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The markets opened lower this morning and traded downward until around noon and then the bulls woke up and started buying, taking the markets back near the opening levels. SPX sliced through the 50 dma and dipped as low as $1319 before rebounding to close unchanged at $1329. RUT traded down and bounced off support at $815, closing down $3 at $820. All of this action occurred on higher trading volume levels with the S&P 500 stocks trading 3.1 billion shares, just below the 50 dma at 3.2B. Trading on the NYSE was up 10% and up 7% on NASDAQ. Many technical indicators are nearing oversold conditions, but the current bias appears to be downward. However, the fact that today's strong downward move didn't turn into a very ugly day has to be encouraging. Perhaps we have just expanded the lower band of our trading range?
Lower housing starts were reported for April (523k, down from 585k) and fewer building permits were issued in April (551k vs. 574k in March). Industrial production was flat for April, down from a 0.7% increase in March. Capacity utilization was almost flat at 76.9% in April vs. 77% in March. This economic data may have contributed to the weakness in the markets this morning. Some analysts believe the weakening of the dollar later in the day contributed to the market's rebound. But we may be reading tea leaves here, hoping to feel more confident that we have found the cause and effect relationship.
My June RUT iron condor at 690/700 and 900/910 stands at a P/L of +$1,716 with delta = -$14 and theta = +$60. This position remains delta neutral with a fair amount of safety margin to the upside (about 1.5 standard deviations) and a large amount of room on the downside (about 2.5 standard deviations). All in all, this is a difficult market to be trading now - unless you are delta neutral. But even then, the volatility can be a bit unnerving.
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The equity markets sold off pretty strongly today, led by tech stocks. SPX closed down $8 at $1329, right at its support level at about $1330 - $1335, set in early April and mid-May. An open tomorrow farther down may be a very bearish sign for this market. RUT closed at $823, down $13. RUT is in a similar position as SPX on its chart having closed just below the lows set in early May and approaching the $815 low of mid-April. As in previous down sessions, trading volume remains anemic with 2.7 billion shares of the S&P 500 stocks. Trading on the NYSE was up 1% and was up 7% on NASDAQ. So we have traded to the bottom of the trading range; which way will it tip?
The NY Fed Empire Manufacturing Index plummeted to 11.9 for May from last month's 21.7. Otherwise, there were minimal economic data reports today.
My June iron condor on RUT stands at a P/L of +$1,276 with a position delta = -$9 and theta = +$84. This condor is well positioned as the market sits at this tipping point; the puts spreads are way down at 690/700. The 900/910 call spreads are now about 1.5 standard deviations OTM. So we watch to see if the bullish trend resumes or the correction deepens, but our condor is in good shape.
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The markets were weighed down at the open this morning by lower markets overseas as well as a stronger US dollar. But then the dollar turned over and the stock markets revived. SPX gained $7 to close at $1349 while RUT also gained $7 to close at $847. Trading volume was flat with three billion shares of the S&P 500 trading; volume was down 2% on the NYSE and down 1% on NASDAQ. Initial unemployment claims were reported as 434k this week, greater than expected, but down from last week. Continuing unemployment claims were flat at 3.8 billion. The Producer Price Index (PPI) increased 0.8%, a little higher than the 0.5% increase predicted by analysts.
My May iron condor on RUT is near its maximum profit with delta = +$2 and theta = +$63. Unless something dramatic happens, I will allow both the 920/930 call spreads and the 720/730 put spreads to expire worthless. The June iron condor on RUT stands at a P/L of -$44 with delta = -$79 and theta = +$103.
So now we watch to see if this market can sustain a trend one way or the other. It seems we have the Fed's QE II and a series of strong earnings reports pushing the markets upward, but many economic headwinds holding the markets down. For now, the tug of war is a dead heat.
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The markets opened basically flat this morning but quickly turned south when the dollar strengthened. SPX lost $11 to close at $1338 while RUT dropped $12 to close at $836. Trading volume was down across the board with 2.8 billion shares of the S&P 500 trading.Volume dropped 6% on the NYSE and dropped 13% on NASDAQ. The CPI increased 0.4%, in line with analysts' estimates. The University of Michigan Consumer Sentiment Survey reported an increase to 72.4 in May from April's 69.8. But traders seemed to ignore this economic data and just took their money off the table. Although the low volume suggests the institutions are largely sitting on the sidelines.
I applied my "Two Sigma" rule to the remaining spreads in my May iron condor on RUT. The 920/930 call spreads are over three standard deviations OTM while the 720/730 put spreads are over four standard deviations OTM. So I will allow both spreads to expire worthless and book an 8% gain for May. This brings the recommendations of the Flying With The Condor™service to a 19% gain for this year, handily beating the S&P 500 which is up a little over 6%. The June iron condor on RUT stands at a P/L of +$756 with position delta = -$53 and position theta = +$92.
Have a good weekend.
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The dollar rebounded today, pressuring the stock markets. SPX lost $15 to close at $1342. RUT again was more volatile than SPX, closing at $841, down $15 (greater percentage drop than SPX). Trading volume bumped up a bit at 3.0 billion shares of the S&P 500, but this remains below the 50 dma. Trading on the NYSE was up 16% and was up 12% on NASDAQ. The markets appear to be trapped in a trading range. The key levels to watch on SPX are $1330 on the downside and $1370 on the top side. If SPX breaks $1330 going down, we may see some real damage. However, if SPX can break-out above the previous high at $1370, the bulls may be off to the races again.
My May condor is coasting to the finish line with the remaining spreads at 920/930 and 720/730 likely to expire worthless. Both spreads are far OTM (greater than two to three standard deviations). The June iron condor on RUT stands at a P/L of +$136 with delta = -$56 and theta = +$107. The markets' indecision has been good to my condors. Tomorrow will feature the unemployment claims report and the PPI. A sizable increase in PPI could spook the markets. Many analysts are concerned about rising inflation and a big increase in PPI could cause some selling. Fortunately, my June put spreads are down at 690/700 on RUT - that should be safe (he said as the ice berg looms ahead).
