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Markets traded largely sideways today until the release of the FOMC minutes this afternoon. After traders saw no mention of QE III being in the works, the markets sold off. A mini-rally in the last few minutes of trading pushed markets close to where they started the day. SPX closed at $1341 for no change on the day and RUT dropped $3 to close at $792. Trading volume was flat with 2.5 billion shares of the S&P 500 trading; trading on the NYSE dropped 1% and trading on NASDAQ dropped 4%.
The VIX spiked up to 19.2% this afternoon as the market tanked, but recovered to close at 18%, essentially where it started the day.
SPX traded down and bounced off the 50 dma (just as it did yesterday), so this is looking like a pretty solid support level.
If you watch CNBC, you may be thinking the "end is near" because it seems like they have uncovered every bearish commentator they could find. But the chart doesn't suggest that. We have been largely trading in a broad sideways channel since mid-May. Now when we were looking at the chart on May 20, when it had steadily and steeply declined since May 1, that was scary. This market certainly isn't in a bullish trend, but it is far from a bearish trend as well. That is why I focus on the key support levels for the S&P 500. When these are broken, we know we are in for some tough times in the market. However, it is true that the current market is fragile. Some unexpected bombshell out of Europe could easily tip us over the edge, especially if we continue to see mediocre earnings reports such as Alcoa's.
My July iron condor on RUT at 610/620 and 850/860 stands at a net gain of $2,660 on 20 contracts with delta = -$11 and theta = +$44. The Aug position at 650/660 and 850/860 stands at a net gain of $320 with delta = -$60 and theta = +$92. We have the unemployment claims report tomorrow, but I doubt that report will be either good enough or bad enough to do much with this market.
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The S&P 500 opened higher this morning and then began to deteriorate, steadily dropping all day long. SPX closed at $1341, down $11. RUT also shed some points, closing at $795, down $10. Trading volume remains somewhat subdued, but rose from the lower levels Monday and over the holiday week. About 2.5 billion shares of the S&P 500 traded today, up a bit from yesterday, but still below the 50 dma of 2.8B. Trading volume jumped 19% on the NYSE and rose 18% on NASDAQ. The VIX rose almost a full point to close at 18.7%.
SPX has a solid support level at $1335 and the 50 dma at $1337. So it was encouraging for the bulls to see the SPX hit a low of $1336 and then bounce to close at $1341.
My July condor on RUT stands at a P/L of +$2,580 with delta = -$14 and theta = +$64. Both July spreads are well over two standard deviations OTM. The Aug position on RUT stands at a P/L of -$40 with delta = -$80 and theta = +$88. The Aug 850/860 call spread is now about one standard deviation OTM, so the pressure has been relieved (for now).
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For the second month in succession, the jobs report came in much weaker than expected with only eighty thousand new jobs. The unemployment rate stayed constant at 8.2%. The markets traded off in response with SPX losing $13 to close at $1355. RUT dropped $10 to close at $807. Trading volume continued low, probably a result of the holiday week. Trading in the S&P 500 stocks came in at 2.1 billion shares, well below the 50 dma at 2.8B. Trading volume dropped 12% on the NYSE and rose 2% on NASDAQ.
SPX traded down as low as $1348, but recovered somewhat in late afternoon trading. SPX traded in the range of about $1310 to $1360 through most of June, and it appears the index is now back in that trading range. SPX managed to punch through resistance at $1370 before the holiday, but could not hold it. RUT's pattern is somewhat different. RUT spent most of June in the range of $735 to $785, but broke out much more strongly than SPX and appeared to even threaten to break the highs around $825 set in late April. So RUT remains in thin air even after today's pull back. Will RUT's new trading range be $725 to $825? I am focusing on these support and resistance levels because it isn't clear if this brief bullish run of the past several trading sessions is over or not. Some are even predicting a bearish push to much lower levels. Don't forget the Goldman Sachs call for $1285. I am inclined to think a choppy sideways trading range is the most likely result of the current mix of tepid economic data with underlying recessionary fears.
My July RUT iron condor stands at a P/L of +$2,220 with delta = -$49 and theta = +$81. Since there is so much less time remaining in the July position, today's pull back helped a lot. The call spreads are now about one and a half standard deviations OTM. The August condor stands at a P/L of -$1,180 with delta = -$98 and theta = +$84. I hedged this position before the holiday, but removed that hedge this afternoon. But this condor is far from out of danger. The Aug 850 calls still have a delta just under twenty.
Enjoy your weekend.
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The heat appears to have even affected the markets. They are just slowly trading sideways and somewhat downward - much as we are inclined to slow down a bit and take it easy in the summer heat. SPX closed down $2 at $1352 and RUT closed at $805, down $2. Trading volume was flat with 2.1 billion shares of the S&P 500 trading. Trading volume increased 7% on the NYSE, but was flat on NASDAQ.
Today was a slow day for economic data reports; in fact, this week will be pretty slow until Thursday's unemployment claims numbers. Surprisingly, the VIX increased a bit from Friday, but closed at 18%, still a pretty low level.
I am watching the 50 dma at $1338 for SPX. That should act as support. On the other hand, breaking through the recent highs at $1375 would be a bullish sign. However, I am inclined to think neither will happen. I don't see any news with the potential to really kick this market into rally mode. Some unexpected surprises out of Europe could push us downward, but I think the best bet is that we continue to "muddle along".
My July iron condor on RUT stands at a net gain of $2,300 or +15% with position delta = -$39 and theta = +$93. The August position stands at a P/L of -$1,040 with delta = -$104 and theta = +$93. The Aug 850 call is riding right along the edge with a delta of 18.
Now go get something cold to drink and relax on the patio. Think about AAPL - up again today in a weak overall market.
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I am increasingly skeptical of anyone who tells me he understands these markets. The incredible bullishness of the past two sessions continued today, even on a holiday with an early market closing. SPX closed at $1374, up $9. RUT is trading even more aggressively, closing up $11 at $818. Trading volume was mixed, but still higher than one might expect before a holiday. Volume was up 42% on the NYSE. On the other hand, trading volume was down 3% on NASDAQ.
There wasn't any new economic data today to explain the strong rally on Wall Street. ADP's payroll report will come out Thursday and then we get the jobs report on Friday. Many will be watching the jobs report closely for evidence of more economic softening. Much of the recent data appears to be pointing to a slowing of the economy at best and perhaps a new recession at worst. That is what perplexes me about the strength of the market over the past three sessions.
My July condor is feeling the pressure of this market run with a P/L of +$1,360 with delta = -$92 and theta = +$125. The 850 call remains one standard deviation OTM, but the relentless push higher is being felt. The Aug condor stands at a P/L of -$1,980 with delta = -$50 and theta = +$51. It doesn't seem possible that this rally can continue, but maybe that is precisely what we are in for - hard to predict these things.
Enjoy your mid-week holiday. Remember to be thankful for your prosperity and your freedom. Those benefits are inextricably linked.
