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Traders appeared to be anticipating some good news from the release of the Fed's beige book this afternoon. The SPX traded upward in the early afternoon, but then steadily declined after the release of the FOMC minutes (the beige book). SPX closed up $1 at $1410 on lower volume. RUT advanced $4 to close at $818. During the trading session, RUT traded up to resistance at $820 before pulling back. Trading volume was weak across the board with 1.8 billion shares of the S&P 500 trading. Trading volume dropped 2% on the NYSE and declined 7% on NASDAQ.
The VIX rose 0.6 points to close at 17.1%. VIX has steadily rose from an intraday low of 13.5% to today's 17% over the past eight trading sessions. This suggests traders are getting nervous as the markets keeping bouncing off resistance and not breaking out to new highs. This move higher in VIX, coupled with low trading volume suggests the bulls are losing their conviction to drive this market.
My Sept iron condor on RUT stands at a P/L of -$500 with delta = -$124 and theta = +$124. The Oct condor stands at break-even with delta = -$34 and theta = +$85.
Is this the calm before the storm?
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The markets continue to just toy with the earlier highs of this year and seem unable to either break through to higher highs or pull back. SPX closed down $1 at $1409 while RUT gained $4 to close at $814. The VIX inched up to 16.5%. Trading volume was up marginally from yesterday with 1.9 billion shares of the S&P 500 stocks trading (the 50 dma is 2.5B). Trading volume on the NYSE was up 6% and volume on NASDAQ was down 2%.
The Case Shiller housing price index rose 0.5% in June, a nice improvement from the 0.7% decrease in the previous month. Consumer confidence dropped to 60.6 in August from 65.4 in July - that isn't surprising. We have high unemployment coupled with a dysfunctional government and a political campaign that is setting new records for irrelevance. Increasingly, the investment theme I am hearing on CNBC is focused on the "fiscal cliff". Buying gold and burying it in the back yard is back in fashion.
While I was at the University of Florida, the Students for a Democratic Society (SDS) were always demonstrating and causing trouble. One student ran for student government president and said he was from the Students for an Apathetic Society (SAS). After the election, he said he was disappointed at the number of students who came out and voted for him - he wished they were more apathetic. We all knew those elections weren't serious, so a little satire was fun - but now our national politics seem equally laughable, and this is very serious. Perhaps we have been too apathetic?
My Sept RUT iron condor stands at a P/L of -$120 with delta = -$105 and theta = +$102. The Oct condor is up $500 with delta = -$23 and theta = +$72. Keep in mind that historically, we are entering a dangerous time of the year for the markets - remember last fall? Watch your positions closely and use tight stops. I don't know where this market is going, but it could get ugly.
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The recent story in the markets has been the last minute rushing in by the bulls to recover much, if not all, of the market's losses. But today's charts were quite different - the market indexes basically trended downward all day. If you can believe the talking heads, traders are losing faith in Uncle Ben coming to the rescue.
SPX lost $11 today to close at $1402 while RUT closed at $806, down $7. SPX has broken that $1405 support level that it struggled to break through when it was resistance on the way upward. RUT appears to have stopped just above the $800 - $805 support level. CNBC appears to have found all the bears to interview the last few days. Suddenly, we are hearing all the reasons why the Goldman forecast of $1250 is probable, why a recession is coming and so on. As those of you who follow me know, I see many reasons for this market to be trading sideways at best and have been very skeptical of this rally. But sometimes it just seems like media in general think we are all adolescents with 30 second attention spans.
VIX moved up one percentage point to 16%, so nothing earth shattering is happening on the volatility front.
My Sept iron condor stands at a P/L of +$180 with delta = -$82 and theta = +81. So my call spreads remain under pressure while the put spreads are nearly worthless. It is tempting to roll them up, but what if the gloom and doom crowd is right?
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It isn't hard to hear many analysts deliver what appear to be sound arguments for the bearish case in this market, but the bears have yet to take any of the recent opportunities to drive the market significantly lower. SPX opened and immediately sold off this morning, but the bears couldn't hold it down. By noon, SPX was trading around $1414. SPX did weaken in the last hour or so of trading today and closed down $1 at $1410. RUT moved up $1 to close at $810. In spite of the market averages holding up rather well, VIX increased by over a percentage point to close at 16.4%. This divergence in VIX makes me wonder, but just looking at the price action leads me to believe the bulls are still in control of this market.
No significant economic news was reported today; tomorrow brings some housing price data and consumer confidence numbers. The Fed beige book is due out on Wednesday, but I don't think anyone expects any surprises there. Whatever you may think of Bernanke, he deserves credit for trying to be much more open than his predecessor.
My Sept iron condor on RUT at 650/660 and 850/860 stands at a P/L of +$200 with position delta = -$90 and position theta = +$89. As the Greeks show, this position is still being pressured on the call side. My Oct iron condor on RUT was opened August 21 at 710/720 and 880/890 and now stands at a net P/L of +$580 with delta = -$9 and theta = +$66.
Trade what the market gives you, not your predictions.
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I am reading many analyst reports either predicting a pullback or describing yesterday's action as the pullback. But it seems to me that analysts are discounting the bulls - they are just unflappable. Yes, it is true that SPX pulled back yesterday after breaking this year's highs, but it sure didn't collapse. And look at today's price action; after trading as low as $1407 (not very low), the bulls jumped back on board and pulled SPX up to close even on the day at $1413. RUT dropped $3 to close at $813, but this market is holding up rather well. In fact, I still find it surprising that we can have a bullish trend with the number of significant headwinds we are facing, both domestically and globally. But we are.
Some have suggested that reading the FOMC minutes this afternoon gave the bulls hope that the Fed will intervene to prop up the market; maybe that fueled the afternoon rally. But I am a little skeptical that the Fed has any bullets left or is willing to use them. A separate question is whether they should use them.
Existing home sales bumped up by 100k to 4.47 million in July, so that was encouraging. But we are a long ways from declaring the real estate problem solved.
My Sept iron condor position closed the day about $500 underwater with a position delta = -$107 and theta = +$102. So we continue to watch the bullish run that defies explanation.
