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Is it safe to go back in the water? Markets generally traded upward Friday with the SPX running up $14 to close at $1320 and RUT closing at $822, up $18. Even more impressive was the intraday chart; SPX never traded for a loss at any time; it was almost a straight upward progression with the exception of some hesitation late morning. Traders focused on reassuring comments about oil supply coming out of Saudi Arabia; this dropped the spot price of oil and calmed the stock markets. Although it wasn't all rosy; the Dow and NASDAQ both ended the day unchanged. From my perspective, we have a market that is a bit scared (Middle east, Libya,
Euro debt, etc.) and yet sees primarily good news in the US - earnings
reports are positive, economic data point to a recovery, albeit slow, etc.
So the market as a whole is ambivalent. Hence, we are nervous even on a day like Friday as the markets generally head higher. The VIX hit a high over 23% two days ago, but closed down at 19.2% Friday. Trading volume dropped off significantly on Friday with 3 billion shares of the S&P 500 trading. This is well below the 50 dma at 3.4B. It was the only below average day this week. Trading volume on the NYSE dropped 23% and declined 11% on NASDAQ.
Fourth quarter GDP growth was revised downward to 2.8%, below economists' estimates, but the consumer sentiment survey from the University of Michigan came in at 77.5 for February, up from 75.1 last month. So economic news was mixed, but traders were focused on oil and the price of oil was down.
I took today's market strength as an opportunity to close the 690/700 put spreads in my Mar iron condor on RUT. I closed them for $0.23, confirming a gain of $1,040 (20 contracts). This brings our Mar iron condor on RUT at 875/885 and 730/740 to a P/L of +$2,260 with a position delta of -$25 and a position theta of +$144. Now we wait to see if any more bad news hits the markets for Monday morning.
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Oil prices and rioting in Libya were almost the only focus of the financial news outlets today. Oil stayed near $99 throughout the day, but declined to $97 late in the day. That seemed to calm the equity markets a bit. SPX broke through the $1300 line many were watching (including me), but after touching $1294, it recovered most of the day's losses to close down one dollar at $1306. RUT fared better, gaining $5 to close at $804. RUT also traded down to find support at $795 before rebounding in late afternoon trade. Both indexes appear to be consolidating to form a bottom here, but any negative news out of Libya will change that posture quickly. Many of the market leading stocks are posting a similar pattern of either establishing a new support level or pausing at an old support level; take a look at AAPL, GOOG, GS and NFLX. That isn't to say that this evening's news from Libya may not take the market lower. But absent that news, stocks appear to be finding support. Trading volume was down from the high levels of the past two days, but still above average; 3.9 billion shares of the S&P 500 traded today, down from yesterday but above the 50 dma. Trading was up 1% on the NYSE and down 16% on NASDAQ.
Today's economic news was a mixed bag, but the market ignored it in any case. Initial unemployment claims went down to 391k from last week's 413k, while continuing claims rose by 55k to 3.8 million. Durable orders increased 2.7% but new home sales in January dropped to 284k from December's 325k.
My "mixed bag" March iron condor on RUT stands at a P/L of +$2,020, position delta = +$56 and theta = +$128. I am waiting to close one of my put spread positions for a profit, but the recent rise in IV has made that more difficult. So we watch and wait patiently for the market to make its move.
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The unrest in Libya and the prospects of oil supply disruptions worried traders today and they sold stocks throughout the day to lock in gains and lessen their risk exposure. SPX lost $27 to close at $1315 and RUT traded down to $822, a loss of $22. Solid support for both indexes stands at $1300 and $810, respectively. Traders will be watching those levels closely. The Conference Board's Consumer Confidence Index rose to 70.4 from last month's 64.8, and the Case Schiller Housing Price index dropped 2.4% for December; the confidence index value is the highest reading in about three years, but the unrest in the Middle East overshadowed everything else. Crude oil rose 6% to close over $95/barrel, but that was a bit lower than the $98 level hit in overnight trading.
