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The markets sputtered a bit at the open this morning, but the bulls quickly reclaimed control. Even on these slow days, the market averages tack on a few points. SPX gained $7 to close at $1633 and RUT gained $3 to close at $970. Trading volume pumped up a bit with 2.4 billion shares of the S&P 500 stocks trading. This is right at the 50 dma. Trading increased 12% on the NYSE and rose 2% on NASDAQ.
This is a slow week for economic data. Tomorrow will bring the weekly unemployment claims data, but that isn't likely to change much and consequently isn't likely to slow down this market. The major averages appear to be slowing a bit, so maybe we will trade largely sideways for a bit to blow off steam in this rally. At least I hope so; the alternative may not be pretty.
My iron condor on RUT for May stands at a net gain of +$1,759 or +10% with position delta = -$20 and position theta = +$47. It looks like we may be closing the call spreads on Friday as we apply the Two Sigma Rule, unless we see a bit of a pull back before then. Currently, those 1010/1020 call spreads are about one and a half standard deviations OTM.
This has been an interesting bull market; I don't recall having a bullish run this strong with such a large chorus of naysayers predicting an imminent correction. Maybe the last few years have turned us into pessimists.
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After Friday's strong rally, one might have naturally expected a little profit taking today, but no way. SPX tacks on another $3 to close at $1618 and RUT gained $5 to close at $960. That may not seem like a strong rise upward, but the consistency of the upward pressure is what impresses me. But this rally continues to be a low volume affair with only 2.2 billion shares of the S&P 500 trading today. Trading volume fell 15% on the NYSE and fell 13% on NASDAQ.
There weren't any economic data reports today and minimal economic news.
One data point from Friday that I found significant, but forgot to point out in Friday's blog: Germany's equivalent of our Dow Jone Industrial Average, the DAX, jumped upward over 1% on the U.S. nonfarm payrolls report. This underscores a basic tenet driving this stock market - it is the best game in town. We may not see our economy as firing on all cylinders, but it beats the alternatives, so global monies are flowing into our stock market. When combined with fed stimulus, it is a powerful combination.
My May condor is feeling a little of the upward pressure. The P/L now stands at +$1,052 or +6%, with delta = -$4 and theta = +$275. But the 1010 calls still have a delta of 2, so those spreads are still pretty safe. We may still see a pull back or breather of some sort, but the probability of a severe correction is diminished, in my opinion. There are just too many forces pushing this market higher. But remain on guard. Risk management is king.
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Yesterday's soft market became ugly this afternoon. It appeared that the more traders considered the Fed announcement, the more they decided to sell. SPX closed down $15 at $1583, but RUT really tanked with a drop of $23 to $924. Trading volume actually dropped from yesterday with 2.4 billion shares of the S&P 500 trading. Trading on the NYSE dropped 7% and volume on NASDAQ dropped 5%. Volatility rose one point to 14.5%, so traders weren't spooked; if we had seen a spike in volatility plus high trading volume, that would have been more worrisome.
There wasn't anything notable in the FOMC announcement: fed rates remain unchanged and QE will continue until either unemployment drops below 6.5% or inflation exceeds 2.5%. There was a change in language in that the Fed may "increase or reduce" the amount of quantitative easing as it sees necessary. Those who oppose the Fed's involvement thus far weren't happy with that phrase, but I doubt that affected the market. Maybe the economic data released earlier in the day was unsettling as traders look forward to the jobs report Friday. ADP reported an increase of 119k jobs but analysts expected 155k. The ISM index dropped from 51.3 to 50.7, not significant, but in the wrong direction. And construction spending contracted by 1.7% in March in contrast with February's 1.5% increase.
RUT sliced right through the 50 dma to return to the middle of the recent trading range, whereas the drop in SPX was much more modest, remaining high above the bottom of the trading range at $1540. All in all, I am less concerned since the volatility didn't spike and trading volume was relatively low - but I am glad I bought puts for my stock portfolio on Monday. Perhaps all of this market weakness is setting up for the jobs report Friday. If I am trying to remove risk from my portfolio, selling the small and mid-caps first makes sense, i.e., a larger drop in RUT.
Today's drop didn't affect my May iron condor position much; the P/L stands at a gain of $1,000 (+6%) with position delta = +$28 and position theta = +$90. I suspect we won't see much of a move either way tomorrow, as we anticipate the jobs report Friday.
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It seemed like the more favorable jobs report this morning came as a surprise to the markets. The weaker ADP number earlier in the week had traders worried and many were short the market going into the jobs report. The result was a huge rally. SPX tacked on $17 to close at $1614 and RUT climbed $15 to close at $954. Trading volume was weak with 2.4 billion shares of the S&P 500 stocks, remaining below the 50 dma. Trading was up 6% on the NYSE but down 1% on NASDAQ.
CNBC and other outlets were trumpeting the Dow's breaking 15,000 and the S&P 500 breaking above $1600, but none of the market indexes held their highs. VIX dropped back to 12.9%, off almost one point. SPX's close was well above the trading range it has been trapped within for several weeks. Now we will see if it can hold above that $1600 level. RUT traded up to $960, above the top of the trading range at $955, but pulled back to close at resistance.
The jobs report included an increase of 165k jobs and a reduction in the unemployment rate of one tenth of a percent to 7.5%. While this certainly doesn't suggest all is well for the economy, traders were relieved and traded the report positively. And it assured traders that the Fed will continue its QE programs. So mediocre numbers can be bullish in this environment.
My May iron condor position stands at a gain of $1,500 or +8% with position delta = -$10 and position theta = +$75.
It will be interesting to watch next week's markets to see if this bullish action can continue. We may see some profit taking on Monday.
Enjoy the weekend.
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The disappointing Chicago PMI numbers gave traders pause this morning, but it didn't take long for the bulls to take charge once again, driving the market higher in the afternoon. SPX opened lower and traded down to $1586 before recovering and trending higher to close up $4 at $1598. RUT gained $5 to close at $947. RUT still has a ways to go to beat its highs from March, but SPX set new historic highs today (it may have traded this high intraday in April, but this is a higher close). I was surprised by the market's strength today; I expected the markets to basically trade sideways as we move through the FOMC announcement and Bernanke's news conference tomorrow and then the jobs report on Friday. But these bulls are relentless.
The Chicago PMI came in at 49.0 for April, a big drop from last month's 52.4. But a positive note came from the Case Schiller Housing Price Index, up 9.3% in February after a strong +8.1% increase in January. In some areas, builders are resorting to lotteries to sell a limited number of housing to large numbers of hopeful buyers. This is some of the market action that is driving prices higher. My son sold his house in Plainfield, IL for the asking price in 5 hours yesterday!
I'm not a big fan of historical stock market statistics like the market being up or down in presidential election years and so on. But today marks the well known "Sell in May and go away" adage. Technically, the data suggest that selling on the last day in April and buying back into the market on Halloween, 10/31 would be a high probability strategy.
My May iron condor on RUT stands at a P/L of +$1,540 or +9% with position delta = +$8 and position theta = +$45. I bought some SPX puts for protection in my stock portfolio yesterday, but it doesn't seem like I need them... but I will feel better after the jobs report.
