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The markets rallied strongly today, and one might be tempted to think all is well. SPX tacked on $19 to close at $1388. RUT ran up $12 to close at $809. SPX is now trying to break through resistance at $1390. If SPX closes above $1390, that will return SPX to the sideways trading channel and traders can breathe a sigh of relief. But a close above $1420 will be required to resume the bullish trend, so it is far too early to celebrate.VIX dropped almost 3 points today to close at 17.2%, so that is somewhat reassuring. Trading volume was down again today with 2.4 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 3% and volume dropped 4% on NASDAQ. So we have a strong rally on weaker volume - not very bullish.
Initial unemployment claims rose to 380k this week, but continuing claims fell to 3.25 million, so we had another "not good, not bad" economic report. The PPI did not rise at all in March, so inflation continues to hide somewhere. With all of the money being printed the last couple of years, this lack of inflation is surprising.
My April iron condor on RUT stands at a gain of $2,780 with delta = +$1 and theta = -$3. The spreads are so far OTM that this position stands effectively at its maximum profit, so theta is essentially zero. The May condor stands at a P/L of -$440 with delta = +$34 and theta = +$65.
I was raised in Florida and had the experience of a hurricane tracking right through my home town. When the eye of the storm moved through town, I walked outside my house and was shocked - no rain; no wind; no sound; clear sky with stars twinkling. But one had to carefully enjoy the experience and get back inside, because the storm started up a few minutes later. In fact, some were killed because they didn't understand that phenomenon. I thought of that experience as I watched the markets today; we have now bounced back very strongly, but I think we should remain very vigilant. Don't presume talk of a correction is now passe. In my directional trading, I am generally leaning mildly bullish, but I am watching it very closely. In my non-directional trading, I just follow my rules and control the risk - in some ways a simpler approach, but many find it challenging to maintain the discipline.
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The markets opened in a more positive mood this morning, perhaps helped by Alcoa's strong earnings report last evening. SPX closed at $1369, up $10. RUT gained $12 to close at $797. So about half of yesterday's losses were recovered today. SPX bounced off resistance at $1375 and the 50 dma = $1373, so it is premature to declare this little romp to the downside over. To further support this note of caution, VIX closed at 20%. So this bearish trend of the past couple of weeks may not be over. Be careful.
My Apr iron condor on RUT stands at a gain of $2,580 with delta = +$12 and theta = +$56. Both spreads are 3-4 standard deviations OTM, so this position is looking pretty solid with only 8 days left to expiration. The May iron condor stands at a loss of $1,220 with delta = +$54 and theta = +$57. I removed the hedge on this position this morning.
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Traders were disappointed with the jobs report Friday and stewed all weekend. The major market averages all fell today. SPX lost $16 to close at $1382 and RUT also lost $16 to close at $803. But trading volume was low. Trading in the S&P 500 came in at 2.3 billion shares, well below the 50 dma. Trading on the NYSE was down 4% and volume on NASDAQ was down 12%. The VIX popped up to 19% this morning, pulled back to 18%, but then increased into the close to 18.8% - not a good sign.
My Apr iron condor on RUT is up $2,460 with delta = +$5 and theta = +$100. My May condor stands at breakeven with delta = +$37 and theta = +$67. The bulls attempted to take back control late in the day, as they have so many times this year. But this time, the bears repelled them. Is this a changing of the guard? Many of the world markets were closed today and minimal economic data were reported, so today's weakness shouldn't be taken too seriously. But it still pays to be cautious and watch carefully tomorrow.
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The S&P futures looked modestly positive or flat just before the market opened this morning, but trading turned bearish in a hurry. SPX lost $24 to close at $1359 and RUT closed down $19 at $784. Trading volume spiked up with 3.3 billion shares of the S&P 500 trading; trading volume increased 40% on the NYSE and increased 43% on NASDAQ. As always, there was no shortage of talking heads wanting to explain why the bears took charge today. Many cited the report of a trade surplus in China that resulted from weaker imports.That suggests a slowdown in China's economy; this factor, coupled with Spain's increasing bond yields, fed the fear of some traders that the global economy is slowing.
Take a look at the price chart of RUT. Today's downward price movement appeared to settle and bounce at the support level established in early March at about $785. Whether that support level will hold is difficult to predict. But it does tell me that if RUT opens below $785 in the morning, I will be very concerned about the market trading even lower before it stabilizes. The earning season kicked off this evening with Alcoa. Alcoa beat both revenues and earnings estimates and Alcoa was trading higher by 5% in after hours trading. Will that be sufficient to slow the bearish trading we saw today? We'll see.
My Apr iron condor on RUT dropped in value a bit, primarily due to the volatility spike upward today. At the close, it stood at a gain of $2,340 with delta = +$23 and theta = +$81. I hedged my May condor and it now stands at a net loss of $1,040 with delta = +$3 and theta = +$1. I hedged this position reasonably strongly to be sure this bearish truck doesn't roll over me tomorrow. You can see that in the delta neutrality of the position, but also in the small positive theta of the position. So I have given myself time to see if the market settles down or reverses without incurring outsized risk while I am waiting. Hedging yourself always beating waiting and hoping!
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Yesterday's market weakness after such a strong performance the previous day wasn't too surprising. But today's selling became serious. SPX traded down $14 to close at $1399 and RUT closed down $14 to close at $820. SPX dropped right after the market opened and traded sideways most of the day; some buying during the last hour recovered some, but not much, of the loss. Trading volume was basically flat with 2.8 billion shares of the S&P 500 trading. Volume on the NYSE was up 3% and trading was up 1% on NASDAQ. Most analysts attributed today's market losses to traders reading the FOMC minutes and concluding no further stimulus was imminent from the Fed. Are we that addicted to hand-outs in this country?
The ADP payrolls report cited 209k additional jobs in March, down a bit from last month's 230k. But this still wasn't a bad report. In a similar vein, the ISM Services Index came in at 56.0 for March, down a bit from the previous month's 57.3. Once again, the economic data wasn't signaling an economic boom, but we have certainly seen much worse data in the last couple of years. This week's jobs report on Friday will be somewhat unique in that the exchanges will be closed, so we may be seeing some risk aversion in today's selling in advance of that report; if so, we may see more selling or at least a flat market tomorrow.
Not too surprising, VIX rose on today's sell-off and rose as high as 17.4% this morning, but steadily pulled back after about 1:30 pm ET, closing at 16.4%.
SPX has set up a strong support level at about $1390 over the past five to six weeks, but we only traded down as low as $1394 today before bouncing back up a bit. So far, SPX has held support, but if we break $1390, this could get ugly.
My April iron condor on RUT stands at a P/L of +$2,620 with delta = +$7 and theta = +$30. Both spreads are over two standard deviations OTM at this point with 16 days to go to expiration. We'll see what tomorrow brings; the drop in VIX toward the end of the day was encouraging, but that could change overnight.
