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Unemployment claims took an unexpected jump this morning and that appeared to set the tone for a sideways trading day. Initial unemployment claims came in at 445k, up from last week's 410k. While continuing unemployment claims dropped to 3.88 million from last week's 4.13 million, most analysts dismissed that as being the result of unemployment benefits expiring rather than claimants finding new jobs. The Producer price Index (PPI) increased 1.1% in December, raising inflation concerns with some analysts. The markets traded largely sideways on flat volume in the face of these economic reports. SPX closed down $2 at $1284 and the Russell 2000 Index (RUT) closed at $801 for a loss of less than one dollar. Trading in the S&P 500 stocks was up slightly from yesterday at 3.6 billion shares; trading volume declined 3% on the NYSE and increased 3% on NASDAQ.
My Jan SPX iron condor is still teetering on the edge with a P/L of -$1739, delta = -$217 and theta = +$358. The 1200/1210 put spreads are greater than two standard deviations OTM, but the $1300 calls have a delta of 25. My Feb iron condor on RUT is standing at a gain of $640, with delta = -$63 and theta = +$106.
Before the opening bell in the morning, traders will be watching for the earnings announcement of J.P. Morgan Chase (JPM); this could set the tone for Friday's trading. The financials led the bull run in December and could be expected to continue that leading role if this bull market is destined to continue higher.
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Successful debt auctions yesterday in Greece and today in Portugal reassured traders and the markets traded in positive territory all day. SPX ran up $11 to close at $1286 and RUT closed at $801, up $7. Trading volume edged up a little with 3.5 billion shares of the S&P 500 stocks trading; this is slightly above the 50 dma. Trading was up 3% on the NYSE but down 1% on NASDAQ. The Fed's Beige Book was released today, but it didn't reveal anything new - just more anecdotal evidence of a slowly recovering economy.
My SPX Jan iron condor is being pressured on the call spread side as we get down close to the wire. The January position's Greeks deteriorated significantly today with delta = -$220 and theta = +$253. Absent a pull back, I will have to close the call spreads early. My Feb iron condor on RUT stands at a $580 gain with delta = -$58 and theta = +$102.
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I'm sorry I missed getting my blog out earlier today. A friend entered the hospital this afternoon and I am just returning home. A brief observation on the markets: notice how strong the support level appears to be at about $1260 on SPX. Once again today, the buyers appeared when the market neared that level. I conclude that if or when SPX breaks $1260 going down, it may get ugly in a hurry.
My Jan SPX iron condor is nearing break-even with a P/L of -$439, delta = -$84 and theta = +$270. The Feb RUT condor stands at a P/L of +$600, delta = -$30 and theta = +$92. Have a pleasant evening. I will check back in tomorrow.
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The markets started the morning in positive territory but selling pressure quickly turned the tide. But the bulls reasserted themselves and recovered the losses before the market closed this afternoon. The earnings announcement season officially started last evening with Alcoa. Although Alcoa reported better than expected earnings, profit taking took the stock back a bit today. The earnings announcements and the sovereign debt problems in Europe are being watched closely by traders. The market appears to be teetering back and forth with neither the bulls nor the bears able to take control. SPX traded as low as $1270, but closed up $5 at $1274. RUT traded up $3 to $795. Trading volume pulled back a bit today with 3.2 billion shares of the S&P 500 changing hands. Trading volume declined 2% on the NYSE and increased 2% on NASDAQ.
My Jan SPX iron condor stands at -$1139, with delta = -$95 and theta = +$424. Theta is really starting to ramp up now that we are less than two weeks to expiration. The Feb condor on RUT stands at a gain of $780 with delta = -$48 and theta = +$97. The market is caught between the downward pressures of a slow economic recovery and sovereign debt concerns, and the upward pressures of the Fed's QE II and and a large amount of cash coming out of bonds into equities. So far, a clear direction has not revealed itself. Although I would argue that the bias is to the upside. In recent trading, every market dip has been met with buyers, as it was today. We'll see.
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Early this morning, I looked at Yahoo Finance and was surprised to see a headline to the effect that the "world" was waiting on the U.S. Non-Farm Payroll Report. This jobs report seemed to take on even greater significance as we enter the new year and everyone is focused on determining which way the markets are headed. The jobs report was actually reasonably positive with a reduction in the unemployment rate to 9.4% and an increase of 113k jobs, but that improvement wasn't as dramatic as the market was expecting. Given that the consensus from economists was an unemployment rate increase to 9.8%, this report appeared positive to me at first blush. Bernanke's testimony to Congress this morning was conservative (he is a banker, after all), stating his expectation for continued economic recovery in 2011 but at a slow pace and with only modest improvements in the unemployment rate. For the first time this week, trading volume was flat with 4.2 billion shares of the S&P 500 stocks trading; trading volume was flat on the NYSE and dropped 6% on NASDAQ. The SPX dropped $2 to close at $1272 while RUT closed at $788, down $4. SPX was down as far as $1262 this morning before bouncing back and recovering most of its losses before the close.
Today's trading reaffirmed the $1260 support level on SPX that proved so difficult to break through as resistance in December. The other significant change in this first week of trading in 2011 was the relationship of trading in RUT vs. SPX. RUT outperformed SPX consistently throughout 2010, but has lagged SPX several days this week. Take today as just one example. SPX dropped 0.9% from the open to its low around noon today and closed down $2 or less than 0.2%. But RUT dropped 1.9% from the open to its low and closed down $4 or about 0.5%. The SPX/RUT relationship has reversed. Is this a leading indicator of a turn downward as traders seek the larger blue chips for safety? I don't know. But it does suggest that trading delta neutral strategies on RUT may not be as difficult in 2011 as it was last year.
I removed the hedges on my Jan SPX iron condor this morning; at the close, this position was underwater by $1439 with a position delta = -$73 and position theta = +$245. Time decay is really starting to accelerate as we enter the last two weeks of this position's life. But the $1300 calls are still uncomfortably close to the index price (their delta = 17). However, SPX has traded upward over $76 since we established the Jan condor. So we are doing well to still be in the trade with a potential gain of over $2000 remaining. By contrast, the Feb RUT iron condor is very nicely positioned and stands at a P/L of +$540 with delta = -$28 and theta = +$90. The short $860 call stands at delta = 8 while the short $690 put stands at a delta of 9.
The first week of trading in 2011 is now over and what do we know? It appears we remain caught in a stalemate between the bulls and the bears. So far, neither camp has been able to control the game.
