seen as bullish simply because it means the Fed will continue its stimulus programs.
My Jun condor position on RUT is largely unchanged at a P/L of -12% with a position delta = -$8 and position theta = +$73. The position is still hedged but I have rolled the call spreads higher. As you can see, the position is delta neutral with a large positive theta, so we are in pretty good shape.
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There was an enormous amount of talk about the old "Sell in May and Go Away" adage on CNBC for the past few weeks.
Needless to say, anyone
who followed that advice is very disappointed, as the market has simply
continued on a tear upward almost without even a slight pause and certainly no
correction. A pullback or correction is always possible, but so far
I have lost money on the puts I have bought as insurance on my stock portfolio.
SPX closed at $1650,
up $17 today and RUT ran up $12 to close at $986. RUT closed at its high for the day - very bullish behavior.
It appeared like David Tepper’s comments on CNBC this morning set
the tone for today’s bullish run. Trading volume spiked up today, but barely made it to the 50 dma. Trading in the S&P 500 has not exceeded the 50 day moving average even once in May. Just under 2.4 billion shares of the S&P 500 traded today and trading volume increased 19% on the NYSE and increased 11% on NASDAQ.
Market bears have been pointing to the lower trading volume as a warning sign on this market.
Traditional bull markets occur on higher than average trading volume and today's spike upward in volume matches that historical tendency. But daily
volumes above the 50-day moving average in this bullish run have been relatively rare and so the
average is actually declining. When one
considers how many individual investors have been spooked and have left the
markets since 2008, perhaps this low volume isn’t surprising.
VIX is currently at 12.85%, a historically low level. This morning, VIX
rose as the markets traded upward – an unusual divergence. This could be a result of continued
high volume of puts being bought as this market hits new highs and correction
concerns abound. Many institutional traders see these low levels of volatility
as an opportunity to buy inexpensive insurance on their portfolios. Or it could be that the bulls are loading up on SPX calls.
The PPI will be announced tomorrow. That may raise the debate about inflation, but I doubt it will derail this market. It appears like it will require an extraordinary surprise of some kind to even give the bulls a pause.
My June iron condor position on RUT stands at a P/L of -$2,670 or -12% with delta = -$11 and theta = +$71. I closed the 820/830 put spreads today and rolled them up to 890/900. These adjustments have retained a nice potential gain for this position, assuming (big assumption) the bulls' truck slows down a bit.
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Through about half of today's trading, the S&P 500 Index (SPX) was down or flat, but the Russell 2000 Index (RUT) was always in positive territory and just advanced even higher as SPX moved into the black in the afternoon. SPX ended up $7 higher at $1634 and RUT gained $9 to close at $975. But trading volume declined with 2.1 billion shares of the S&P 500 trading and volume on the NYSE dropped 8%. Trading volume on NASDAQ decreased 7%. Seeing RUT leading the SPX is very bullish - the classic definition of "risk on". But lower trading volume continues as a hallmark of this bullish market. This certainly is atypical of strong bull markets.
VIX dropped a half point to 12.6%. There was no economic news of any consequence today.
I closed my RUT May 1010/1020 call spreads today in accordance with my Two Sigma Rule. The 1010 call was 1.9 standard deviations OTM this morning. It was borderline whether to close the call spreads this morning, but the decision appeared more and more correct as the day wore on. That confirms a 9% gain for my May condor, assuming the 840/850 put spreads expire worthless next weekend.
I opened the June iron condor on RUT at 820/830 and 1000/1010 for a credit of $1.50 on 4/24 and hedged with the July 1000 calls on 5/3. Today, I closed the 1000/1010 call spreads and rolled them up to 1020/1030; I left the July hedges in place. This position still retains the potential of a gain of around 5.5% if everything goes well for us - wishful thinking perhaps. But that is the point of hedging: keep the losses in check and buy time for the market to flatten out or pull back.
This bull market is certainly persistent. It is fascinating how many of us traders are wary of it. One of the guys on CNBC today said this was the "most hated bull market" on the exchange floor he had ever seen. It makes traders nervous to be investing in a market that is largely being held up by the Fed.
Enjoy your weekend.
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The markets traded down a bit this morning in spite of good retail sales data, but then recovered to close very close to the closes of the past 4 days.SPX closed unchanged at $1634 and RUT lost $1 to close at $974. VIX was unchanged at 12.6%. Trading volume fell off with 2.0 billion shares of the S&P 500. Volume on the NYSE was down 7% and trading volume in the NASDAQ was down 5%.
So all indicators remain rather positive and this will be a light economic data week, so a continuation of the bullish trend seems most likely. The CPI and PPI data later this week could possibly bring more debate about the Fed's policy and inflation, but there are no signs that the price data are likely to spike upward.
My Jun iron condor on RUT stands at a net P/L of -$2,160 with delta = -$15 and theta = +$52. The July hedges remain in place.
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The major market indexes didn't tack on more gains today - how about that? But the averages didn't drop much either; this bullish trend is still very much alive. SPX dropped back $6 to close at $1627 while RUT lost $4 to close at $966. The VIX added a half point to close at 13.1%, still relatively low. Trading volume was relatively flat with 2.3 billion shares of the S&P 500 stocks trading. Trading on the NYSE was down 3% while trading volume on NASDAQ was up 5%.
The unemployment claims came in this morning at 323k, down four thousand from last week. Continuing claims dropped 27k, but these decreases are small percentage changes; the data trend lines are basically flat, so the market didn't celebrate.
The new support level for SPX is now $1600, so it would take a pretty significant drop to really get traders' attention. The comparable support level for RUT is much closer at $955. Many market analysts feel a correction of some kind is overdue, but so far that has been a futile waiting game. I think three main factors are driving this market: 1) The Fed's QE policies, 2) Reasonable corporate earnings growth, and 3) A search for income in dividend paying stocks for traders leaving the bond market.
My May iron condor on RUT stands at a net gain of $1,560 or +9% with position delta = -$37 and position theta = +$125. I will apply my Two Sigma Rule tomorrow to this position. Unless the market opens down quite a bit tomorrow, I will probably be closing the 1010/1020 May call spreads; those spreads are just inside of two standard deviations today. So the bull market game continues. As soon as the last of the bears are vanquished, the correction will begin!
