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Global sovereign debt problems overwhelmed all other news today to drive the markets lower with greater volume. Factory orders for March increased by 1.3%, beating expectations. Pending home sales for March rose 5.3%, greater than the predicted 5%. But this positive news was completely eclipsed by concerns that Greece's fiscal problems will spread through Europe and perhaps the world. RUT plummeted $23 to $710 while the SPX closed at $174, a decline of $29. Both indexes managed rallies into the close that made up for some of the losses. The key question is whether we should interpret that late buying as the markets having reached a support level or whether more losses are ahead for tomorrow. Trading volume was increased significantly across the board with a 27% increase on the NYSE, and a 29% increase on NASDAQ; the S&P 500 stocks traded about 5.2 billion shares. Yesterday's trading volume on the S&P 500 was the only session out of the last 15 trading sessions to be below the 50 day moving average. Normally, we would interpret greater than average trading volume as conviction for the resulting trend - but, in the last few trading sessions, we have had large moves with increased volume both up and down. However, we are setting lower lows, so maybe the long awaited correction has begun.
My May iron condor on RUT is in pretty good shape with a net P/L of -$1400, delta = +$22 and theta = +$157. However, the June iron condor will need adjustment if this market continues down tomorrow. It stands at -$1,100, delta = +$7 and theta = +$75. The position greeks are excellent, which allowed me to be patient with this position today, but we will require some adjustments for any further moves downward. This market continues to set volatility records; now RUT has traded with swings of over $15 for four consecutive sessions - very unusual.
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Much of Friday's losses were recovered today, but trading volume was lower across the board. Trading volume fell 19% on the NYSE and 16% on the NASDAQ; trading of the S&P 500 stocks dropped below four billion shares and below the 50 day moving average. It appears that news of a bailout plan for Greece calmed fears in the markets but didn't result in unbridled bullishness either. The Greece bailout pushed the Euro lower which, in turn, boosted the dollar by 0.6%; surprisingly, the stock markets traded upward in the face of the stronger dollar. RUT ran up over $16 to close at $733 while the SPX closed at $1202, up over $15. These gains didn't quite erase Friday's damage, but it was close.
Economic news was modestly favorable; personal income increased 0.3% while personal expenditures increased 0.6%; construction spending in March increased 0.2%; the ISM Manufacturing Index increased to 60.4 in April, up from 59.6 in March. All signs are consistently pointing to economic recovery, but a very slow recovery; many economists are hesitant to be very optimistic as long as the unemployment figures remain so stubbornly high.
My May iron condor on RUT stands at a P/L of -$1,220, delta = -$42, and theta = +$184. The calls now stand at one standard deviation OTM while the put spreads are over two standard deviations OTM with 17 days to go. My June iron condor on RUT at 640/650 and 790/800 stands at a P/L of -$500, delta = -$42 and theta = +$77.
These certainly are volatile markets. RUT has traded up or down $15 or more (about 2%) during each of the last three trading sessions - wow! Tough times for delta neutral traders; stay on top of your positions; don't hesitate to make the adjustments when needed.
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The markets bounced back strongly today with steady, significant increases on all of the major indexes. However, trading volumes were mixed with a 4% decline on the NYSE and a 13% increase on NASDAQ. Trading volume for the S&P 500 declined to 4.8 billion shares, down from yesterday's levels, but still above the 50 day moving average of about 4 billion shares. RUT closed at $738, up over $15 on the day, while SPX also tacked on $15 to close at $1207. The only economic news today was the unemployment claims numbers; initial unemployment claims declined to 448k from 459k and continuing claims declined from 4.66 million to 4.65 million - slow, steady improvement.
Today's huge move upward didn't help my May iron condor on RUT; the position P/L stands at -$1560 with delta = -$99 and theta = +$156. Adjustments will be required soon if this move continues. The delta of the $770 calls moved up to 14 today. It is worth noting that the broad large cap market, as represented by the S&P 500, traded down from its session highs after about 2:30 pm ET, but the small cap stocks represented by the Russell 2000 Index traded higher into the close. So this bullish run by RUT appears to be continuing. Thus, the recent defensive retreat of condor traders may not be over yet. But we trade what happens, not what we predict.
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Today's economic news began with the preliminary GDP numbers for the first quarter of a 3.2% gain as compared with 5.6% in the fourth quarter. Personal consumption expenditures rose 3.6% from the fourth quarter's 1.6%. The Chicago Purchasing Managers Index (Chicago PMI) came in at 63.8, greater than the 60 that was expected; this is the highest PMI number since 2005. And the University of Michigan Consumer Confidence Index came in at 72.2, greater than the expected 71.0. All in all, it was pretty good economic news.
But the market tanked in response.
RUT lost $21 to close at $717 while the SPX closed at $1187, a loss of $20. Trading volume was mixed with a 6% increase on the NYSE and a 10% drop on NASDAQ. The S&P 500 stocks traded over 5 billion shares, an increase from yesterday and this represented the 14th day above the 50 day moving average. As you might expect, the VIX gained 20% to close at 22%. Gold hit a 2010 high at $1181. The modest trading volumes don't suggest widespread panic selling, plus the RUT and SPX both remained above key support levels set over the past few weeks.
Today's move took my May 650/660 770/780 iron condor on RUT to a delta neutral position with a P/L of -$1,160, delta = -$3 and theta = +$137. It will be interesting to see what happens Monday. I believe there is a high probability of much of this loss being retraced on Monday. At least some of the selling today was the result of taking cash off the table as the details of the Greece bailout are finalized this weekend. Barring any surprises over the weekend, buyers will likely return to the table Monday. But that is the beauty of my condor trade: I don't have to predict Monday's market direction (but it is fun to try).
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The markets opened up positively this morning but dropped after being hit with the news that Standard and Poors downgraded Spain's debt. The markets then largely just chopped sideways, but strengthened a bit just before and after the FOMC announcement that interest rates would remain unchanged. Then the sideways march resumed until the last hour when the markets sold off. Trading volume was generally down today with a 14% drop on the NYSE and a 3% drop on NASDAQ. Trading of the S&P 500 was down a bit from yesterday's huge volume, but still above average at about 5 billion shares. Late in the day, RUT gave back all of the day's gains to close at $722, up $1. SPX was able to recover from the late sell off a little better and closed with an $8 gain at $1191. The recent attention given to the debt problems of some of the European countries has the bulls reconsidering their posture. But most of the economic news and earnings announcements in the US markets have been positive - thus, the choppy sideways market today.
My May iron condor on RUT remains unchanged with a P/L of -$1,420, delta = -$43, and theta = +$150 - a very healthy theta/delta ratio with 22 days to go.
