- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2102
Today's markets gave traders quite a ride. RUT opened up and ran to $658 before dropping to bounce off the 200 dma at $641 and then ran up to close unchanged at $650. SPX displayed a similar pattern but did not recover all of its losses in the afternoon, closing at $1102, down $5. Trading volume jumped up today across the board with an increase of 18% on the NYSE and 26% on NASDAQ. The S&P 500 stocks traded up to 4.2 billion, just below the 50 dma.
Initial unemployment claims dropped by 11k to 457k and continuing claims increased by 81k to 4.56 billion. Unemployment appears to be stubbornly holding pretty flat; it is hard to discern an upward trend from the data. Earnings reports by and large have been good, but the companies' outlooks have averaged luke warm at best. The bulls are struggling to find sufficient evidence to "buy at the lows" while the bears can't seem to get too enthused about selling off strongly. Until that mixed outlook of indecision changes, we aren't likely to see a strong trend in the market in either direction. But the increased volatility in the markets during this period of indecision is somewhat new - the fear quotient is still quite high, and this causes the rapid swings back and forth we saw today.
At the open today, I was happy I still had one of my Sept call hedges in place, but later I decided to sell that, thinking it wasn't necessary any longer. Then, of course, the market turned back upward and ended up right where it started. My Aug condor's 680/690 call spreads are too close to the fire with a delta of 24. The condor position delta stands at -$69 while theta = +$131; this theta/delta ratio confirms what we know: I have significant price risk to the downside and while my profit engine (theta) is still larger, it is not much larger. It is at times like this that I am amazed by the analysts on CNBC who sound so confident in their predictions. How do they do that?
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2002
The SPX opened up this morning just below the 200 dma and traded lower as the day progressed; SPX closed at $1106, down $8. The 1% drop in durable goods orders for June was disappointing to the market and the Fed's Beige Book didn't help with a sobering assessment of business conditions across the country. Economic data continue to point to a very slow recovery at best and a double dip at worst. RUT dropped $11 to $651. Trading volume dropped off today, with a 10% drop on both the NYSE and the NASDAQ. Trading in the S&P 500 stocks dropped to about 3.3 billion shares, well below the 50 dma. That lower trading volume was good news in that it suggests the large institutional players were not selling in large numbers during today's decline. This market appears to be depressed, but not yet in panic mode.
Today's decline in RUT helped my Aug condor position. The delta of the short Aug $680 calls pulled back to 26 and I sold one of my Sept hedges. Position delta reduced to -$53 with position theta = +$125. So the theta/delta ratio is in a good position. I also opened my Sept RUT iron condor today after the risk of an extreme market move with the Fed Beige Book release this afternoon was past.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2035
The markets opened up slightly down this morning, but within a few minutes we were off to the races, with a final push during the last hour of the day. RUT closed at $665, up $15 while the SPX ran $12 to close at $1115. The SPX closed right at its 200 day moving average (dma). Many analysts see that as a key resistance level and will be watching to see if SPX can definitively push through that level tomorrow. A common recurring sign of late is the low trading volume in the markets on these bullish runs; today was no different. Trading on the NYSE was down 12% and basically flat on the NASDAQ (down 1%). Trading in the S&P 500 totaled 3.2 billion shares, down from yesterday and well below the 50 dma at 4.5 billion shares.
New home sales for June came in at 330k, up from 267k in May; this was higher than expected by analysts and appeared to stimulate the buying we saw today. The Euro was strong, and that probably helped as well. Personally, I am puzzled by this market; in my opinion, all of the negatives that were worrying this market a couple of weeks ago are still here: Euro sovereign debt, persistent high unemployment in the U.S., increasing U.S. debt levels, slow economic recovery, and at least a few signs of a possible double dip. But the market appears to have shrugged these concerns off.
Significant adjustments were necessary for my Aug iron condor today. I bought two Sept $680 calls at $17.49 (I should have bought these Friday but I was traveling; however, that is no excuse; I should have used a contingent order). I also closed and rolled half of my 680/690 call spreads to 705/715. This moved the Greeks for the position to a more acceptable level: delta = -$48 and theta = +$87. The delta of the short $680 calls = 38, so I will close and roll the remaining ten contracts if the market continues upward tomorrow. I also adjusted my RUT Aug 580/630/680 butterfly by buying an additional 680 call for $9.70; this keeps my position P/L below my 25% stop loss and flattens the immediate time decay curve so the losses will stay approximately constant up through about $675 on RUT (delta = -$6).
I am on vacation near Bath, Maine - some of the most beautiful ocean coastline I have ever seen! I was on a lobster boat this morning so I was late adjusting my condor. Fishing for lobsters is a tough business - no wimps allowed!
Watch the SPX to see if it can push past the 200 dma tomorrow. That will be a bullish sign, but it would also be nice to see a price increase with increased trading volume.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2000
When the Conference Board reported their latest consumer confidence numbers were down to 50.4 from 54.3 last month, that sent the market lower. The Price Schiller home price index increased 4.6% in May, but that was largely discounted because of the government stimulus programs are believed to have artificially boosted that number. RUT traded down $3 to close at $662 while the SPX closed down $1 right at its 200 dma at $1114. Trading volume was mixed with an increase on the NYSE and a 4% decrease on NASDAQ. The S&P 500 stocks traded up to 4 billion shares from yesterday's 3.2 billion shares, just below the 50 dma at 4.3 billion shares. Some analysts are now saying the correction is over, but I would like to see some upward moves on strong volume before declaring the bulls have won. On the other hand, the SPX chart has definitely broken out of the down trend it had been tracing out since late April.
My Aug iron condor on RUT is sitting on the edge at this point, hedged to the upside, but on the verge of being repositioned or closed out. The position delta now stands at -$40 with theta = +$95.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1996
I expected today to be a modest or even a bearish day in the markets with all eyes focused on the European bank stress tests. But I was wrong. RUT surged $15 to close at $651 while the SPX punched through the $1100 resistance level to close at $1103. However, as is common of late, the volume was disappointing. The S&P 500 stocks traded down from yesterday to just under 4 billion shares while trading on the NYSE was flat from yesterday. Trading on NASDAQ was up 9%.
Analysts were of mixed opinion on the rally's impetus. Some saw the Eurobank stress tests as positive news; other doubted the veracity of the tests. Some attributed the market's rise to strength in the Euro currency, driving the dollar down in relative terms.
I was on a plane or wandering through airports during much of the trading hours today and was unable to hedge my Aug iron condor. Consequently, it is in a precarious condition with delta = -$131 and theta = +$155; the delta of the $680 calls is up to 27, way past where it should have been hedged. I should have entered an order to buy the Sept hedges contingent on RUT breaking through $645, but I didn't - I broke my own rules of not predicting the market's future action. I was sure today would be a bearish day due to the Eurobank stress tests. Today's action on the SPX chart broke out of the bearish trend that had been prevalent since late April. Can the market hold this level? Given the low trading volumes, one has to wonder.
