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The markets continue to basically chop sideways, but today it was on increased volume. SPX traded up $5 to close at $1451 while RUT lost $2 to close at $839. RUT has been running right along the support level at $840 for the past week; this was the resistance level held until the Bernanke announcement on 9/13. VIX dropped a bit to 15.4%, so that measure of fear is relatively complacent. Trading volume on the S&P 500 increased to 2.7 billion shares and trading increased 7% on the NYSE and increased 8% on NASDAQ.
The ADP employment report came in at 162 thousand new jobs and that boosted the market this morning, but the indexes lost much of that in the afternoon. The ISM Services index also buoyed traders with a increase from 53.7 to 55.1. An interesting tidbit was in the details of the ISM report: a decline of 2.7% in employment in the services industries.
Another drag on the market was HP warning of decreasing revenues and earnings. It seems like several blue chip companies have now warned about the upcoming earnings announcement cycle - FedEx started the trend a few weeks ago. I would argue that HP is a special case of a declining company, but FedEx is harder to ignore.
My Oct iron condor at 790/800 and 900/910 stands at a P/L of -$420 with delta = +$67 and theta = +$110. Chances are we won't see much market action tomorrow as traders wait for the jobs report Friday. But that assumes everything in Europe remains quiet.
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Trading volume declined as the markets largely traded sideways today. SPX closed up $1 at $1446 and RUT closed unchanged at $841. Trading volume on the S&P 500 dropped to 2.4 billion shares, beneath the 50 dma. Trading on the NYSE dropped 7% and trading volume declined 11% on NASDAQ. VIX ran up to 16.5% today, but then retreated to close at 15.7%, down almost one percent.
We didn't have any significant economic news today. But tomorrow brings the ADP private employment report, and many traders will use that as a forecast of Friday's non-farm payrolls report. Tomorrow also brings the ISM services index; it will be interesting to see if it turned more positive as its manufacturing counterpart did yesterday.
My Oct condor position stands at a net loss of -$400 with delta = -$56 and theta = +$100. The adjustments have chewed up much of the potential gains for this position; the maximum gain at this point would be around 7%.
The bulls and bears appear to roughly balanced in power; news and economic data may tip the markets either way. There seems to be a strong case for either side of this argument.
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Most traders were watching for the results of the Spanish bank stress tests; they figured that was the most likely bad news that might hit today, but that news item turned out rather positively. But then the Chicago PMI came in at 49.7, down from 53.0 and the University of Michigan consumer sentiment survey declined to 78.3 from 79.2. So SPX fell as low as $1436 and then chopped sideways most of the day to close at $1441, down $6. RUT followed suit, closing down $6 at $837. If one draws the trend line below this run on SPX since early June, you will see that SPX is just bouncing along that line the past few days. A break down through $1430 would be the first warning sign that the upward trend may be in trouble. RUT appears to be a bit weaker (not a good sign for the overall market) since it is just below resistance at $840 which was where it sat after Draghi's press conference and before Bernanke's announcement. But to a first approximation, both indexes are roughly at the pre-QE III levels. The VIX rose to 15.7%, up almost one point.
All in all, the market is looking rather tentative as we get close to earnings season and we have already had several warnings from some leading companies, such as FedEx. A few poor earnings announcements could prove to be a problem for this market.
My Oct iron condor on RUT at 790/800 and 900/910 stands at a P/L of -$1,220 with delta = +$56 and theta = +$111.
Enjoy your weekend.
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The ISM manufacturing index surprised analysts this morning with a reading of 51.5 for September, the first sign of expansion after three months of contraction. This prompted a big market rally with SPX surging as high as $1457 before the bears pulled it back down. SPX closed at $1444, up $4 and RUT gained $3 to close at $840. VIX increased 0.6 points to 16.3%; the VIX dropped as low as 15.1 this morning before the bears came back to play.
The SPX candlestick looks like a shooting star, but the body is a bit large for the purist. But the trading activity depicted by that candlestick isn't encouraging. The bulls drive the market quite a bit higher, but then the bears are able to pull the market almost all the way back - not good. Trading volume was basically flat with 2.6 billion shares of the S&P 500 trading; trading volume declined 10% on the NYSE and dropped 4% on NASDAQ.
Construction spending dropped 0.6% in August. Maybe we got ahead of ourselves with the ISM report; after all, it wasn't long ago we were given the anemic 1.3% GDP growth for the second quarter. Today's trading is just one more indicator of the extreme volatility of this market. Imagine if we get a truly bad bit of news...
My Oct condor stands at a P/L of -$520 with delta = +$65 and theta = +$83. Remember: we are working our way toward another jobs report Friday.
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I know I pointed out that we bounced off support yesterday, but today, SPX gains $14 to close at $1447 and RUT tacks on $10 to close at $844. What stimulated that huge move? Spanish government officials announced a new budget that will focus on spending cuts and reform. So yesterday the Greeks were rioting and Spanish bond yields went over 6%, and the market tanked. Today, Spanish officials say the right things and everything is now rosy? Good grief! How do you trade this market? My theory is that the high frequency trading algorithms are pushing these extreme market moves. The program picks up a few key words in a news story, triggers a large buy and then it snowballs. That sure makes it a stressful day for us ordinary humans trying to trade in this environment. It certainly isn't too surprising that a lot of individual investor money remains on the sidelines. Between Madoff and the computers, it's a spooky place.
Initial unemployment claims dropped to 359k, which is a move in the right direction, but all of the other economic news was negative. Durable orders dropped 13%; GDP for the second quarter only gained 1.3% on an annualized basis (down from 1.7%) and pending home sales dropped 2.6% after a 2.4% gain last month.
SPX solidly bounced off support and pushed itself back well into the upward trend band, but trading volume fell off to 2.2 billion shares of the S&P 500. Trading on the NYSE was down 16% and trading on NASDAQ dropped 1%.
My Oct condor position stands at a P/L of -$980 with position delta = +$47 and position theta = +$106.
So what happens tomorrow? Draghi is photographed frowning and the market plummets?