Volatility (VIX) spiked up to 21% today - this was even higher than on "Egyptian Friday" a few weeks ago. The flight to safety was reflected in gold prices hitting just below $1407 mid-day before pulling back to about $1398. Trading volume jumped 13% on the NYSE and 7% on NASDAQ - not nearly as high as one might expect for a market like today - is this a positive sign? Trading in the S&P 500 stocks jumped up to 4.3 billion shares, above the 50 dma at 3.4B but below the volume traded on "Egyptian Friday".
I closed the Mar RUT 760/770 call spreads today for a small gain; I will now wait for an opportunity to close my put spreads at 690/700. This will effectively reposition my Mar condor on RUT to 875/885 and 730/740. The combined position now stands at a P/L of +$1120, delta = +$13 and theta = +$192. The question on traders' minds now is whether the unrest in the Middle East will trigger further market correction or whether this will be similar to the "Egyptian Friday" a few weeks ago with a pretty rapid recovery??
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The continued unrest in Libya and the Middle East cast a pall over the markets this morning, but traders were trying to buy the dip until oil hit $100 per barrel. That brought the sellers back into the market in strength. The S&P 500 Index hit $1300 in the early afternoon and found support there, closing at $1307, down $8 on the day. The Russell 2000 Index (RUT) appeared to be hurt by the prospects of $100 oil more than SPX today. RUT broke through support at $810, hit the 50 day moving average and bounced, closing at $800, down $13. Trading volume was up again today with 4.5 billion shares of the S&P 500 changing hands. Trading volume was up 2% on the NYSE and was up 10% on NASDAQ. The only economic news of any consequence today was positive: a 2.7% increase on existing home sales for January, but $100 oil and revolts in the Middle East held traders' attention. From my perspective, the panic that seemed commonplace in the markets yesterday was more subdued today with more traders expecting that the worst was over - of course, that could be wishful thinking. But there were glimmers of hope, e.g., the tech bellwethers, APPL and GOOG traded up $4 and $1, respectively. That isn't much more than a glimmer, but...
My PCLN Mar/Apr call calendar was closed for a 4% gain today; the big price drop over the past two days erased most of my profit. I was playing the volatility increase in front of tonight's earnings announcement, but the market collapse of the last two days wasn't part of the plan. The RUT iron condor position stands at a P/L of +$960, delta = +$45 and theta = +$180. This position is unbalanced with 20 call spreads at 875/885, 20 put spreads at 730/740 and 20 put spreads at 690/700. I will be looking for opportunities to close one of the put spread positions before I open the April condor.
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Today's trading session started as has become typical for this market: stocks open and trade down on some negative news and then the bulls show up and buy the dip. But today, the bears surprised us and showed up in the early afternoon and took the market south. All of the major indexes rebounded and preserved some modest gains for the day. SPX closed up $3 at $1343 and RUT held onto an increase of less than a dollar to close at $835. The CBOE Volatility Index (VIX) reflected the roller coaster ride, opening at 16.6%, and dropping as low as 15.5% before rebounding and closing essentially unchanged from the open. Trading volume was up, as might be expected for options expiration, with 3.1 billion shares of the S&P 500 trading today, up slightly from yesterday, but still below the 50 dma at 3.4 billion. Trading on the NYSE was up 31% and also up 9% on NASDAQ.
My Feb GOOG 590/600 call spread and the Feb PCLN 390/400 call spread both will be exercised at expiration for their maximum profits of 31% and 38%, respectively. The GS Feb 155/160 put spread expired worthless for a 14% gain. This brings the trade recommendations from Dr. Duke's Trading Group to a 39% gain for 2011 and an 83% gain since this service began in April 2010. Check out our detailed track record.
My Mar condors on RUT remain essentially unchanged from yesterday. The position at 690/700 and 875/885 stands at a P/L of -$440 and delta = -$101 and theta = +$126. The condor at 730/740 and 860/870 stands at a P/L of -$880 with delta = -$137 and theta = +$136. The upcoming three day weekend should help these positions a bit, but next week may necessitate some adjustments or repositioning if this bull market continues without pause.
