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The markets opened this morning in positive territory based largely on JPMorgan's positive earnings announcement. Bernanke's first day of testimony before Congress yesterday boosted stocks, but today's remarks turned the bulls into bears and the selling ensued. The relevant remarks appeared to be Bernanke's assertion that the Fed did not think it necessary to intervene any further to support the markets and did not have a plan to do so at this time. SPX hit a high of $1327 before selling off, breaking through the 50 dma and closing at $1309, down $9. RUT lost $14 to close at $823. Trading volume increased a bit across the board with 2.9 billion shares of the S&P 500 trading (the 50 dma = 2.8B). Trading on the NYSE was down 7% and was down 2% on NASDAQ.
Traders began the day with several economic reports. Initial unemployment claims were down 22 thousand at 405k while continuing unemployment claims were up 15k at 3.7 million. Retail sales were up 0.1%, but after auto sales are extracted, retail sales were flat for June. The PPI for June was down 0.4%. It did not appear that any of this data moved the market significantly one way or the other.
We closed the GOOG Double Calendar spread from Dr. Duke's Trading Group today for a 27% gain. I wish I had bought some GOOG calls this afternoon!
My Aug iron condor on RUT stands at a P/L of +$1,142 with a position delta of -$34 and a position theta of +$77. After my July put spreads expire this weekend, I will start to look for the right time to initiate the September position. I can't believe I am talking about September options positions - where is the summer going?
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Bernanke's comments this morning plus a strong second quarter GDP report from China buoyed the markets today but enthusiasm waned as the day wore on. SPX traded as high as $1331 but closed at $1317, up $4. RUT gained $7 to close at $837. Trading volume dropped below the 50 dma with 2.6 billion shares of the S&P 500 changing hands. Volume was down 4% on the NYSE and down 7% on NASDAQ.
Today was a light day for economic data; tomorrow brings the unemployment claims, the PPI and retail sales.
My August iron condor on RUT at 670/680 and 890/900 stands at breakeven with position delta = -$78 and theta = +$100. Perhaps some of the upcoming earnings reports will change the dark mood of this market.
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Traders' concerns turned once again to the European Union and the sovereign debt issues that threaten to tear the union apart. Selling was even more intense today than on Friday after the disappointing jobs report. The SPX closed down $24 at $1319 and RUT closed at $834 for a loss of $19. Trading volume bumped up a bit with 2.6 billion shares of the S&P 500 trading; however, this is still below the 50 dma. Volume was up 8% on the NYSE and was up 10% on NASDAQ.
There were no economic data reports of any consequence today. I tire of the talking heads on CNBC "explaining" today's declines as due to worries about European debt issues when the same analysts told us last week that European debt was old news and the market had moved on. There is no explaining or predicting of human emotions and fear of the unknown.
My Aug iron condor stands at -$218 with a position delta = -$72 and position theta = +$108. I removed the hedge today. Only the 700/710 put spreads remain from the July iron condor on RUT; I will allow them to expire worthless.
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European sovereign debt issues loomed large in traders' minds today. Late in the day Moody's added to the gloom by downgrading Ireland's debt. SPX closed down $6 at $1314 and RUT lost $4 to close at $830. SPX bounced off of the 50 dma yesterday and earlier today, that support level appeared to have held once again. But late afternoon trading pushed markets lower and SPX broke through and closed below the 50 dma. Given that all of this occurred on higher levels of trading volume is not a good sign. Trading in the S&P 500 stocks rose above the 50 dma to 2.9 billion shares and trading volume was up 12% on the NYSE; Volume on NASDAQ was up 14%. IBD moved from a market assessment of "Confirmed Uptrend" to "Uptrend Under Pressure" yesterday.
IVolatility.com noted the possible head and shoulders pattern in the S&P 500 in their newsletter this week: left shoulder at $1345 on 2/21, head at $1370 on May 2 and right shoulder at $1355 on 6/30. The head and shoulders pattern is a classic upward trend reversal signal. It is confirmed when the price breaks down through the neckline of the pattern. In the case of SPX, that is around $1260 to $1265. My first reaction when looking at this was simply that by the time SPX breaks $1260, everyone will know the trend has turned. However, it isn't the prettiest head and shoulders pattern I have ever seen.
My Aug iron condor is essentially at break-even with a position delta of -$76 and theta = +$109. The delta of the 890 calls has returned to 12 and the call spreads are roughly one standard deviation OTM. So enough of this; now we return to worrying about Europe.
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The jobs report (officially, the nonfarm payrolls report) reported an increase of 18,000 jobs in June. Analysts expected 80k. It seems a little surprising that the market reacted as strongly as it did; a weak economy that isn't creating jobs should not have been a surprise. Unemployment moved up a bit to 9.2%. SPX closed down $9 at $1344 and RUT closed at $853, down $6. We will continue to watch the SPX level of $1370 to see if this bull trend is going to resume. That was the high set back at the beginning of May. A pullback from there will suggest a broad trading range of $1260 to $1370. Pull up a longer term chart of SPX and you will see my point.
The market's explosive run upward caused me to close the 880/890 calls on my July iron condor on RUT yesterday. Today's pull back is frustrating, but you have to follow your rules or risk much larger losses. Assuming that the 700/710 puts expire worthless next week, my July condor has closed at a gain of $820 or 5%. My Aug condor has already been adjusted and is now flirting with forcing me to close the call spreads and re-position the spreads. It is now underwater by $758 and position delta = -$62 and position theta = +$43.
Some analysts recommended today's pull back as a trading opportunity. We'll see next week.
Have a great weekend.
