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The markets opened a little weak for a few minutes this morning, but then traded up all day with SPX gaining $7 to close at $1885. RUT also gained on the day, closing up $12 at $1114. Volatility was unchanged with the VIX at 12.4%. the NASDAQ composite tacked on $35, almost 1%. But before we hang too much on those numbers, it is important to note that trading volume dropped off with 1.7 billion shares of the S&P 500 trading today, well below the 50 dma of 2.2 billion shares. Trading volume fell 17% on the NYSE and decreased 9% on NASDAQ. We have a long weekend coming up, but it seems too early for everyone to be checking out. I think the safest conclusion is to say that we remain trading sideways in a narrow range. And this is consistent with the classic "Sell in May" pattern for the summer. Many focus on the "sell", but this isn't a period of decline; the typical historical trend has been sideways, range bound trading. Even if the bears take their turn tomorrow, I expect SPX will remain in the range of $1850 to $1900.
My Jun RUT iron condor at 1040/1050 and 1220/1230 stands at a net P/L of $2,340 on 20 contracts or +16% with delta = +$54 and theta = +$62. I also entered a diagonal call spread today on SNDK, long the Jun 90 call and short the MayWk4 92 call. SNDK has been in a strong bullish trend for quite a while and this has been reinforced after its recent earnings announcement. Diagonal call spreads work well with slightly bullish to sideways patterns. The next several weeks should be a good time for that class of trade.
This is going to be a slow week for economic data and trading will most likely slow as we approach the three day holiday weekend. I don't expect any fireworks. So today's low volume sideways trading may be typical of the week.
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The markets bounced back a bit today, seemingly reaffirming the sideways trading range of the past few weeks. SPX gained $7 to close at $1178. RUT also gained $7 to close at $1103. Volatility backed off a bit with the VIX declining almost one point to 12.4%. Trading volume was flat to down from yesterday with 2.1 billion shares of the S&P 500 trading. Volume rose 1% on the NYSE and dropped 16% on NASDAQ.
SPX has been successfully using the 50 dma as support, bouncing off both yesterday and today. But the 50 dma is steadily rising, compressing SPX between its all-time highs and the 50 dma. Sooner or later, something has to give. RUT has been trading much weaker than SPX, trading way below the 200 dma. Over the past few days, it appears RUT is bouncing off the support set by the low in early February around $1093. The market is clearly weak, but the key question is whether the markets will consolidate and thereby relieve some of the excesses from the strong bullish gains of the past several months or whether we will see a stronger correction. I am starting to worry that it may be the latter.
The weakness in RUT worries me a bit, so I closed my May put spreads yesterday. SPX settled at $1870.76 and RUT settled at $1094.72. The May call spreads will expire worthless, resulting in an 11% gain for my May iron condor position on RUT.
Have a great weekend.
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This market has been seeking direction for several weeks, but today it appeared the bulls were firmly in charge. But time will tell. SPX tacked on $18 to close at $1897, a new all-time closing high. RUT also traded strongly, up $26 to close at $1134. Both indexes gapped open this morning, a very bullish sign. But trading volume was down today with 1.8 billion shares of the S&P 500 stocks trading (the 50 dma is 2.2B). Trading declined 5% on the NYSE and decreased 6% on NASDAQ. Volatility continued its slow decline, with the VIX closing at 12.2%, down seven tenths of a point.
The price action on all of the major indexes was very bullish, but the lack of confirming volume is a concern. On the other hand, the declining VIX tells us that traders are not concerned about an imminent correction.
These levels of the VIX are back to where we were in late December and early January.
We have watched the RUT and NASDAQ composite trade much weaker than SPX for several weeks, but that trend shifted today. RUT gained 2.3% today from Friday's close; NASDAQ gapped open this morning and gained 1.8% from Friday's close, but SPX only gained 1.0%. This is at least one data point suggesting the rotation from small caps and high tech to the blue chips may be nearing its end. The alternative explanation for recent market behavior was to suggest the small caps were leading the market into a severe correction. One data point doesn't make a trend, but today's market action is at least hopeful.
My iron condor positions are faring well. The May position on RUT stands at a net gain of 12% with delta = +$6 and theta = +$256 on 20 contracts. With just a few days to go, this position is delta neutral with both spreads over two standard deviations OTM. The RUT Jun iron condor stands at a net gain of 14% with delta = +$10 and theta = +$87 on 20 contracts. The position theta is much smaller because we still have 38 days to go until expiration. Time decay isn't ramping up too much as yet.
Watch for the bears to try to regain control in the morning.
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The markets pulled back a bit today, but on weaker volume. The divergence between SPX and RUT continues. SPX closed down $9 at $1889 while RUT lost $18 to close at $1103. Volatility remains low with the VIX unchanged at 12.2%. Trading volume was weak with 1.7 billion shares of the S&P 500 trading. Trading volume declined 3% on the NYSE and declined 6% on NASDAQ. SPX continues to trade above its 50 dma, but RUT has now once again broken the 200 dma.
Yesterday, retail sales disappointed investors with a weak 0.1% gain in April after a 1.1% gain in March. Today, the PPI came in with a 0.6% gain in April, building on last month's 0.5% gain. Too little to run up the inflation flag yet, but it is worth watching. All in all, it is hard to explain the small cap weakness. The economic data are not strong, but they aren't weak either.
Ten year treasury yields broke support today and dropped to lows not seen since October. This may suggest a flight to the safety of treasuries. Maybe the small cap weakness seen in RUT is an early warning sign? I have been reluctant to give the bears a nod as long as the Fed is strongly supporting this market, but RUT's weakness the past two days has my attention.
Unless RUT opens higher tomorrow, I will be closing my May put spreads even though they are still over two standard deviations OTM.
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This week's market reminded me of a drunk walking down the sidewalk,
lurching back and forth, but managing to stay on the sidewalk. The bulls
and bears each thought they had control at one point this week, but neither camp could manage to hold onto it.
Today SPX closed up $3 at $1878 and RUT gained $10 to close at $1107.
Volatility contracted a bit with the VIX losing a half point to close at
12.9%. Trading volume declined with 1.9 billion shares of the S&P
500 trading. Trading declined 11% on the NYSE and dropped 18% on NASDAQ.
The
50 dma continues to serve as support for SPX; it bounced off the 50 dma
again today. But RUT is trading much weaker; it broke the 200 dma
decisively on Tuesday and appears to be using the low from early
February as its support level. RUT bounced off $1092 to begin its upward climb this afternoon, closing at its highs for the day. SPX has now spent three weeks trading in the narrow range of $1865 to $1885, while RUT has trended lower. Comparing the recent behavior of these indexes shows us how traders have been rotating out of the riskier small cap stocks into the blue chips. Some analysts interpret this as the leading edge of a major correction, but so far that has failed to materialize. SPX has held very steady while the NASDAQ composite and RUT have trended downward.
My
May iron condor on RUT is in pretty good shape with a net gain of 5%;
theta for this position is now up to $274 per day, so it will rapidly
appreciate, assuming the big crash doesn't make a showing. My Jun
position is in even better shape at +8%; we were able to position our
June put spreads down at 1040/1050 and that has relieved much of the
pressure this week as RUT broke its 200 dma.
Enjoy your weekend.
