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Disappointing economic data sent the markets lower this morning. The major indexes recovered some of the losses before closing down for the day. SPX traded as low as $1341 before closing at $1347, down $9 on the day. RUT was once again weaker than the broad large cap indexes, losing $11 to close at $833. Trading volume was flat to down with 3.4 billion shares of the S&P 500 trading, down from yesterday and just above the 50 dma at 3.3B shares. Trading was up 5% on the NYSE and unchanged on NASDAQ.
The news of Portugal's bail-out took European markets down this morning and that might have set the tone for the opening of the US markets. But the economic data here didn't help. ADP reported 179 thousand new private payroll jobs, but analysts were expecting 200k. And the ISM services index dropped to 52.8 for April from March's 57.3.
Today's move downward took my May iron condor on RUT back to a delta neutral posture with a P/L of +$1,092 and delta = -$5 with theta = +$51. My RUT condor for June stands at a P/L of +$536 with delta = -$48 and theta = +$65. The market's recent weakness doesn't appear to have an obvious cause and effect. Perhaps the long awaited reaction to the end of the Fed's quantitative easing program is beginning?
It is fascinating to compare my directional trading portfolios to my delta neutral trading portfolios. When the market is trending strongly, the directional portfolio does well and the delta neutral trades struggle to minimize their losses. And now my directional trades are struggling and my delta neutral trades are flourishing. It makes a good case for diversifying your strategies.
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The markets largely traded sideways and slightly downward this morning, but selling pressure took the markets steadily lower most of the afternoon. But the bulls came in and picked up some bargains around 3 pm ET, helping the markets close off of their lows for the day. SPX closed at $1357, down $5, after hitting a low at $1350 earlier in the afternoon. RUT dropped even harder for the second day, closing down $11 at $844. RUT led the markets all of last year, seemed to falter in early 2011, but then again led in this latest bull run upward, but now the RUT is leading in the decline.
There wasn't much economic news today and no news that I know of to account for the markets selling off. Factory orders were up 3% for March, a big improvement over the 0.7% increase in February; but that news didn't seem to affect the markets. Trading volume was up across the board with 3.5 billion shares of the S&P 500 trading; volume was also up 11% on the NYSE and up 7% on NASDAQ.
This pull back by RUT was welcome relief for my iron condor positions. The May condor now stands at a P/L of +$852 with delta= -$25 and theta = +$65. The June condor stands at a P/L of -$1044 with delta = -$77 and theta = +$92. I removed the hedges from this position today; those adjustments cost me $184 but have kept me in the position with an opportunity to salvage a gain down the road. However, as you can see from the theta/delta ratio, this position isn't out of the woods yet.
The fact that SPX hit $1350 and bounced today is somewhat encouraging. It suggests that significant bullish support remains for this market. But we'll see. The only thing certain about this market is its uncertainty.
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The markets tacked on a few more points today on average to below average volume. SPX closed at $1364, up $3 and RUT hit a new all-time high at $865, a gain of $4. RUT has now erased all of the damage done in 2008-2009. Trading in the S&P 500 hit the 50 dma at 3.4 billion shares while trading on the NYSE was down 7%. But trading on the NASDAQ was up 23%, perhaps due to all of the activity in RIMM and MSFT. This market is being driven by the Fed's QE II, which is driving the dollar lower and the markets higher. Commodities continue to trade upward without a pause. Oil hit $114/bbl intraday and gold traded as high as $1570 intraday and closed at $1556. More fuel for this bull market has been delivered by the earnings reports thus far. Over 300 of the S&P 500 companies have reported and over 80% have met or beat Wall Street's estimates.
My condors are being pressured by this relentless move upward; both positions are underwater and the theta/delta ratios are about one-to-one on both the May and June positions. The June condor is hedged with July calls, but I will soon have to roll the call spreads upward to remain in this position. We'll see if next week gives us a breather.
Here in Chicago, we are finally getting some warm weather so that means yard work. Enjoy your weekend.
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Trading was choppy at the open this morning and weakened as the day progressed. SPX closed down $9 at $1361 while RUT gave up $11 to close at $855. The VIX increased a bit to 15.99%, still pretty low for the past several years. The ISM manufacturing index came out at 60.4 for April; this was a drop from last month, but beat expectations. Construction spending was up 1.4% for March while analysts expected no change. Trading volume in the S&P 500 dropped to 3.0 billion shares, well below Friday's volume and below the 50 dma. Trading on the NYSE increased 4% and dropped 15% on NASDAQ. Meanwhile oil remains high at over $113/bbl and gold keeps setting new highs. It seems inconsistent to me that the "flight to safety" continues in gold at the same time that the stock market is soaring. Perhaps this simply shows the effects of the Fed's QE II. If so, what happens when that program ends?
The pull back by RUT took a lot of the pressure off my May and June iron condor positions. My May condor now stands at a P/L of +$212, with a position delta = -$63 and theta = +$99. The June condor is still hedged with July calls and stands at a P/L of -$1,744 with delta = -$40 and theta = +$58. We'll see what tomorrow brings.
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Initial unemployment claims startled traders this morning by going back up over 400k to 429k, up 25k from last week. But continuing unemployment claims dropped by 68k, although many of those are simply running out of benefits and dropping off the rolls rather than becoming employed. First quarter GDP came in at 1.8% which beat expectations of 1.7%. The net result was sideways trading throughout most of the day, but the bulls took charge about 2 pm this afternoon and tacked on some more gains. SPX gained $5 to close at $1360, while RUT set another high at $862, up $3. Trading volume was down on the S&P 500 with 3.1 billion shares changing hands. Trading only increased 1% on the NYSE and dropped 5% on NASDAQ.
My May iron condor stands at a P/L of -$828 with delta = -$74 and theta = +$154 while the June condor stands at a P/L of -$1,984 with delta = -$38 and delta = +$56. Both condors are being pressured on the top side. Current market levels are back to the spring of 2008. Can this bull market take us back to the highs of 2007?
