- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2145
The markets traded back and forth today on a variety of economic news, but ended up largely unchanged after the dust settled. RUT initially dropped to $627 this morning and then traded sideways through most of the day. Similarly, SPX dropped to $1080 this morning, but all of the major indexes recovered late in the day. RUT didn't fully recover, closing at $635, down $6, but the SPX closed at $1096, up $1. This is the third day SPX has closed above its 50 day moving average (dma), but it appears unable to break through $1100. RUT has now closed three days above its 200 dma and appears to have strong resistance at $645. Trading volume was modest and mixed. Trading was up 5% on the NYSE, down 9% on NASDAQ, and 3.9 billion shares of the S&P 500 stocks exchanged hands, up slightly from yesterday but well below the 50 dma. All of this suggests great market indecision. Neither the bulls nor the bears have made their case stick.
New unemployment claims fell by 29k to 429k, but continuing unemployment claims rose by 247k to 4.68 million. I can't understand why these two numbers don't move in concert; I read about seasonal adjustments and the like, but the logic escapes me. Feel free to enlighten me. The market appeared to be particularly discouraged by the Philadelphia Fed Index dropping to 5.1 from 8.0 last month; similarly the NY Fed Empire Manufacturing index fell from over 19 to 5. But buyers entered the market in the last thirty minutes and recovered much of the day's losses - maybe some traders heard that the SEC and GS have reached a settlement? That was announced by CNBC after the market closed, but no official announcement is out yet.
GOOG is being punished in after hours trading after missing earnings this afternoon. This makes my Aug 470/480 call spreads questionable; I previously thought that was a pretty conservative position. But the conference call and some time to reflect and analyze the data may make a difference in tomorrow's trading. My Aug iron condor on RUT remains very solid with position delta of -$22 and theta = +$84 - an excellent theta/delta ratio, especially since I have long call hedges in place that reduce the position theta.
The market appears to be teetering at a balance point with neither the bulls or the bears able to maintain control. Today's poor economic data was fuel for the bears, but they couldn't hold the intraday lows. It is difficult to predict who is going to win this tug of war, so delta neutral strategies are an excellent choice here.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2084
SPX closed just above its 50 dma at $1095 yesterday, so all eyes were watching to see if it could hold that key support level today. In the early going, it looked like it wasn't going to hold, but then SPX rallied as high as $1099 before pulling all the way back to $1088. But the bulls came to the rescue and drove SPX to close unchanged at $1095. RUT traded in similar fashion, but was unable to recover all of its losses, closing at $640, down $3. Trading volume dropped today by 7% on the NYSE and dropped 6% on NASDAQ. Trading in the S&P 500 stocks dropped from yesterday to about 3.7 billion shares, well below the 50 dma.
The price charts of RUT and SPX are displaying the harami candlestick pattern (or an "inside day" on a bar chart). Haramis suggest a possible reversal of direction - after a strong up day yesterday, we have a doji candlestick today, suggesting market indecision, and possibly a market turning point. But in these markets, I'm not sure any of my indicators have much value. It seems as though the market is just thrashing back and forth from one extreme to the other. Recent events have made me cautious.
When the market ran up this morning after testing support, I added to the hedges on my Aug iron condor. The P/L now stands at -$2,780 with position delta = -$23 and theta = +$76. Since RUT pulled back, I now am probably hedged more than necessary. BUT, adjusting early and too much is always preferable to adjusting too late. So now we watch to see who will win this bull/bear tug of war.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2153
Today was a slow day in the markets with no significant economic reports as traders waited on Alcoa's earnings announcement after the close. RUT opened, traded down and then basically sideways the rest of the day, closing at $622, down $8. The SPX behaved similarly, but slowly recovered its losses, closing at $1079, up less than a dollar. Trading volume remained anemic with a 2% decline on the NYSE, but a 11% increase on NASDAQ. The S&P 500 stocks traded even below Friday's 3 billion shares. The 50 day moving average is about 4.8 billion shares. As you probably know, Alcoa beat expectations and has traded up after the close. My guess would be that this will drive the market somewhat higher tomorrow. The remaining risk would be any pessimistic comments during the conference call regarding future growth. Alcoa receives a lot of attention because its products are crucial to much of the industrial economy; if the economy is beginning to pause, Alcoa should be an early indicator.
Today's weakness in RUT was helpful to my Aug iron condor that now stands at a P/L of -$1980, position delta = -$55 and position theta = +$124. The delta of the $680 calls pulled back to 16. So we have begun the earnings season with the market feeling very nervous, so surprises could occur at any time and push this market over the edge. Analysts are especially focused on the guidance being presented by companies due to fear of a possible "double dip" in the economy.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2239
Stocks traded strongly upward today as the earnings reports and guidance from Alcoa and CSX encouraged traders about the strength of the U.S. economy. SPX traded up and hit its 50 day moving average (dma) at $1095 mid-day and pulled back; later in the afternoon, SPX broke through the 50 dma but pulled back and closed right at the 50 dma, $1095, up $17 on the day. RUT ran even more strongly to the upside and closed up $21 at $643. Trading volume rose today, increasing 28% on the NYSE, and 2% on NASDAQ. Trading in the S&P 500 stocks rose to four billion shares, but still well below the 50 dma. INTC reported its highest earnings in ten years after the close. Barring no negative surprises in the conference call, that may continue to fuel this rally tomorrow. Many institutional traders watch the 50 dma and the 200 dma as key levels of support and resistance. SPX broke through the 50 dma briefly today before being pulled back. That $1095 level will be crucial to watch tomorrow for a signal of whether this uptrend can continue.
I added a partial adjustment to my Aug iron condor today with a Sept $680 call. This position now stands at a P/L of -$2,895, delta = -$61 and theta = +$94. The hedge reduced our delta risk, but also reduced our positive theta. If this market run continues tomorrow, I will be adding additional hedges.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2058
The markets tacked on another bullish day today, although much of it was added in the last hour of trading. However, the trading volume made record lows for the year. Trading on the NYSE dropped 25% and trading on the NASDAQ dropped 23%. Trading in the S&P 500 stocks was under three billion shares today. You have to go back to the first trading day of the year (traditionally a low volume day) to find a lower S&P trading volume day. This extremely low volume makes me leery of declaring that the worst is over, etc. The big players have not fully endorsed this move up as yet. Any disappointing earnings reports over the next week or two could trip this market very easily (Alcoa is Monday after the close). Be cautious.
My Aug iron condor on RUT is starting to get squeezed on the top side. The delta of the short 680 calls hit 19 today. The position delta stands at -$61 and theta = +$106. The theta/delta ratio is dropping, but still in a good range. If the run higher continues, this position will have to be adjusted.
Have a great weekend.
