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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...
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Markets opened lower this morning as some disappointing economic news supplanted worries about Europe. SPX traded as low as $1299 before recovering to close at $1310, down $3 on the day. RUT lost less than a dollar to close at $762. Trading volume spiked upward with 3.1 billion shares of the S&P 500 trading. Trading volume increased 27% on the NYSE and increased 29% on NASDAQ.
ADP reported private payrolls increased by 133 thousand jobs - not great, but not terrible. Initial unemployment claims increased by ten thousand but continuing claims decreased by 36k. The Chicago PMI caused some heartburn by decreasing to 52.7 for May, down from 56.2.
Reports that the IMF is considering programs to help Spain with their debt crisis helped pull the market out of its tailspin. SPX appears to be establishing support over the past few sessions around $1295 to $1300 with those long lower shadows on the candlesticks, but this remains a dangerous, volatile market.
My June iron condor on RUT stands at a net gain of $980 with position delta = +$56 and position theta = +$133. The put spreads are about 1.5 standard deviations OTM and the call spreads are about three standard deviations OTM, so this position is looking pretty strong in spite of the ugly market conditions.
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Traders took a break today from worrying about Greece, Spain and the European Union. SPX gained $15 to close at $1332, while RUT gapped up at the open and gained $11 to close at $777. Trading volume jumped up with 2.4 billion shares of the S&P 500 stocks trading; trading on the NYSE increased 19% and volume rose 28% on NASDAQ. However, much of that increase is explained by the low trading volume last Friday before the long holiday weekend. Trading in the S&P 500 remains well below its 50 dma.
The VIX was sounding a cautionary note with only a small drop to 21.1% - traders remain on guard.
A few positive signs have been seen in the real estate market the past few weeks, but the Case Schiller housing price index fell 2.6% in March - a smaller decrease than the previous month, but still the wrong direction. The Conference Board released their consumer confidence figures for May today; they dropped from 68.7 to 64.9 - not a good sign. Many analysts track this number since consumer spending is such a powerful factor in the economy.
Today's strong move upward for RUT pushed my June iron condor at 690/700 and 880/890 close to its maximum gain of $2,640 or 15% with about two weeks to go to expiration.
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Traders turned their attention to Spain's sovereign debt problems today and the markets gave back everything that was gained yesterday. SPX opened up in the red and drifted downward all morning; then it bounced along the bottom all afternoon, hitting lows near $1311. SPX closed just barely above those lows at $1313, for a loss of $19 on the day. RUT gave up $15 to close at $762. Trading volume remained low at 2.5 billion shares of the S&P 500 trading today, well below the 50 dma at 2.8B. Trading on the NYSE was up 4% but volume was flat on NASDAQ with an increase of less than 1%.
The VIX gapped up at the open and rose to 24.1%. This is close to the highs around 25% set about a week ago. To put this in perspective, VIX peaked just under 31% in mid-December when the bull market trend began that took us into 2012 so strongly.
My Jun RUT condor position stands at a P/L of +$1,140 with delta = +$51 and theta = +$107. The jobs report and GDP data later this week may turn traders' attention away from Europe, but I am doubtful. Spain is a much larger economy than Greece. This is getting serious.
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But then, that is what the optimist was heard to say as he passed the 10th floor after falling off the 80 story building! Markets traded largely sideways today until about 2 pm ET when the bears staged a raid. SPX fought back a bit but ended the day off $3 and closing at $1318. RUT closed down less than a dollar at $766. Trading volume fell off sharply - I guess everyone left early for the long holiday weekend. Trading in the S&P 500 fell to 2 billion shares and volume on the NYSE decreased 23%. Trading volume on NASDAQ dropped 27%. The VIX was basically unchanged at 21.8%.
The University of Michigan consumer sentiment survey came out at 79.3 for April; this is up a bit from March's 76.4 and is the highest level for this survey since October, 2007. But the market is focused on Europe so this data point was ignored.
The S&P 500 index has held pretty steady above support around $1305 - $1310 the past several days. If it were to break down through support, I would be watching the 200 dma at $1282 for the next possible support level. We have a long weekend with the possibility of market-moving news coming out of Europe some time before Tuesday morning's open. I left my hedges in place for any positions that were the least bit tight on the downside. My June iron condor on RUT at 690/700 and 880/890 is not hedged at this point; it stands at a net gain of $940 with delta = +$52 and theta = +$88 with 20 days left to go.
Enjoy your long weekend. Don't forget the true meaning of this holiday.
