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The markets opened up under continued concerns about Europe's financial problems, but soon turned positive and traded up most of the day; shortly before the close, much of the earlier gains were given back. RUT ran as high as $704 before turning back to close at $695, a gain of $6 for the day. SPX traded as high as $1170 but then gave it all back and then some to close at $1156, a loss of $4 on the day. Gold hit new highs for 2010 at $1220, a continuing response to the possibilities of financial problems in Europe spreading across the globe. Trading volume was down or flat today: down 19% on the NYSE and essentially flat on the NASDAQ. The S&P 500 stocks traded about 4.8 billion shares, just above the 50 day moving average.
Take a look at the RUT chart; I see a strong up move through most of February, then a brief period of consolidation before another strong push up for the first couple of weeks in March. That was followed by consolidation in the range of $675 - $690. Then we had a strong run upward in April, followed by the correction of the past couple of weeks. Therefore, that consolidation range $675 - $690 in late March is significant. I would see a strong close for RUT above that area as a bullish sign. And that appeared to be in the works today, but then RUT was pulled back into that consolidation range. SPX has traded in a similar pattern, but was pulled back even more strongly than RUT today. All of this suggests a cautious, sideways market for now; I think the unbridled enthusiasm that drove the markets in March has been shaken.
In summary, I think this market is rather fragile at this point in time; the wrong news report out of Europe could send it back down in a hurry. So be careful out there; be sure your stops are in place. But, in the absence of significant news, we may just chop up and down similar to what we saw today.
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The EU and the IMF came to an agreement to rescue Greece over the weekend and the European Central Bank and the U.S. Federal Reserve also agreed to play support roles in the bail-out. This news led to a binge of short covering that drove the market up strongly at the open. RUT gapped up at the open and hit $688 within the first half hour of trading, then RUT settled down and traded sideways until the last 30 minutes of trading, when it traded up to close at $690, up $36 on the day. SPX traded similarly, closing up $49 at $1160. Trading volume was down across the board from last week, down 30% on the NYSE and down 35% on the NASDAQ. The S&P 500 stocks traded just under six billion shares, still above the 50 day moving average but down significantly from Friday's levels.
The big question now is whether the Greece bail-out deal is really solid. The EU member countries still have to vote on this package, so we could have some future bad news if one or more EU countries balk - how will the markets respond? Based on last week's trading, one has to be concerned about that possibility.
My May iron condor on RUT is skewed a bit too close to the upside after today's big move with position delta = -$146 and theta = +$428. The advantage we have at this point is the acceleration of time decay as we near expiration. The June iron condor on RUT has moved into the black with a P/L of +$580, delta = +$39 and theta = +$60. Both the 580/590 put spreads and the 790/800 call spreads are well outside of one standard deviation from the current RUT value of $690. The VIX dropped from 41% to 29% today; if volatility continues to come in, the profitability of the June position will increase. I am inclined to think the fundamental attitudes on the trading floors have been changed by last week's wild ride. We should not interpret today's short covering as an indicator of continued bullish trading to the upside.
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Sorry I did not get to posting my blog yesterday. It was a crazy day and then I had my trading group webinar last evening. The economic news yesterday wasn't bad, although that wasn't obvious from the market's behavior. Initial unemployment claims declined to 444k from the previous 451k, and continuing unemployment claims dropped from 4.65M to 4.59M. But retail sales numbers came in weak. Concerns about Greece and the European Union were at the forefront of the traders' minds. It appeared this morning that the market might be stabilizing but now that isn't clear at all. If your stops closed out your put spread positions yesterday, be sure to keep your put hedges in place. That will minimize the losses. I will check back in after the market closes today.
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The markets opened this morning and actually traded upward for a few minutes before the dance to the downside began and lasted the rest of the day. The Nonfarm Payroll Report actually set a record with 290k jobs added in April, the highest since March of 2006. About 66k of those were temporary census workers. But the bad news was the unemployment rate as it ticked up to 9.9%. Apparently, a large number of people re-entered the market to search for jobs, pushing this number higher even as more jobs were being added to payrolls. Trading volumes remained at the record levels set yesterday; volume on the NYSE exceeded two billion shares both yesterday and today. Trading in the S&P 500 stocks exceed eight billion shares yesterday and was just under eight billion shares today (the 50 day moving average (dma) is about 4.5B). RUT closed at $653, a loss of $19 on the day while the SPX closed at $1111 for a loss of $17. RUT touched its January high of $650 during the day but rebounded a bit. SPX broke through its January high of $1150 yesterday and touched its 200 dma at $1096 before bouncing back upward. Gold set a new 2010 high at $1215.
As you might expect, my iron condors have been trampled in this stampede. The May put spreads were stopped out yesterday; today I opened new put spreads at 590/600 and rolled the calls down to 710/720. This positions both spreads outside of one standard deviation OTM and leaves us with a possibility of a gain of about $1000, based on the shaky assumption that the carnage is over. The greeks are excellent with delta = -$21 and theta = +$306. My June 640/650 put spreads were also stopped out yesterday. I closed the put hedges and established new put spreads at 580/590 today. This leaves my June RUT condor greeks at delta = +$30 and theta = +$67.
The question now is whether we have neared the bottom of this correction. The fact that the trading action both yesterday and today hit intraday lows and then bounced back upward is a positive sign, but we'll see.
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Global sovereign debt worries continued to drag the markets down today, but the trading was not nearly as one-sided as it was yesterday. Reports that Moody's is preparing to review Portugal's debt for a possible downgrade didn't help the mood on the street. The SPX broke through its 50 day moving average (dma) and traded as low as $1160 before recovering a bit to close at $1166, a loss of $8 on the day. RUT hit lows of $691 ($694 is its 50 dma) before closing at $699, for a loss of $8. Trading volume remained relatively high but didn't increase over yesterday's huge volume, with a 1% increase on the NYSE, flat on the NASDAQ, and flat on the S&P 500 stocks; however, the trading volume of the S&P 500 remained above 5.2 billion shares, well above its 50 dma.
The dollar opened the day very strong, up over 1%, primarily due to the weakened Euro; this placed additional pressure on the stock markets and easing of the dollar's strength late in the day probably accounted for the modest intraday recovery. The ISM Services Index reported out at 55.4 for April, unchanged from March. ADP reported 32k new private sector jobs were added to payrolls in April (19k were added in March). The unemployment numbers will be reported Friday, but most economists are predicting little or no improvement from the 9.7% level. Virtually all of the economic data is consistently pointing to a slow, modest recovery in progress.
My May RUT iron condor spread stands at a P/L of -$1,700 with a delta of +$56 and theta = +$150; so we still have a strong 3 to 1 theta/delta ratio and the short puts are right at one standard deviation OTM. The June iron condor stands at a P/L of -$860 with a delta of +$27 and theta = +$64. So the theta/delta ratio is still over 2 to 1 and the short puts are just inside one standard deviation OTM. So now we wait to see if the other shoe drops...
