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The markets pulled back significantly on news from Europe that the optimal solution to their debt crisis may not be materializing overnight - and this was a surprise? Technical analysts will view this as simply a case of the markets hitting resistance and bouncing back downward into the trading range of the past two months. The economic data that came out today wasn't extremely negative, but it certainly wasn't very positive either, so that didn't help traders' moods. The Empire Manufacturing survey came in at -8.48, slightly better than last month's -8.82, but worse than the -5.0 that was widely expected. Industrial production increased an anemic 0.2% and capacity utilization stands at 77.4%. So in the absence of any strong economic date suggesting a strong recovery, everyone is focused on Europe. And that situation isn't going to be resolved anytime soon. SPX opened at yesterday's close and traded steadily downward from there, closing at the lows of the day at $1201, down $24. RUT also lost $24 to close at $689. Lower than average trading volume continues with 2.8 billion shares of the S&P 500 trading today; this is a decline from yesterday and well below the 50 dma at 3.9B. Trading on the NYSE was up 10% and trading volume was up 1% on NASDAQ. The VIX jumped up 5 points to 33.4%, reaffirming the concerns of further bearish trade in the coming days.
My Oct iron condor on RUT stands at a P/L of +$856 with position delta = -$19 and position theta = +$296 on 20 contracts. Both spreads are about two standard deviations OTM. The Nov condor stands at a P/L of +$480 with delta = -$24 and theta = +$142 (also 20 contracts).
Today's trading so steadily downward all day and closing with the major market averages near or at their lows for the day is pretty bearish behavior. This may be the beginning of a run downward to test the support levels of this trading range once again - a great market for non-directional traders, but a very difficult market for directional traders. The fact that these runs both upward and back down are occurring on low volume just reaffirms the market's lack of direction - we are basically trading sideways in a wide range until traders gain confidence to trade strongly one way or the other.
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Following the lead from Europe's major indexes trading up today, our major market indexes traded higher as well, but trading volume dropped again. SPX closed up $21 at $1225 and RUT gained $14 to close at $712. Trading in the S&P 500 dropped off to 2.8 billion shares; trading volume on the NYSE dropped 9% and trading on NASDAQ was essentially flat with a 1% drop. Retail sales gained 1.1% in September, but the University of Michigan consumer sentiment survey dropped to 57.5 for Oct, down from 59.4. SPX broke through the $1200 and $1220 resistance levels today. Some may set the upper resistance level of this trading channel at $1230 since SPX reached $1230 on an intraday basis in early September but then closed lower. In either case, we are close to breaking out of this trading range we have been trapped in for the past two months. The contrary indicator is the low levels of trading volume. Break-outs have a much higher probability of follow through when they occur on increased trading volume.
I left my Oct iron condor on RUT open. The 740/750 call spreads are about one standard deviation OTM; I will allow additional time to bleed out of this spread before closing it next week. This position stands at a P/L of -$1304 with delta = -$140 and theta = +$505. I rolled the 490/500 puts (closed for $0.28) in my November position up to 560/570 today (opened for $0.68). The Nov condor now stands at break-even with delta = -$57 and theta = +$127. This move has pushed our maximum gain up to $4,100 for this 20 contract position.
Enjoy the weekend.
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Encouraging news out of Europe helped push stocks higher today, but the rally ran out of steam in the afternoon as key resistance levels were hit. SPX closed at $1207, up $12 and RUT gained $11 to close at $700. Trading volume was up with 3.6 billion shares of the S&P 500 stocks trading today; trading volume was up 18% on the NYSE and was up 19% on NASDAQ. Take a look at the SPX chart; it is remarkable how the SPX price hit resistance at $1220 and pulled back. This is the high end of the trading range we have been in since early August. The question on everyone's mind is whether it can break through $1220 and spark a continued rally higher.
The VIX pulled back to the lower end of its recent range at 30%, but then pulled back to close at 31%. This makes the fourth time the VIX has dropped down to about 30% and then popped back upward as the market reversed back into the trading range.
The talking heads on CNBC appeared to be obsessed with the Dow closing in on its opening level for 2011 earlier today, but the S&P 500 is a much better measure of the overall market and we are far from the January opening of $1260. The SPX remains underwater by over 4% for 2011.
My Oct iron condor on RUT stands at a P/L of -$1104 with position delta = -$100 and theta = +$397. The Nov condor stands at a P/L of +$200 with delta = -$53 and theta = +$104 (both are 20 contract positions). The theta/delta ratios on both positions are strong, but the call spreads in both positions are beginning to be pressured as this rally continues. Unemployment claims come out in the morning. It will be interesting to see if we pull back into this trading range or seek new highs tomorrow.
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Concerns about Europe's banks once again dampened the stock markets. But trading revived late in the day and almost made it back to opening prices before succumbing to selling pressures. SPX closed down $4 at $1204 and RUT gave up $2 to close at $699. Trading volume fell across the board with 3 billion shares of the S&P 500 changing hands; volume fell 16% on the NYSE and dropped 15% on NASDAQ. The price action on SPX today was encouraging to the bulls. The bears took SPX to $1191 before the bulls stepped in and pushed it back to the opening of the morning. So, one has to wonder if we are building support here for a break-out from this trading range of the past two months. The VIX rose a bit today but ended up closing near its open at 31%.
The unemployment claims data had virtually no impact on trading; for one thing the data are essentially unchanged and, secondly, everyone remains focused on Europe. Initial unemployment claims were 404k, unchanged from last week's 405k and continuing unemployment claims were down 55k to 3670k.
The Oct RUT iron condor position stands at a net loss of $304 with position delta = -$84 and position theta = +$319 (20 contracts). The 740/750 call spreads are under pressure and are keeping this position underwater at this point. The delta of the 740 calls is 10, so we are in pretty good shape as long as the markets don't break out strongly to the upside. The Nov position stands at a P/L of +$740 with delta = -$45 and theta = +$95. The 780/790 call spreads are about one standard deviation OTM.
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The markets took a breather today after that strong showing yesterday, trading basically sideways all day in lower volume. SPX closed at $1196, up $1 and RUT gained $4 to close at $689. Trading volume on the S&P 500 was flat at 3.0 billion shares; trading on the NYSE was up 3% and trading volume was up 5% on NASDAQ. An absence of economic data and no new rumors or news from Europe left the markets listless. SPX appeared to bounce off resistance at $1200; that level has been pretty strong resistance in the recent past. If it breaks through $1200, the next resistance is $1220 before we can possibly hope we have broken free of this trading range.
My Oct iron condor on RUT is close to break-even with a P/L of -$204 and delta = -$64 and theta = +$223. The Nov condor stands at a P/L of +$660 with position delta = -$35 and position theta = +$92 on 20 contracts.
