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The markets looked pretty weak this morning as SPX dropped as low as $1392, but then the bulls rode in to the rescue and pulled the major index averages back and nearly recovered all of the losses. SPX closed at $1403, down $2 and RUT closed at $832, down $2. Trading volume was basically flat with 2.8 billion shares of the S&P 500 stocks trading today. Trading volume on both the NYSE and NASDAQ were down less than one percent. One has to be impressed by the strength of this market; everyone keeps talking about a correction, but even when the market looks pretty weak, as it did this morning, the bulls return to the table. So far, the "correction" consists of slowing down and trading largely sideways for a time, giving all of the indicators time to catch up. Of course, it may fool me and go over the cliff tomorrow. I am always suspicious of those who confidently predict the future of the market.
GDP growth for the fourth quarter was revised to a 3.0% growth level which didn't surprise analysts one way or the other. Initial unemployment claims came down again at 359k but analysts were expecting a bigger decline. Continuing unemployment claims dropped 41k to 3.34 million. So we are slowly climbing out of the hole, but this has been the slowest recovery from a recession ever recorded.
My April iron condor on RUT stands at a net gain of $2,280 with delta = -$4 and theta = +$59 on 20 contracts.
The next area of risk for this market is the upcoming earnings season; if traders start seeing corporate weakness in those numbers, we could see the correction everyone has been predicting.
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I hesitate to say there is a "normal" pattern to market price movement, but whenever the market runs hard to the upside, many traders start to get nervous and expect a correction. And the harder the run upward, the correction is feared to be even more severe. This market has indeed run hard to the upside, with the S&P 500 up 12% so far this year. But the expected correction has not occurred. Instead, we have seen a pattern of positive days and then just some slow sideways moves or slight declines. It has been just enough to burn off some of the market excesses. Today SPX pulled back $7 to close at $1406 and RUT closed down $6 to $834. But notice how the weak days never really threaten the solid support levels of the indexes. Trading volume bumped up today with 2.8 billion shares of the S&P 500 trading. Trading on the NYSE was up 12% and volume was also up 6% on NASDAQ.
The VIX closed virtually unchanged at 15.5%; it spiked up above 17% briefly this morning, but then pulled back. So volatility remains relatively low. Is that good? Or is it the lull before the storm?
Durable orders jumped up 2.2% in February - a big improvement over the 3.8% drop the previous month. But analysts had predicted an even higher gain, so that disappointment may have helped dampen enthusiasm on the street today.
My April iron condor on RUT at 700/710 and 910/920 stands at a net gain of $2,320 with delta = -$5 and theta = +$50 (20 contract position).
Have you noticed AAPL and GOOG? They are on quite a run - nothing new for AAPL. I bought some of the Jan 2013 AAPL $445 LEAPS calls back in January and that has been an exhilerating ride. I point this out because it is tempting to look in the rear view mirror and say "I should have bet the farm on those calls". But that is a good way to lose your farm...
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Weak PMI data from China and the Euro Zone caused some concern on Wall Street this morning, so markets opened weakly and mostly chopped sideways all day. SPX lost $10 to close at $1393 and RUT traded down $8 to $821. Trading volume was weak with 2.7 billion shares of the S&P 500 trading; trading volume was up 7% on the NYSE and down 2% on NASDAQ. Support levels are holding amid these gradual declines; is this heading for a significant correction? Or is the market just slowly correcting over a longer period of time?
Initial unemployment claims came in lower by 10k at 348k and continuing claims dropped by 10k as well - small improvement, but improvements.
The VIX jumped up less on half a point on today's negative trading to close at 15.6%, still relatively low.
My April iron condor on RUT is up $1,920 with delta = +$8 and theta = +$60.
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Bernanke expressed disappointment with the current level of unemployment this morning and traders interpreted that as a promise of another round of quantitative easing. So the bulls returned to the party and we ended up with a very strong day in the markets. SPX gained $19 to close at $1417 and RUT closed up $16 at $846. RUT gapped up strongly this morning, closing well outside of its recent trading range, but RUT still has a ways to go to match the highs of 2011. Surprisingly, trading volume didn't spike up amid the enthusiastic buying; 2.5 billion shares of the S&P 500 traded, slightly down from yesterday. Trading on the NYSE was only up 1%, but volume was up 12% on NASDAQ.
Pending home sales dropped 0.5% in February, but that didn't matter to today's market.
The VIX closed at 14.26%, down about a half of a point. Oddly, VIX was up earlier today as the market averages were hitting new highs.
My April condor position on RUT is up $2,100 with position delta = -$22 and position theta = +$62. Our 910/920 calls appear to be safely OTM even in this bullish environment. One might consider rolling up the 700/710 put spreads at this point, but with the prospects of a correction after such a strong run so far this year, that is probably a bit risky.
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Today's market opened up weak and then started to strengthen as the day wore on; so far, this is a familiar pattern of late. But then the markets sold off the last thirty minutes to log losses for the day. SPX lost $3 to close at $1403 and RUT was essentially flat at $830, gaining about half of a dollar. Trading volume was flat to slightly down with 2.6 billion shares of the S&P 500 trading. Trading volume was down 3% on the NYSE and was down 2% on NASDAQ .
Existing home sales came in essentially flat at 4.59 million in February as compared to 4.63M in January. Analysts continue to debate whether we have seen the bottom in the real estate market.
My April condor on RUT continues to build value with a P/L of +$1,980 with delta = -$11 and theta = +$60.
Many market pundits have been predicting a correction for some time now; perhaps the markets are basically trading sideways and allowing the overbought conditions to dissipate in a more tranquil way. Then again, maybe tomorrow it collapses... Stay on your toes.
