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The markets opened weak this morning after being disappointed by the latest jobless claims data. New jobless claims fell by 6k to 462k this week, but economists are looking for a number less than 425k to suggest the beginnings of strong job growth. Over 4.6 million are on unemployment benefits, but this number excludes another 5.7 million who have exhausted their 26 weeks of regular benefits and are on extended benefits. Against that backdrop, the bullishness of this market is surprising. Today's trading volume was down 15-20% on the NYSE and the NASDAQ. But after chopping along down and sideways all day, the bulls took over in the last hour of trading and pushed the indexes to gains for the day. After a day of choppy low volume trading, RUT managed to set a new 52 week high at $677, while the SPX matched its high set earlier this year at $1150. So the pace of increase has slowed, but new highs are being set, although with lower volume.
My March and April condors are basically treading water at this point; the losses of the March position are slowing decreasing. The April condor is well hedged with May calls, and that is holding the losses in check. If the market would pull back a bit, we could remove those hedges. Or if the market traded up a bit, we would close and roll our call spreads upward. For now, we are caught in the middle without a move. So we wait and allow time decay to work its magic.
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The major indexes opened up and traded modestly higher this morning until around 11:15 ET, when selling pressure took over and drove the indexes down near their opening levels. But RUT and SPX recovered much of their losses to close modestly up for the day. The absence of a strong bullish case is evidenced by both SPX and RUT being unable to hold their highs yesterday and again today. However, in both cases, the indexes are making net gains, albeit modest. Jobless claims will be released tomorrow and both retail sales and the Michigan consumer sentiment numbers will be reported Friday; this economic news is likely to move the market. RUT closed up a little over $5 at $677, a new 52 week high. SPX continues to flirt with its 52 week high at $1150. It ran as high as $1148 today before closing at $1146, a rise of $5.
My March and April condor positions continue to trade in the red. Theta for the March position is now at +$268; this is nibbling away at the net losses for March each day. While the April condor is also sporting a net loss, the position Greeks are actually pretty good with delta = -$11 and theta = +$73. This position still has a reasonable profit potential, but I am just nursing March to a smaller loss. So we wait to see if this strong bullish run continues.
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Traders largely sat out today's trading session; volume was lower across the board. RUT and SPX both traded within a narrow range, $2 and $4, respectively. SPX closed at $1139, down twenty cents and RUT gained $0.05 to close at $667. The strong run of the markets over the past six sessions makes the market even more susceptible to any bad news. Even a minor pull back may spark a round of protective profit taking. However, there isn't much in the way of scheduled economic reports until Thursday's unemployment numbers, and then on Friday we have retail sales and the Michigan consumer sentiment report. So we may drift sideways for a couple of days.
I have rolled all of my call spreads up in both the March and April positions. I have also rolled the put spreads up from below to compensate for some of the losses rolling the call spreads upward. There is a trade-off in this maneuver: taking the profits on the put spreads helps offset some of the losses on the call spread side of the trade, but it also opens us up to a whipsaw if the market suddenly turns back. This is yet another example of the "no free lunch" principle.
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The markets continued their surge upward most of the day but around 2:30 ET, profit taking took over. It may also be significant that the S&P 500 was approaching the 52 week highs set in January. All of this took place with a large surge in trading volume. Volume was up 25% on the NYSE and 17% on the NASDAQ. Trading volume for the S&P 500, at 4.5 billion shares, broke strongly through the 50 day moving average at 3.8 billion shares. RUT closed up $3 at $670 while the SPX ran as high as $1145 before settling back to close up $2 at $1140. For those of you who study candlesticks, you will see a classic shooting star on the RUT and SPX charts. All of this adds up to a strong possibility that the market is pausing to catch its breath here, if not pulling back a little bit. Given the recent run upward, a little profit taking appears to be very reasonable.
My March condor continues to swim in red ink; RUT's correction followed by this meteoric rise is conspiring to deal me my worst loss in some time. Today's whipsaw didn't help. The run upward today forced me to close my 680/690 call spreads. But after watching the market's action detailed above, I sold those spreads again just before the market closed. Of course, this is a risky move that I wouldn't recommend (the classic "do as I say, not as I do"). But it may help reduce some of the losses.
My April condor is faring well. I have had to roll up both the calls and the puts, but I left the May 680 calls in place as a hedge against a continued move upward. This has left this position almost perfectly delta neutral with a moderate sized positive theta to continue to drive profitability. The April 700 calls have a delta of 23 so we still need the May call hedges.
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Wow! The market took off to the races after hearing that the unemployment level was unchanged at 9.7% and 36k jobs were lost in February. I guess the market was expecting really bad news. When one looks at the intraday charts you have to be impressed with the steady rise throughout the day - a very strong showing. I expected to see some profit taking, but it never happened. Trading volume on the NYSE and NASDAQ were both up today, but the S&P 500 continues to trade below its 50 day moving average. The SPX ran up $16 to close at $1139, close to its 52 week high at $1150. But small caps have been even stronger than the blue chips during this bullish surge; RUT convincingly broke through resistance to close at a new 52 week high at $666, a run of nearly $14.
The market bulldozed right through my March and April iron condors. March is shaping up to be my first loss since August. My adjustments on April are holding it in check so far, but I may have to roll some of those call spreads up next week. In fact, this market swing has been even more severe than the one in late July that set up that earlier loss. However, it is naive to think trading doesn't involve losses. Many people are always searching for the guru who never loses. The reality is that many of those gurus don't even trade. Successful traders limit their losses in months like this one to manageable amounts. As long as you don't lose more than you gained last month, you can keep the doors of your business open. Risk management is the name of the game!
