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The latest news from Europe continues to be the dominant factor moving this market day to day. And, unlike most factors we analyze for their effects on stock prices, the European debt crisis defies analysis. Whenever you think it is under control, another rumor, interview or news report sends us all running for the exits. SPX traded downward $16 to close at $1210 and RUT lost $15 to close at $694. Trading volume declined to 3.5 billion shares in the S&P 500; trading was also lower on the NYSE by 12%. Trading volume increased 2% on NASDAQ.
The CPI came in for September at +0.3%, a decrease from last month's 0.4% increase. Housing starts were up at 658k, from last month's 572k, while building permits were down at 594k, from last month's 625k. SPX has been trading just below resistance at $1230 for several days now. Looking only at the price chart, one would observe that we are trading right at upper end of the recent trading range and the index may still break-out to the upside any day. However, VIX continues to rise; it closed at 34.4% today. That is a bearish sign.
I closed the 740/750 call spreads in the October RUT iron condor position for $0.16. That leaves the Oct position with only the 560/570 put spreads, safely far OTM. Assuming the put spreads expire worthless, our October condor finishes at a net gain of $1,516 on 20 contracts or 9.4%. This brings our 2011 track record for the Flying With The Condor™ service to a 32% gain - not bad for a year when the S&P 500 is down 4%. Our November iron condor on RUT with call spreads at 780/790 and put spreads at 560/570 is at break-even with delta = -$28 and theta = +$168.
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Our markets continue to be held hostage to any kind of news or rumor coming out of Europe. Markets traded lower this morning based on a report that Moody's has put France on negative credit watch. Later in the morning, there were positive reports about Germany and France cooperating to make the debt bailout a certainty - but, again, no specifics. But this news encouraged traders and the market rallied throughout the day, but then the earlier news reports were called into question, so the trading became very choppy in the last hour. It is hard to predict where the markets may go tomorrow. SPX tacked on $29 to close at $1230 and RUT closed at $709, up $21. Today's move returns SPX right to the resistance level set earlier in September - tipping point. Trading volume spiked up today with 3.9 billion shares of the S&P 500 trading today; this is slightly above the 50 dma at 3.8B. Trading volume was up 22% on the NYSE and increased 15% on NASDAQ.
My Oct iron condor on RUT stands at a P/L of +$96 with delta = -$90 and theta = +$1,000. The 740/750 call spreads are right at one standard deviation OTM. I tried to close them this morning, but was unable to get a good price before the market rally took over. The Nov condor stands at a P/L of +$60 with delta = -$51 and theta = +$155. So we sit back and watch to see what news report or rumor sends this market soaring or diving tomorrow.
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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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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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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.
