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The markets traded down most of the day, but started a strong rebound at 2:30 ET and managed a small gain, but on lower trading volume. The S&P 500 dropped back below its 50 day moving average; volume on the NYSE fell 6% and NASDAQ trading volume fell 17%. The dollar was down today but strengthened a bit as the day wore on. Personal income data for February was flat while personal expenditure rose only 0.3%; core personal expenditures were unchanged (core expenditures exclude food and energy). RUT closed at $682, up a little over $3 and near its intraday high of $683. The pattern for SPX was similar with a rise of $7 to close at $1173. $1175 appears to be establishing itself as resistance for the SPX. Several recent trading days have displayed intraday highs that could not be held. The big question is whether this is just classic consolidation behavior after a strong gain or the setup for a correction. Many traders are already discussing their concerns that the market will be closed Friday when the unemployment numbers are reported. We may see some money taken off the table this week in anticipation of that report. Although the ADP numbers on Wednesday and the new and continuing unemployment claims numbers on Thursday may influence how the big players position themselves.
My April condor is still underwater but the greeks are excellent with a delta of +$21 and a theta of +$155. The May position is still very young but has a strong theta/delta ratio over 4:1.
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The Commerce Department reported this morning that 4th quarter GDP grew 5.6% and the University of Michigan's Consumer Sentiment survey for March came in at 73.6, up from 72.5. This seemed to fuel some modest gains for the markets this morning, but then the bottom fell out around noon and by the close, most markets were nearly flat. RUT closed at $679, essentially unchanged while the SPX gained less than a dollar to close at $1167. Both the RUT and SPX charts appear to be establishing a sideways trading range. For the past several sessions, there appears to be some profit taking whenever the market gains much, but then buyers come in whenever the market dips. The case for the bullish trend appears to still be in place, but the recent extreme gains have to be digested.
My April condor is treading water, trying to salvage a small gain or at least a minimal loss. It is now about $2,700 underwater, but the Greeks are excellent with delta = +$10 and theta = +154. We still have a hope of getting out of this position with a small gain, but it will be touch and go. I decided to go back in the water today and established my May condor position at $590/$600 and $750/$760 for a credit of $3,100 (20 contracts). At the close, the position delta stood at -$15 and theta = +72.
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The market's mood was cautious before the opening today due to concerns about the debt crisis in the Euro zone. The dollar index increased 1.3% today, the largest increase in a single day since December. The durable goods orders report this morning indicated 0.5% growth; 0.6% was expected. The better news was a upward revision of January's number to 3.9% from 3%. New home sales decreased in February by 2.2%; analysts were expecting a 1.9% increase. The economic data probably weighed somewhat on the market, but the strong increase in the dollar's strength was hard to ignore. Even so, the markets held up pretty well, once again showing the underlying strength of this market. RUT traded down almost $7 and closed at $684. The SPX lost a little more than $6 to close at $1168. Trading volume was up less than 5% on the NYSE and essentially flat on the NASDAQ; the S&P 500 continued to trade below its 50 day moving average. Today's price action on both the RUT and SPX charts displayed the classic "inside day" on the bar charts or the Harami for the candlestick devotees. These patterns are often seen at points of a trend slowing and consolidating, or perhaps even a market reversal. Time will tell.
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The Labor Department started the markets off on a positive footing this morning by reporting initial unemployment claims fell by 14k to 442k this past week and continuing claims fell from 4.702 million to 4.648 million. Much of the news early in the day was optimistic about plans for bailing out Greece's fiscal mess, but as the day wore on, skepticism about the details of the plans grew and this took the euro down and strengthened the dollar, reversing the market's earlier gains. Trading volume was up about 11-12% on the NYSE and NASDAQ. RUT closed down almost $5 at $679 after running as high as $693. SPX followed a similar pattern, closing at $1166, down $2.
This type of wide market swing makes life difficult (and costly) for the delta neutral trader. I was forced to enter an adjustment for my April iron condor position this morning, but then took it off before the market closed this afternoon. That cost me about $300 on a 20 contract position. But that is the cost of insurance. If you are looking for the silver lining in this market action, it certainly isn't boring!
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Today's trading repeated a common pattern of late: every dip in the market appears to be seen as a buying opportunity for the bulls. RUT and SPX both set new 52 week highs today. RUT traded down a little this morning and then slowly rose in the afternoon and spurted to the finish in the last half hour of trading. RUT closed up over $7 at $690. SPX traded in a similar pattern and closed at $1174, up over $8. The late afternoon surge appeared to be triggered by a weakening in the dollar as the euro rebounded. The weak trade in the morning may have reflected the drop in existing home sales from January to February and a drop in the FHFA Home Price Index of 0.6% - not great news of recovery, but no severe contraction either. But even in the face of that data, the market didn't trade down much; RUT dropped less than $2 after the announcement. All in all, the market appears to be firmly on a bullish trend. Trading volume on the NYSE and NASDAQ were flat while the S&P 500 continued to trade below its 50 day moving average.
At this rate, I may have to adjust my April condor again, or just close the call spread side of the position. The $720 calls are now at a delta of 13. I'm certainly in no hurry to establish my May condor in the midst of this strong trend.
