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It appeared that CAT's earnings announcement unsettled some traders, but they seemed to get over it as the day progressed. SPX began the day weakly, but revived in afternoon trading to finish with a $7 gain at $1563. RUT added $2, closing at $915. But trading volume fell off with only 2.2 billion shares of the S&P 500 trading. Trading volume fell 15% on the NYSE and dropped 4% on NASDAQ. Volatility declined a bit with VIX ending the day at 14.4%, down almost one percentage point.
A strong support level on the RUT price chart is being established at $900. The lower shadows of the candlesticks have touched $900 several times before bouncing back upward. If you draw a trend line on the SPX chart through all of the lows since mid-November, then today's close at $1563 gets us back above the trend line. But that doesn't mean this correction or pullback is over. One could argue that SPX is still in a sideways trading range from roughly $1540 to $1595. So until it breaks through one of those levels, it is hard to be very confident about a trend in either direction. Of course, the longer we chop along largely sideways, we accomplish the same thing as a more severe correction.
My May iron condor position on RUT stands at a P/L of +$640 or +4% with position delta = +$46 and position theta = +$38. Will the positive NFLX announcement push the market higher? That seems doubtful, but we'll see.
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SPX closed yesterday right at a major support line, the 50 day moving average (DMA). Today's market action seems to suggest it has bounced off support and all is well. But it is hard to take any confidence in this volatile market. It seems to just whip back and forth in an effort to frustrate as many traders as possible. SPX tacked on $14 to close at $1555 and RUT joined the party with a close at $913, up $11. VIX pulled back almost three points to 15%. Trading volume was flat on the S&P 500 stocks at 2.8 billion shares, still above the 50 dma. In fact, SPX volume traded above the 50 dma every day this week - unusual.
SPX settled at $1545.35 and RUT settled at $901.94. So the 990/1000 call spreads of my April condor will expire worthless this weekend. I was feeling more conservative and closed the 880/890 put spreads last Friday. They were over two standard deviations OTM, but this market makes me nervous, so I closed them anyway. As it turned out, those spreads would have expired worthless as well, so the Two Sigma Rule worked once again. But playing it safe now and then isn't a bad thing. That brings my April position to a net loss of $400 or -4% for April. That brings my Flying With The Condor™ to a net return of -4% for 2013, as compared to a net gain of 9% on the S&P 500. This is the first time in quite a while that I have fallen behind the S&P 500, but I am regaining the ground and should be back in the black with the May position. I removed the hedge on the May condor today (840/850 and 1010/1020) and it stands at a net P/L of -$100 with position delta = +$61 and position theta = +$44. This trade is positioned well with the call spreads about two standard deviations OTM and the put spreads well over one standard deviation OTM with less than thirty days to go.
Enjoy your weekend. I thought I would start on some of my tasks in the yard this weekend, but it was in the high thirties as I headed to the office this morning - good grief!
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Stocks opened in positive territory this morning after yesterday's devastating drop. SPX gained $22 to close at $1575 while RUT closed at $923, a gain of $16. Yesterday's move on SPX left the index within the trading range observed for most of March, but today's spurt back upward once again took the index back above that trading range. Whereas SPX opened this morning at yesterday's close, RUT gapped upward at the open and climbed from there. However, neither index undid all of the damage done yesterday. One of the most positive aspects of today's trading was a dramatic three point drop in the VIX, to 13.96%. So it appears that the bulls remain in control of this market. As demonstrated by GS, JNJ and KO last evening, corporate earnings remain strong. And the Fed is still priming the market, so the bullish case is intact. Whether it makes sense to you or me isn't relevant.
Trading volume returned to the 50 dma of 2.5 billion shares in the S&P 500 stocks; trading volume declined from yesterday's elevated levels on both the NYSE (-21%) and NASDAQ (-16%).
A large number of economic data was reported today, but without any surprises either way. The CPI declined 0.2% in March, down from the 0.7% increase reported last month. Housing starts increased 68k, but building permits dropped 37k. Industrial production increased 0.4% and capacity utilization increased slightly to 78.5% from last month's 78.3%.
My May iron condor stands at a P/L of +$900 (+5%) with position delta = +$30 and position theta = +$68.
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The markets started out weakly this morning, largely on disappointing earnings and a weak outlook from Bank of America. But the selling accelerated, leading to broad losses across the board. SPX shed $23 to close at $1552 while RUT closed down $17 at $907. Of course, many of the gurus on CNBC are shouting "I told you so", but the behavior of this market defies most rational analysis in my opinion. Many were pointing to BAC's earnings, but the Fed's Beige Book appears to have been largely ignored. In short, the Fed gave the economy its best rating in several years, saying they see many signs of the economy overcoming its problems. At first, I thought traders might see those comments as a prelude to reduced FOMC stimulus and sell the market. But markets hit their low of the day before the Fed release of the minutes and just traded sideways afterwards. That takes us back to BAC's earnings as the explanation for the weakness, but many of the corporate leaders announcing earnings so far in this cycle have been beating estimates, so it is hard to say why today's trading was so weak. More importantly, why are the markets oscillating back and forth so wildly?
SPX traded down to the 50 dma and then bounced, closing right where it closed Monday. While Monday's and today's markets were spooky events, this market is not in free fall, so ignore the "sky is falling" crowd (at least for now). But if we break down through $1540, things could get ugly. Interestingly, RUT also closed today at the closing price from Monday, after exploring lower prices. In RUT's case, the break below $895 is the panic zone.
I hedged my May condor position today, just in case the market breaks down further tomorrow. I bought the June 850 puts for $14.70. The May position stands at break-even with position delta = +$14 and position theta = +$8.
Predicting market direction is never easy, but this particular market is particularly daunting. So we wait and see.
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Weak economic news from China triggered declines in Asian markets and resulted in weak openings in U.S. and European stock markets. But that weakness just never stabilized. SPX fell $36 to close at $1552 and RUT was even weaker with a close at $907, also down $36. Trading volume spiked upward with 3.2 billion shares of the S&P 500 stocks trading today. Trading volume rose 43% on the NYSE and increased 22% on NASDAQ. As one might expect, VIX popped up 5 points today to 17.3%.
SPX and RUT were trading in a tight sideways range through most of March, so it is interesting to contrast the two indexes in today's decline. SPX traded from about $1548 to $1570 before breaking out higher last Wednesday. Today's decline was severe, but the close at $1552 just took SPX back to the lower end of that March trading range. But RUT's chart is strikingly different. Last Wednesday's big day merely returned RUT to the middle of the March trading range because the weakness in early April had driven RUT much lower than SPX in a relative sense. And today's move took RUT down close to the next major support level at $895. The concern raised by this analysis is that the small caps normally lead markets both up and down, so, in this case, RUT's exaggerated weakness relative to SPX may portend further correction.
The Empire manufacturing survey came in much lower than analysts expected with a reading of 3.1 for April, down from the previous month's 9.2. While positive readings on this index are good news, the unexpectedly large drop was a concern for traders. The NAHB housing market index weakened a bit in April, dropping two points to 42.
As one might expect on a day like this, my May condor position pulled back quite a bit on this drop in price and the increase in volatility. It now stands at a P/L of -$600 or -3% with position delta = +$63 and position theta = +$77.
Now the question on everyone's mind: is this the beginning of a severe correction, or just a momentary pullback? After all, the bull camp's arguments of increasing corporate earnings and Fed intervention are still valid. That question just demonstrates why predicting the market's next move is so difficult.
