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The markets opened up tentatively this morning, but slowly built strength as the day went on. SPX closed with a nice gain of $11 at $1326. RUT gained $9 to close at $769. On the other hand, VIX ran as high as 23% before closing at 21.2%, so it's too early to relax. Trading volume fell off significantly with 2.5 billion shares of the S&P 500 trading. Volume on the NYSE dropped off 19% and trading volume on NASDAQ was down 15%.
The big question going into next week is news out of Europe over the weekend regarding assistance for Spain's sovereign debt issues. But it seems unlikely that anything definitive will be settled by Monday. But the jobs report from last week is still hanging over the markets. It's one thing to worry about Europe's effect on the global economy; it's quite another to speculate about the U.S. economy slipping back into recession.
My June iron condor on RUT passed its two sigma test today with both spreads over two standard deviations OTM. So I am leaving both spreads open and likely to go into expiration and expire worthless. The June position is now up about 10% and could expire worthless at 11% next week. The July position stands at a P/L of +$1,180 with delta = -$21 and theta = +$69.
So enjoy your weekend and try to forget about this crazy market until Monday.
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The markets were expecting good news from Bernanke as he testified before Congress this morning. The markets opened in positive territory and traded up as Bernanke testified. Interestingly, as this was going on, the VIX was also moving upward. That turned out to foretell the market's disappointment in Bernanke's remarks. Traders were expecting a promise of more quantitative easing, but Bernanke held his cards close and the markets retreated.
SPX traded as high as $1329 before retreating to close unchanged at $1315. RUT closed down $5 at $760. Trading volume also dropped off with 3.0 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE was off less than 1% but volume was down 7% on NASDAQ.
VIX closed the day down less than half of a point at 21.7% - still at anxious levels.
My June iron condor on RUT now stands at a net gain of about 9% with delta = +$26 and theta = +$104. Currently, the 690/700 put spreads are about two standard deviations OTM, so I may or may not close them tomorrow. The July RUT condor stands at a net gain of 7% with delta = -$14 and theta = +$66.
It appears we are on a cusp here: has the last couple of days been a brief short covering rally in an otherwise bearish trend downward? Or is the bullish trend resuming? It is too early to tell. Watch $1295 on SPX. If we close below there, watch out below.
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The markets staged a bit of a come-back today, but the trading volume was unenthusiastic. SPX closed near its session highs at $1286 for a gain of $7 and RUT gained $9 to close at $746. Trading volume declined across the board with 2.5 billion shares of the S&P 500 trading; trading on the NYSE dropped 14% and trading volume on NASDAQ declined 9%. The only real economic news of the day was the ISM Services Index which came in at 53.7 for May, up slightly from April's 53.5.
The big question is whether this is just a temporary rally before the market continues downward? One way to address that question is to look for significant resistance levels to be broken. On SPX, the first would be around $1295 where SPX appeared to bounce back upward in mid-May. The next level of resistance would be around $1305 from late January. If SPX can break through those levels with some volume, we could breathe a bit easier.
Today's rally prompted me to remove my hedges on the Jun condor; it now stands at a P/L of +$380 with a delta of +$71 and theta = +$172. The 690/700 put spreads are about 1.5 standard deviations OTM, but that doesn't feel very safe in this market. My July condor stands at a gain of $920 with delta = +$1 and theta = +$62. So the July position is almost perfectly delta neutral, but if the market rebounds strongly, those call spreads will be pressured next - if it isn't one thing, it's another!
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Rumors of another round of Fed easing and positive comments out of the ECB boosted markets today. In fact, the bounce back was so strong, it's worrisome. This reminds me of the volatility we experienced last fall: big up days followed by down days, etc. SPX closed at $1315, up $30. RUT closed at $765, up $19. Trading volume spiked up with 3.1 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 20% and volume was up 10% on NASDAQ.
The market must have seen my blog yesterday when I said I would feel better if SPX broke the resistance levels at $1295 and $1305. Well, breaking through those levels in one session doesn't make me feel better - ironic, I know. Now I worry about this spike upward blowing out all of the shorts and then turning back down hard. Some calm sideways trading for a few days might ease my stress. The VIX dropped to 22% today, so we are definitely not yet out of the woods.
My June condor on RUT stands at a P/L of +$1,480 with delta = +$27 and theta = +$99. The Jul condor is up $860 with delta = -$23 and theta = +$73.
I will be watching the futures tonight and tomorrow morning, looking for clues...
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Traders pondered the question all weekend: is this the low of the correction or do we have more to go? A related question might be whether a new global recession is on the horizon, led by Europe's sovereign debt problems. SPX broke below the 200 dma Friday and really spooked the markets in the process. SPX opened up in the black this morning, but quickly turned south. But an afternoon rally brought the market back to close at $1278, up less than a dollar. RUT behaved similarly, closing flat at $737. The SPX candlestick today was the classic doji, but with a longer shadow to the downside. This principally an indicator of balanced trading between the bulls and bears, but the lower shadow holds out some hope that the bottom of this correction is being tested. The purists will quibble whether this candlestick should be termed a hammer; the bottom line is that the market traded downward very strongly this morning, but then the bulls showed up and started buying - a positive sign, but not definitive. Trading volume was down from Friday at three billion shares of the S&P 500, but still above the 50 dma. Trading on the NYSE was down 15% and trading volume was down 12% on NASDAQ.
Some news over the weekend could be interpreted as positive for the European debt issues, but the fact remains that the debt problems in Europe are much as they are here. No politician has the courage to touch them. But the markets are largely about perception and if European leaders appear to be saying the right things, the market may stabilize here.
My June iron condor on RUT is hedged with Jul 700 puts and stands at a net loss of $710 with delta = +$38 and theta = +$151. My July condor at 610/620 and 850/860 is up $700 with delta = +$8 and theta = +59. If RUT stabilizes here, the June position should be fine; in that case, our two sigma rule will likely close the put spreads on Friday. The July position is almost perfectly delta neutral; I built in a little extra safety margin to the downside and that has proven helpful.
Enter your bets in the office pool for the SPX low...
