- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2005
Yesterday's bullish close at the day's highs seemed surprising, but today's sell off into the close was all too familiar. From about noon on, the markets steadily traded lower. The Beige Book didn't seem to affect the market one way or the other. RUT ran as high as $632 before falling to a close at $618, up less than a dollar for the day. SPX also traded up in the morning to $1078 but then gave up all of its gains to close down $6 at $1056. This is the low previously set in February this year and touched again on May 21. Will it bounce off that support level? Today's trading action was certainly bearish in tone; when the market can't hold its highs, it is a bad sign. But yesterday's trading patterns were bullish, so perhaps this is the look of a sideways consolidating trading pattern - some analysts would call it building a base. Trading volume dropped across the board, with a 3% drop on the NYSE and a 14% decrease on NASDAQ; the S&P 500 stocks dropped to five billion shares traded, right at the 50 day moving average.
I removed the July hedges on my June condor this morning, and the sell off this afternoon pushed this position back to a weak spot with a position delta of+$126 and position theta of +$307; the theta/delta ratio is strong, but that large delta translates to large price risk with further drops in RUT. The July iron condor on RUT moved into the black with the drop in IV and stands at a position delta of +$27 and position theta of +$72. So July is doing well but June is teetering on the edge.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2027
Today's markets generally traded sideways just above and below the unchanged line until the last hour of trading when a strong rally carried the SPX to a gain for the day and RUT to the unchanged mark. RUT closed at $618, a drop of less than a dollar on the day, but RUT traded as low as $607 and as high as $624. SPX closed for a $12 gain at $1062. SPX traded down to $1042, which was approximately the low point set in February of this year and again on May 25. But two data points don't make much of a support line, so saying SPX has found support may be a stretch. If you look at the intraday extremes of $1220 in April and $1040 on May 25, the SPX has corrected 15%. Many market analysts use 15% as the "line in the sand"; a drop of 10-15% is a normal correction in a bull market; When the market drops more than 15%, it often is the beginning of a bear market trend. But seeing the market rally late in the day and close near its highs was certainly a refreshing change.
Trading volume increased today with a 14% increase on the NYSE and a 21% increase on NASDAQ; over 5.1 billion shares of the S&P 500 changed hands today, an increase from yesterday and above the 50 day moving average. So we closed at session highs on higher volume. That seems positive but I am almost afraid to have hope at this point.
My June RUT iron condor is still weak but alive; the P/L stands at -$2500 with position delta = +$45, and position theta = +$107. The July condor continues to be close to the breakeven point with position delta = +$40, and position theta = +$65. Further moves down will necessitate an adjustment in the July position. The July $530 puts have a delta of 16. You can also see that this position is "on the edge" by the fact that the theta/delta ratio is about 1.5 to one. By any measure, this is a nervous market, so even today's strong close doesn't inspire much confidence. After all, it was one more triple digit move on the Dow; we could easily have a triple digit move downward tomorrow - it would be nice to have some slow, meandering days in the market.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1976
The jobs report this morning set a negative tone for the markets that snowballed as the day worn on. About 431k new jobs were reported, but 411k of those were temporary census workers. The unemployment rate dropped a bit to 9.7%, a reduction of 0.1% but the data probably isn't sufficiently precise to claim this represented a reduction. RUT dropped $33 to close at $634, near the low closes last week and just above the 200 day moving average (dma) at $632. SPX closed at $1065, down $38. Trading volume jumped up with a 28% raise on the NYSE, and a 7% raise on NASDAQ. The S&P 500 stocks traded over 5.3 billion shares - an increase of over a billion shares.
Today's downward move was a little too much for my June condor but positioned the July condor nearly perfectly. The June position now stands at a P/L of -$2500, delta = +$63 and theta = +$203. Today's jump in volatility is principally responsible for the increased red ink in the June position (condors are negative vega positions). July stands at a P/L of -$100, delta = +$11, and theta = +$76.
Today's market action took us back to the bottom of the trading range of the past eleven trading sessions. Will we break through to new lows or bounce off support? We'll see on Monday.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2075
As the market sold off into the close, I was reminded of poor Charlie Brown as Lucy pulled the football back just as he tried to kick it - once again. This morning, it appeared as though we had settled near a bottom to this correction, but we were fooled once again. The extreme volatility of this market was again demonstrated today; this was the twentieth triple digit move on the Dow in twenty eight sessions. The markets opened soft this morning and traded choppily around the unchanged line most of the morning; but in the early afternoon, a sell-off began that went all the way into the close. All of the major indexes closed near or at the lows for the day. SPX broke through the closing lows set earlier this year in February. RUT is still well above its February lows at about $587.
RUT closed down $15 at $618 while the SPX closed at $1057, a drop of $14 on the day. Trading volume declined from yesterday, suggesting that the large institutions and funds aren't actively closing their positions. Trading volume dropped 11% on the NYSE and 6% on NASDAQ. The S&P 500 stocks traded about 4.5 billion shares, below Friday's volume and below the 50 day moving average. The now common question of whether this is a correction in a bull market trend or the beginning of a bear market continues to be debated, but it appears as though more analysts are piling onto the bear trend side of the debate and predicting lower lows.
Today's late breakout to the downside forced my hand on the June condor position, so I purchased July $600 puts to hedge the downside; this move adjusted my greeks to a more acceptable delta = +$28 and theta = +$100. The July condor stands at breakeven with a position delta = +$23 and position theta = +$74. So, once again, we wait to see what this market will give us tomorrow.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2064
The markets appeared to be seeking direction today, trading in choppy fashion up, down and up again. RUT preserved most of its intraday gains and closed at $667, an increase of $7. SPX gained $4 to close at $1103. Trading volume was basically flat with a 6% decrease on the NYSE and a 2% increase on NASDAQ. Trading volume on the S&P 500 stocks was flat. Traders are focused on tomorrow's unemployment report; a preview was today's ADP payroll report with an increase of 55k jobs, which encouraged traders. Initial unemployment claims dropped about 10k while continuing unemployment claims increased slightly to $4.666 million. The commercial office vacancy rate fell for the first time since the third quarter of 2007. The VIX dropped to just below 30%, encouraging some traders to believe the worst is behind us. All of this economic data can be interpreted as support for the economic recovery, but all attention is now focused on unemployment, the last major economic indicator to show improvement. The market's reaction to the unemployment report is likely to be volatile.
Time decay is having more impact on the June RUT iron condor position. The P/L has improved to -$1700 with a position delta of -$63 and position theta = +$289. The July iron condor stands at a P/L of +$700 with delta = -$24 and theta = +$71. Now we focus on the unemployment report.
