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The markets pulled back a bit today, but still held recent highs. SPX closed down $5 at $1589. RUT fell $4 to $943. The high in 2000 was about $1552 and then it peaked at $1576 in 2007. So the question on many technical analysts' minds is: Are we headed off into brand new highs, or is this market going to pull back before continuing a bullish run? Some analysts point to the history of bear markets lasting 15 to 17 years, so they see this market pulling back before heading to new highs down the road. What may be different now is the huge Fed presence; that may keep this bull healthy much longer than might be expected based on history. But that makes me worry about the hangover after the overindulgence.
Trading volume was mixed with a decline in the volume of the S&P 500 at 2.2 billion shares; trading volume rose 5% on the NYSE, but dropped 20% on NASDAQ. VIX remained flat at 12.1%.
Retail sales came in lower by 0.4% in March, but the PPI dropped 0.6%, calming inflation fears. Consumer sentiment dropped to 72.3 from last month's 78.6. All in all, today's economic data were not impressive.
I applied my Two Sigma Rule to the April 880/890 put spreads and the Apr 990/1000 call spreads. Both were about 2.5 standard deviations OTM, which should be quite safe at this point. But this market worries me, so I closed the put spreads today. With the expiration of the call spreads next week, that will close out the April iron condor position at a loss of 2%. I could have allowed the put spreads to expire worthless next week and that would have resulted in a result roughly at break-even, but I worry about some bad news coming out over the weekend and making it more expensive to get out of those puts next week. I'm probably being too cautious, but I will sleep better this way. My May condor is doing well with a P/L of +$1,280 (+7%) and position delta of -$12 and position theta of +$76.
Enjoy your weekend. The way things look, I won't be working in the yard this weekend. Spring hasn't come to Chicago yet.
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The stock market opened higher today, and continued higher until late morning and then faltered. SPX traded as high as $1597 and then traded sideways and slightly lower the balance of the day, closing at $1593, up $6. RUT followed a similar pattern, but RUT fell off more dramatically in the afternoon, closing the day at a $1 gain at $947. Trading volume bumped up a little with 2.5 billion shares of the S&P 500 stocks trading; this is right at the 50 dma. Trading on the NYSE was down 6% and trading volume increased 4% on NASDAQ. VIX was essentially unchanged at 12.2%.
IBD moved their market signal to "Confirmed Uptrend" late yesterday on the strength of yesterday's rally. Initial unemployment claims dropped 42k to 346k and continuing claims dropped 41k to 3.1 million. Perhaps that buoyed trading this morning. Tomorrow brings retail sales, the PPI and consumer sentiment numbers.
As I look at the SPX chart for the past four days, all I can say is Wow! Almost straight up! It does make one worry a bit that the party has to end, but previous bull markets often lasted longer than anyone thought reasonable - remember the dot-com days? One aspect of this rally I am enjoying is that we hear almost nothing about the idiots in Washington these days.
My iron condor positions are doing well. It looks like the April position may pass the Two Sigma Rule tomorrow and continue into next week; it is highly probable that both Apr spreads will expire worthless. The May position stands at +$1240 with delta = -$25 and theta = +$73.
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Analysts have been predicting a correction for several weeks now. At every slight pull back, CNBC assembles a crowd of gurus who are arguing about how far down the correction will take us. But today was another of those surprisingly strong market days. SPX opened slightly in positive territory this morning and chopped sideways until just before noon, when it began a slow and steady climb. SPX reached $1574 before slowing a bit to close at $1569, up $6 on the day. RUT was more subdued with a loss of $2, closing at $929. So SPX remains firmly within the trading range of $1545 to $1570, established over the past several weeks. RUT's chart doesn't look as positive; RUT has yet to climb back to the $940 to $960 trading range that it established in parallel with SPX during the latter part of March. While RUT followed SPX's lead and climbed to an intraday high in late afternoon trading, it gave it all back in the last hour.
Trading volume was up from yesterday's anemic levels, but remains below long term averages. Trading in the S&P 500 hit 2.3 billion shares, up from yesterday's two billion but still well below the 50 dma. Trading volume was up 14% on the NYSE and was up 13% on NASDAQ.
So what can we make of this market? Is it safe to be bullish? I think the Fed's continuing QE will hold up this market. But the risk is some dire European debt crisis news, a downgrade of U.S. debt or something else we don't expect. The result is a sideways consolidation move that is successfully burning off the excess euphoria from earlier this year. So I am cautiously bullish. Choose your stocks carefully and use tight stops.
My Apr condor stands at a net P/L of -$1100 or -6% with delta = +$51 and theta = +$166. The May position stands at a P/L of +$1120 or +6% with delta = +$21 and theta = +$56.
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SPX hit new historic highs today and trading volume bumped up from yesterday, although it remains below long term averages. The intraday picture was very steady with a strong open that just continued to climb all day, even into the close. Perhaps the FOMC minutes encouraged traders; the minutes showed a majority of committee members support continuing the bond purchases through mid-year. SPX closed up $19 at $1588 and RUT jumped on board with a $17 gain to close at $946. Trading volume increased with 2.4 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE increased 5% and increased 18% on NASDAQ. Volatility dropped a bit, with the VIX ending the day at 12.4%, down about half a point.
Today's huge run upward will probably add fuel to those arguing for an impending correction, but this market has steadily climbed higher in spite of all naysayers.
My Apr condor position stands near break-even with a P/L of -$500 and position delta = +$3 and position theta = +$110. The May position is up $1400 with position delta = -$5 and position theta = +$59. Will the profit takers come in tomorrow after this run to historic highs?
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The jobs report came in lower than virtually anyone predicted; on CNBC, Santelli was the pessimist with a prediction of 150k, but then the report came in at +88k; surveyed economists expected about 190k. Perhaps even more pessimistic was the labor participation rate coming in at 63.3%, the lowest reading since 1979. This measures the number of people who are either employed or actively seeking employment. Almost 500k dropped out since the last report. But, lest you panic, these employment data have so many adjustments and revisions, that it is hard to get too excited about any one report.
As you might expect, the surprise jobs report pushed futures lower and the major indexes opened significantly lower. SPX traded as low as $1540 before starting to rebound. Likewise, RUT traded down to $910, but then slowly traded upward all day to close at $923, down only $2 on the day and very close to the 50 dma at $924. SPX closed at $1553, down $7. This places SPX right in the middle of the trading range of the past several weeks. So after opening down $18, SPX closes down $7. Considering how bad this jobs report was, that's incredible price action. Trading volume popped up a bit with 2.5 billion shares of the S&P 500 stocks trading (right at the 50 dma) and trading was also up on NYSE, with an increase of 11%. Trading volume on NASDAQ moved up 10%.
So what can we make of today's trading? My interpretation is this: traders considered the jobs report and recent economic data as evidence of a weakening economy and initially took some of their risk off the table, but then they considered what this evidence does for the FOMC. It strengthens the Fed's case for quantitative easing, so traders are reassured that the Fed's support of this market will continue through QE and low interest rates. So the party continues, but probably a bit moderated.
I removed the hedges on my April condor position today; it remains down about 11% with delta = +$87 and theta = +$155. The put spreads are about one standard deviation OTM and the calls are about two standard deviations OTM with two weeks to go. My May condor stands at a P/L of +$720 or +4% with delta = +$32 and theta = +$47.
Enjoy your weekend.
