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The late Harry Caray of Cubs baseball fame here in Chicago made "Holy Cow" one of his trademarks. And it certainly would apply to today's market. A deal was reported out of Europe this morning to address the European sovereign debt issues and the market went ballistic. SPX gained $43 to close at $1285 while RUT closed up $38 at $765. SPX sliced through its 200 dma at $1274. The only sign of weakness was giving back about $10 in the last few minutes of trading. The VIX gapped down at the open and closed at 25.5%, the lowest level since early August when the market collapsed. Trading volume surged with over 4.9 billion shares of the S&P 500 trading. Trading volume was up 27% on the NYSE and was up 32% on NASDAQ.
Third quarter GDP grew at 2.5%, a nice increase over the second quarter's anemic 1.3% growth. That helped calm some recession fears. Unemployment remains stubornly high with 402k new unemployment claims, flat from last week. Continuing unemployment claims dropped by 96k to 3.6 million.
The market's surge forced me to re-establish my hedges on the November iron condor (I wish I had left the hedges in place from Monday); I also rolled the put spreads up to 660/670. This adjusted our Greeks to an acceptable range with delta = -$19 and theta = +$96, but we remain underwater.
Market analysts have been almost unanimously surprised with the extreme strength of today's rally with several analysts predicting a pull back in coming days. But getting in front of this freight train could be dangerous.
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Traders were focused on the European Union Summit today, and the markets gyrated back and forth as a result. No clear plans were forthcoming, so traders took varying positions. The markets opened positively but then sold off. But buying resumed in the afternoon and the markets closed with modest gains. SPX gained $13 to close at $1242. RUT closed at $727, up $14. Trading volume was up with 3.7 billion shares of the S&P 500 trading (50 dma at 3.6B). Trading was up 9% on the NYSE and was up 20% on NASDAQ.
New home sales increased 17k to 313k for September. But durable goods orders dropped 0.8% in September, a larger loss than the previous month's 0.1% decline.
My Nov iron condor on RUT stands at P/L of -$340 with delta = -$87 and theta = +$192. As it becomes more clear that a quick fix isn't coming out of Europe, will traders turn their attention elsewhere, or will we continue to "muddle along"?
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Markets rallied again today, but on lower volume. SPX gained $16 to close at $1254 and RUT closed up $24 at $736. RUT has now closed for the first time outside the trading range formed since early August. SPX closed outside this trading range for the second time today, but the lower volume causes one to pause. The next resistance level is the $1260 low formed in June. The VIX dropped to 29%. This modest drop reinforces the fact that we still have several ticking time bombs in Europe. Overnight news from Europe could tank our markets very easily one of these days, so be cautious. Third quarter GDP data comes out on Thursday - that will be another test of this rally. You may scoff at my caution, but the lower trading volume suggests the large institutional players are on the sidelines of this rally, so I don't think I am alone with my concerns about this market.
Trading volume dropped off today with 3.3 billion shares of the S&P 500 stocks trading; trading volume was down 20% on the NYSE and was down 5% on NASDAQ.
I hedged my November condor on RUT and it stands at a P/L of -$950 with position delta = -$37 and position theta = +$116. Volatility on RUT remains at 40% so that keeps considerable pressure on my call spreads as this rally continues. So, we hold our binoculars with one hand as we keep a close eye on Europe and hold our wallet with the other hand. Let's see what tomorrow brings.
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The markets traded back down today as some of the news from Europe wasn't reassuring. One finance minister meeting was cancelled and traders feared the scheduled summit might also be rescheduled. Some analysts also predicted that no firm solutions to the European debt are expected anytime soon. Perhaps the markets got a little ahead of themselves over the past couple of weeks? SPX dropped $25 to close at $1229 while RUT closed at $714, down $22. Today's drop on SPX returns us to the support level at $1230; it will be interesting to see if SPX opens below $1230 in the morning. If so, we may retest some of the recent lows. The price action on RUT was even more ugly today - RUT gave back all of yesterday's gains to place this index firmly back within the trading range of the past few months. Trading volume was flat on the S&P 500 with 3.3 billion shares trading; trading volume on the NYSE increased 9% while volume on NASDAQ dropped 6%.
Today's economic news was disheartening, but probably had minimal effect on traders who are preoccupied with Europe. The Case-Shiller housing price index dropped 3.8% in August and consumer confidence numbers dropped to 39.8 for August from September's 46.4.
I removed the hedges on my Nov RUT condor position; it now stands at a P/L = +$200 with delta = -$61 and theta = +$183. So now we watch to see if we have returned to the trading range. Given the continuing uncertainty in Europe, it certainly seems logical to expect our markets to remain trapped in this trading range.
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The markets traded up strongly for the first ten days or so in October but for the past several days, the major indexes seemed to stall at the upper end of the trading range we have been trapped within since August 1. This stall, in itself, was a new wrinkle to the pattern. Previous runs to the upper end of the trading range had just as quickly descended to the lower end of the range. SPX broke through the upper end around $1230 and forcefully closed near its highs for the day at $1238, up $23. RUT gained $16 to close at $712. RUT remains within the trading range of the past couple of months but SPX is in uncharted territory. Traders are still nervously watching Europe for any signs of the sovereign debt crisis being contained. News this weekend could easily undo today's nice bullish run outside the trading range. So we must remain cautiously optimistic. Trading volume bumped up a bit from yesterday with 3.7 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 19% but trading volume declined 2% on NASDAQ.
RUT settled at $709.83, so the remaining 560/570 put spreads in our October iron condor position expired worthless, and that position logged a 9.4% return. The November iron condor on RUT stands at a P/L of +$440 with delta = -$61 and theta = +$163.
So now we pat ourselves on the back for making money in October and focus on enjoying our families and friends for the weekend. Try not to think about the markets until Monday morning.
