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Second quarter GDP was revised to an annualized growth rate of 2.5% this morning and many cited that as the impetus for today's rally. Others pointed to signs that Obama is calming his sword rattling campaign with Syria. Any parent would know that you don't issue ultimatums you can't keep, but he couldn't resist sounding presidential.
I found the CNBC chatter today interesting; many of their hosts and guests are citing the GDP data as evidence that the Fed will begin tapering soon. Bernanke has been very clear that his critical data point for that decision is unemployment. And everyone is politely ignoring the change in how the government calculates the GDP data - a change widely regarded as delivering larger, more positive numbers. Unemployment is continuing its slow change for the better with initial unemployment claims decreasing by six thousand this week, but we are far from the 6.5% unemployment rate target Bernanke cited in May.
SPX gained $3 to close at $1638, but RUT ran ahead, gaining $10 and closing at $1027. SPX is still far from regaining the 50 dma and this chart remains technically very weak - the damage has been done. By contrast, RUT's close today confirmed its break out above the 50 dma. Can it hold that level? Trading volume began to fall off, perhaps in advance of the long weekend. Trading in the S&P 500 dropped to 1.6 billion shares; trading volume dropped 9% on the NYSE and likewise decreased 3% on NASDAQ.
The most telling data point today was the VIX, which rose three tenths of a point to 16.8%. Yes, the VIX rose as the market averages rose. Hmmm... Maybe traders are thinking the same thing I am. Maybe I need to buy some puts in advance of a long three day weekend.
My Sept condor stands at a net gain of 12% with position delta on 20 contracts of +$30 and position theta = +$73. Fortunately the Sept 930/940 put spreads are about two standard deviations OTM in these uncertain times.
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After a pretty ugly day yesterday, the markets bounced back upward a bit today. SPX gained $4 to close at $1635 and RUT gained $3 to close at $1017. But one is left wondering why? The chart has been in a pretty consistent down trend since August 5, so was today just a bit of short covering before the next step lower? Or is the market beginning to hammer out a bottom?
Trading volume fell off with 1.8 billion shares of the S&P 500 stocks trading today. Trading fell 14% on the NYSE and decreased 16% on NASDAQ. Volatility remains relatively high at 16.5%, declining only a third of a point today. This tells me that the big institutional desks have not sounded the "all clear" just yet.
Pending home sales declined 1.3% in July, but real estate analysts all chimed in that this wasn't alarming given the recent increase in interest rates and assured us the real estate recovery is intact. That was the extent of economic data for today; GDP and unemployment claims come out tomorrow.
My Sept iron condor on RUT continues at a net gain of 10% with position delta = +$38 and position theta = +$78.
Now the questions remain: Is the potential conflict in Syria really the issue? Is the upcoming Washington debt/budget debate the issue? Is the question of Fed removing their stimulus the issue? I don't have the answers. But it is clear that caution is well advised given the seriousness of all of these issues facing the markets. With a three day weekend coming up, how will the institutional traders position themselves?
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The markets rose this morning in spite of durable goods orders falling off by 7.3% in July - quite the contrast from the 3.9% increase in June. But the market shrugged off the bad news and traded higher until a little after 3 pm ET, when the tensions in Syria appeared to be heating up with some strong words from Secretary Kerry. News reports of an impending debt crisis fight in Washington are also starting to take their toll. But I think that crisis will be pushed to the back burner behind the September FOMC meeting. When all the traders return after Labor Day, FOMC will be the focus (absent a blow up of some kind in the Middle East).
SPX closed down $7 at $1657, after trading ten points higher most of the day. RUT was unchanged at $1038. Volatility fell below 14% early in the session, but rose in the last hour, with VIX closing up one point to 15%. Trading volume in the S&P 500 stocks fell to 1.6 billion shares. Trading volume fell 7% on the NYSE and dropped 6% on NASDAQ. Today's close on SPX took it back below the 50 dma that it struggled to break last week. In a similar fashion, RUT cannot break resistance at $1040. The market is mildly bullish at this point, but those bulls are cautious. It won't take much to spook them.
My Sept RUT iron condor at 930/940 and 1120/1130 stands at a net gain of 13% with position delta on 20 contracts at +$10 and position theta = +$69. Tomorrow brings the consumer confidence numbers and the Case Schiller housing price index.
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The markets gapped open to the downside this morning and the losses just mounted as the day went on. The underlying drivers are being debated, but analysts point to talk of the U.S. entering the war in Syria and the coming debate in Washington surrounding budgets and the debt ceiling.
The interview with Secretary Lew on CNBC today where he drew a hard "no negotiation" line in the sand, appears to be leading the country to some ugly brinksmanship. Perhaps that exacerbated the nervousness over Syria. Another viewpoint is to cite this as simply a continuation of the decline that began August 5th. Whatever the underlying drivers are, it was an ugly day with SPX losing $26 to close at $1630 and RUT closing at $1013, down $25. As one might expect, volatility increased with the VIX at 17%, up almost two points on the day. Trading volume popped up to the 50 dma with 2.2 billion shares of the S&P 500 stocks trading today. Trading on the NYSE increased 25% and trading volume increased 16% on NASDAQ.
Consumer confidence surprised analysts by increasing a bit to 81.5 in August; analysts expected a slight pull back from the previous reading of 81.0. The Case Schiller Housing Price Index increased 0.9% on a seasonally adjusted basis (+2.2% non-adjusted), thus reinforcing the continuing housing recovery. But this reasonably positive news this morning did not seem to support this market as it opened down and just traded lower as the day wore on.
Today's drop in RUT and the volatility increase pulled my Sept condor down a bit to a net gain of 10% with delta = +$39 and theta = +$67. But the delta of the 940 put remains relatively low at 11.
So now we look to tomorrow to see if this slide continues or the bulls see these prices as a buying opportunity. You could argue that this bout of market weakness may make it less likely that the FOMC will taper this year and that could stimulate some bullish behavior. But that assumes that the FOMC takes market levels into account in their decisions?
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This was a relatively slow week for
economic data, with the exception of the Fed minutes being released. But economic reports continue
to be mediocre or weak with the notable exception of real estate. Earlier this
week, existing home sales hit a three-year high, continuing a stream of
positive data supporting the notion of a recovery in real estate. But some
negative news appeared this morning when new home sales tumbled in July to
394k, down from 455k in June. But the markets gapped open upward this morning. Are we back to a point where bad news is interpreted as
good news with the reasoning that it will cause the
Fed to continue pumping money into the markets? The release of the FOMC minutes made it quite clear that a diversity of views exist in the FOMC on whether to taper now or later, or even what data should trigger a decision.
SPX ran up $7 to close at $1664 while RUT only increased $2 to close at $1038. Today's close by SPX finally broke above the 50 dma. SPX had unsuccessfully challenged that level for the past four days. Volatility dropped again today with the VIX closing at 14%. Trading volume was up a bit with 1.9 billion shares of the S&P 500 stocks trading. Trading volume was flat on the NYSE and appeared to be huge on NASDAQ with +63%, but that was an anomaly following the NASDAQ outage yesterday.
My Sep iron condor on RUT stands at a 14% gain with delta = +$9 and theta = +$48. This should be an interesting ride between now and September 18th (the FOMC announcement). Hold on tight.
