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The Standard and Poors 500 Index opened this morning right at yesterday's close and ran upward all day, nearly closing at yesterday's open. SPX closed up $16 at $1511; RUT gained $9 to close at $908. VIX decreased about one point to 13.7%. Trading volume popped up with 2.8 billion shares of the S&P 500 stocks trading today; trading volume was up 7% on the NYSE and up 15% on NASDAQ.
So what can we say about this market? What changed from yesterday to today? And today's bullish move was on a reasonably strong increase in volume - all very bullish signs. On days like this, the talking heads on CNBC amaze me. It seems like it doesn't matter what the market does, they act like this is all very rational and can be easily explained. I don't think so.
The only economic news today was the ISM Services Index, reporting at 55.2 for January, slightly down from the previous reading of 55.7. The market's enthusiasm today certainly wasn't based on this report. It seems like all of the economic indicators are flat or "slowly recovering". But the market roars ahead.
My Feb iron condor stands at break-even with delta = -$145 and theta = +$235. Delta of the short 930 calls is at 12, so this position is in pretty good shape and time is starting to run short. Theta is starting to pump money into the position. But what happens tomorrow? That is exceedingly difficult to predict. Non-directional trading is looking better and better.
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The markets opened lower this morning, following the lead of European markets, based on political problems in Spain and Italy. The instability in Greece continues to worsen. SPX closed down $17 at $1496 and RUT closed at $899, down $12. SPX gave up a few more points in the last few minutes of trading, closing at its low for the day. As one might expect, VIX moved up to 14.7%. Trading volume fell from last week with 2.5 billion shares of the S&P 500 stocks. This is right at the 50 dma. Trading volume fell 14% on the NYSE and declined 7% on NASDAQ.
Tomorrow's open will be critical to answer the question of how severe or modest the correction might be. If SPX opens at $1495 and holds that level, then we could trade sideways for a bit and allow this over heated market to stabilize. If it falls through $1495, the next support level is $1470. In that case, the correction could be more severe. But we may all be surprised and see this strong bull reassert itself, as it has been doing for several weeks against all reason.
My Feb condor stands at a 2% gain with delta = -$68 and theta = +$194. So we wait and see what tomorrow brings.
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It seemed like the markets were just trading sideways yesterday and this morning, waiting on the FOMC announcement this afternoon. Bernanke surprised traders by saying the economic recovery has stalled, but remained committed to the stimulus programs in progress. In fairness, Bernanke said this pause in the recovery is temporary, but I don't think the market was expecting him to even suggest the recovery was pausing. Of course, the announcement that 4th quarter GDP has contracted by 0.1% was a surprise. This was the first contraction since the 2nd quarter of 2009. Analysts were expecting an increase of 1% following the 3.1% rise in the 3rd quarter. Perhaps Bernanke felt it necessary to take a more negative tone in light of this GDP number. As a reminder, economists consider two sequential contractions in GDP as the basic definition of a recession. Hmm...
SPX closed down $6 at $1502 and RUT closed at $897, down $10. VIX increased a point to 14.3%. The fact that the markets didn't drop more than they did underscores the strength of this market. A key measure of this market's resilience will be the jobs report Friday. ADP reported an increase of 192k in private payrolls for January, up from the previous +185k. Maybe that indicates a positive non-farm payroll number. Earlier this week, the Conference Board's consumer confidence survey reported out at 58.6 for January; this is the lowest reading since November of 2011. The recent peak was in October at 73.1. Trading volume dropped off from yesterday with 2.6 billion shares of the S&P 500 trading (the 50 dma = 2.5B). Trading on the NYSE was flat and trading volume was up 2% on NASDAQ.
My Feb condor on RUT stands at a net P/L of +$560 or +3% with delta = -$61 and theta = +$156 on 20 contracts. The theta/delta ratio is back in line, but if the bullish trend resumes, it will be a race to expiration. With 15 days until expiration, each day bleeds out a fair amount of time value, but a few powerful gains in the market might push me to close the position. We are getting a little short on time to be hedging. We'll see.
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The markets delivered a mixed message today with the S&P 500 declining a bit, but the small cap Russell 2000 regained a bit of yesterday's loss. SPX dropped $4 to $1498 while RUT gained $5 to close at $902. In the meantime, VIX was unchanged at 14.3%. Trading volume bumped up with 2.8 billion shares of the S&P 500 stocks trading; trading increased 7% on the NYSE and increased 8% on NASDAQ.
Economic news was mixed with initial unemployment claims coming in at 368k, up 38k from last week and continuing unemployment claims also increasing by 23k. On the other hand, the Chicago PMI increased to 55.6 for January from last month's 50.0.
Looking to the SPX chart, yesterday's harami candlestick was followed by a decline today, suggesting a reversal in the recent trend, or at least a breather. And a breather at this point after a historic run higher would certainly not be a surprise.
My Feb condor stands roughly at break-even with delta = -$113 and theta = +$193. This weekend's time decay should be helpful.
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As the S&P 500 approached the $1500 mark last week, it prompted a series of news reports speculating on a pull back or correction at these levels. Friday's tape was very bullish, closing the day firmly in the $1500+ territory, but today's tape was a little more tentative, with SPX pulling back as low as $1496 and closing at $1500, down $3 on the day. RUT traded slightly more bullishly, adding $1 to close at $907. All in all, this market rally appears very solid. But no one can deny that we have moved upward a significant distance in a short period of time, so some traders are bit nervous that the good times may end. Trading volume was weak today with 2.4 billion shares of the S&P 500 stocks trading; the 50 dma stands at 2.5B. Trading on the NYSE declined 4% and increased 1% on NASDAQ.
Volatility has increased the past couple of days, closing at 13.6% today, increasing almost one point. This probably only shows the effects of institutional traders adding some protection to their portfolios to protect recent gains; after all, puts are cheap right now.
Mutual fund inflows have been on the rise toward the end of 2012 and hit $55 billion in January, an all time record. The next highest level was $54B in February 2000, just before the beginning of the bear market in March that year. That seems ominous, but maybe we are making too much of that data. Money has been flowing out of bonds into stocks for some time and that trend isn't likely to slow as long as interest rates remain so low.
The FOMC begins its two day meeting tomorrow, so we will probably see a sideways market as traders wait on Bernanke's remarks Wednesday afternoon. The only thing I see that might significantly affect the markets coming out of that meeting would be any suggestions of trimming or ending the Fed's quantitative easing programs.
My Feb condor on RUT remains 5% underwater with delta = -$157 and theta = +$178. Theta is starting to heat up a bit, but the call spreads remain tight, bordering on adjustment.
