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The S&P futures were down about $30 when I first looked at them this morning. SPX opened at $1874, which was surprisingly only a couple of dollars lower than yesterday's close, but then the wild ride began. SPX dropped about $36 in the next few minutes, appeared to recover but then began a slow decline to its low for the day at $1821 around 1:30 pm ET. The buying dominated the rest of the day's trading with SPX closing at $1862, down $15. It is surprising to see that SPX only lost $15 when all of the dust settled. RUT actually closed with a gain of $11 at $1072. RUT's chart seems to suggest it is forming a bottom around $1050; you have to go back to the pull back in October of 2013 to match that price. RUT's weakness led this market down. Is RUT leading the bounce?
As expected in a market like we had today, VIX spiked up over 31%, but settled down to close at 26.2%. Trading volume shot through the roof with over four billion shares of the S&P 500 trading today. Trading volume rose 25% on the NYSE and rose 24% on NASDAQ. Is this a sign of the classic "capitulation"?
The minutes from the last FOMC meeting were released this afternoon. Maybe that led to the buying we saw after 2 pm ET. Retail sales declined 0.3% in September , a big change from the 0.6% increase in August. PPI was flat last month and reported a decline of 0.1% for September. The Empire manufacturing survey came in at 6.2 for October, a dramatic shift downward from last month's 27.5 - this almost looks like a data error.
At the bottom of the market this afternoon, my put hedges were doing their job and my SPX Nov condor position was at break-even. But we have some spurious prices posted at the close for SPX, so don't be surprised if your broker statement looks a bit weird. My Nov SPX condor is positioned at 1810/1820 and 2090/2100. The SPX Nov 2090 calls were posted with a closing ask price of $9.60. So my call spread is being shown as losing $370 per contract! That short call is $228 OTM!!
What a day!
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After yesterday afternoon's severe sell-off, I was surprised to see SPX open in positive ground this morning and then trade up as high as $1899 by noon today, but then the bears came back and started driving it lower. It looked like another repeat of yesterday's trading action. SPX hit its low for the day just thirty minutes before the close. But unlike yesterday, SPX bounced weakly during those last few minutes and avoided another close at the lows of the day. SPX closed at $1878, for a gain of $3. RUT traded more strongly, gaining $12 to close at $1062. The VIX dropped off almost two points to 22.8%. We are far from being out of the woods, but there were some encouraging signs in the trading action today.
Trading volume increased a bit today with 3.0 billion shares of the S&P 500 trading today. Trading volume rose 6% on the NYSE and increased 1% on NASDAQ.
There were no significant economic reports today, but the reasonably positive earnings announcements from the big banks (JPM, C, and WFC) were thought to have contributed to the morning's bullish price action. Goldman Sachs will report Thursday evening.
I was annoyed to see the market bounce back so strongly this morning since I had hedged my November position late yesterday. But that is the nature of the trading game. I compromised and removed half of my hedging options. I was pleased with that compromise as the market traded off this afternoon. These hedge options are costing me money, but hopefully they will allow me to salvage some gains from the November condor position on SPX. I have begun to nibble (emphasis on nibble) at some bullish trades today. Logic tells me we should be near the bottom - but logic is overrated in this game.
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All of us parents know this question well - it happens on every trip in the car greater than twenty minutes. I thought of that question this afternoon as I watched this market drop farther yet.
You take your financial life in your hands when you walk away from this market for the last two hours of the day - sometimes it runs up huge; sometimes it drops like a rock. Today was the latter. SPX opened the day down just a touch and traded largely sideways. The VIX pulled back; everything appeared serene. It had me thinking that it's slowing; maybe the worst is over. But then SPX lost over twenty points in the last two hours of trading. SPX closed at $1906, down $22. RUT also closed down at $1053, down $15. The VIX popped up over two points to 21.2%. After trading as high as $1937 this morning, SPX closed at its low for the day - very bearish. Trading volume spiked upward, underscoring the bearish move. Over three billion shares of the S&P 500 stocks traded today; trading increased 3% on the NYSE and jumped 24% on NASDAQ.
If you are looking for the dire economic report that triggered this latest sell-off, forget it. There isn't one. As you know, I have been critical of this very weak economic recovery that I consider largely government induced. But the economy isn't rolling over into a recession. I'm unsure what's driving this decline; in these situations, all traders become technical traders. Fundamentals just don't explain it.
This market almost suckered me into selling some November put spreads today. Fortunately, I decided to give it more time to show its true character. This has been a very tough week in the markets. Traders need to be treated for whiplash.
I'm taking my girlfriend to dinner and a movie, leaving the market behind.
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The markets seemed reasonably normal this morning. In fact, at one point, RUT was actually up several dollars and outperforming SPX. That seemed positive, but that all changed around 2 pm ET. SPX traded down hard for the last two hours, closing at its low for the day, $1875, down $31. RUT didn't fare as badly, trading down $4 to close at $1049. Trading volume declined from Friday with 2.8 billion shares of the S&P 500 stocks trading. Trading volume dropped 1% on the NYSE and decreased 12% on NASDAQ. Volatility spiked up over three points with the VIX closing at 24.6%.
I think it is safe to say that the "buy the dip" crowd have been flushed out of the market - or they are in a lot of pain. There was no economic data to account for this afternoon's rout. Most analysts attributed it to SPX trading below the 200 dma and triggering a number of sell orders. SPX has not broken the 200 dma in about two years.
My Nov 1810/1820 put spreads are far OTM, but those spreads aren't nearly as safe as as I once thought. I hedged the position with Dec puts today, and may close the put spreads soon if this continues. My hedge puts gained 15% just in the last hour of trading today. That helped ease the pressure on the Nov iron condor position.
It is hard to predict what event, if any, may kick in support for this market. Since it is difficult to point to the impetus for the collapse, it is equally difficult to predict what may end the bloodshed.
Presumably, you have already hedged your positions or closed them out as appropriate; now we wait out the storm.
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I don't think I am alone in being bewildered by this market. I feel like a mouse in the middle of a sumo wrestling match. Today SPX lost $41 to close at $1928 and RUT traded down $29 to $1068. Let's review: SPX traded down $30 on Tuesday, then it traded up $34 on Wednesday. then we lost $41 today. "Good grief", said Charlie Brown. I'm not sure anyone has a good answer for it, but the facts are that more one percent moves in the stock market occur in October than any other month. But I think recent markets are setting records for the huge whipsaws back and forth. Thirty and forty dollar moves on the S&P 500 back to back, and in opposite directions, are largely unprecedented. This market is rattling even the institutional traders. Over 2.6 billion shares of the S&P 500 traded today. But just to keep the data bewildering, trading volume was down 2% on the NYSE and trading on NASDAQ dropped 9%.
The number of initial unemployment claims reported today at 287k, flat from last week's 288k. Continuing unemployment claims were down slightly at 2.38 million, up from 2.40 million.
I took the opportunity to close my remaining SPX Oct 2080/2090 call spreads for five cents. This closes the October position for a gain of 8.2%. I am freeing up cash for a new November position. Our current November trade is doing well, but I expect we will close it early some time after this market bounces. When we see the market bounce (that will be a risky call, given the price volatility), I will sell more November put spreads. Our current November put spreads are over one hundred dollars OTM.
Time to relax and call it a day...
