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The bulls and the bears appear to be at a stalemate here. For several days now, the market has opened strongly and spurted upward, but then quickly reversed downward. Much of the news and CNBC commentary throughout the day has been focused on Bernanke and the FOMC. Everyone is consumed with the Fed tapering their QE programs and arguing about whether that tapering will begin in September.
A good example was this afternoon when one of the FOMC members was quoted as saying that tapering wouldn't begin in September. The markets popped up a bit on that news, but it didn't take long before those gains were lost and the market actually dipped lower. In the meantime, it appears as though traders are sitting on the sidelines, reluctant to commit additional capital to this market. SPX lost $9 today, closing at $1685. RUT closed down $4 at $1048. The VIX increased about half a point to 12.9%.
Trading volume continues to be very low and this is actually consistent with the stalemate view expressed above. Only 1.8 billion shares of the S&P 500 stocks traded today and the 50 dma stands at 2.3B shares. Trading on the NYSE decreased 3% and trading volume dropped 1% on NASDAQ.
The Producers Price Index, PPI, was announced this morning for July and, surprisingly, was a big fat zero. I would have thought we would be seeing the early signs of an inflation surge with all of this money being pumped into the markets. I think this reflects the extreme weakness of this economy; it is much weaker than reported in the media.
My Aug condor position at 970/980 and 1080/1090 stands at a 7% loss, assuming both spreads expire worthless this weekend, and that appears likely at this point. Fortunately, my Sept condor position stands at a P/L of +$1620 or +10% with position delta = -$15 and position theta = +$68. This is a good example of managing the risk on each trade so that losses are constrained to be of the order of the gains in a good month.
So now we return to the market watch. Try not to fall asleep.
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The markets plunged at the open this morning, but almost immediately recovered and had traded back to "even" by noon. But then SPX weakened and recovered a bit before the close at $1689, down $2. RUT traded more aggressively, recovering its opening losses before 10 am ET, and stayed in the black all day, closing up $5 at $1054. Trading volume dropped again today with 1.7 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE and on NASDAQ each dropped 8% today.
Volatility dropped almost one point to 12.8% (as measured by the VIX).
Today was a light day for economic news. We get retail sales tomorrow, the PPI Wednesday, and then the CPI and unemployment claims on Thursday. Barring any surprises in those announcements, I expect this market to continue sideways as everyone is either on vacation, or sitting on the sideline pondering whether tapering will start in September. A CNBC survey of economists found a large majority expecting the Fed to begin tapering in September in spite of the fact that the unemployment rate will not be even close to the 6.5% figure Bernanke stated as their trigger. Why would Bernanke go to such an extent to communicate that guideline and then ignore it?
My RUT Aug condor at 970/980 and 1080/1090 stands at a 7% loss with delta = -$42 and theta = +$194. Our earlier adjustments of this position as the market traded straight up have successfully minimized the loss. The Sept position at 930/940 and 1120/1130 is up $1520 or +9% with delta = -$23 and theta = +$63. The good news is that the September position has already recovered the August losses.
RUT has been trading much more bullishly than SPX the past 2-3 sessions. SPX is being held back by strong resistance at $1700. Time will tell if RUT is effectively forecasting an increase by SPX or whether RUT will be pulled back by the blue chip stall.
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SPX opened strongly this morning and ran up to that psychologically important $1700 level. But then the bears pulled it back to $1688, all of this in a little over an hour of trading. But the bulls held the day, pushing SPX back up to close at $1697, up $7 on the day. RUT didn't trade as strongly upward but still gained $5 to close at $1049. Volatility cooled a bit with VIX dropping to 12.7%.
This morning's headline on Yahoo Finance is an excellent illustration of one of the most troublesome problems in our country today. The headline was: U.S. Jobless Claims Edge Up; Still point To Healing Labor Market". Who writes this stuff? Does he get a commission check from the administration? Initial unemployment claims increased by five thousand and continuing claims increased by 67 thousand. Tell those people that the labor market is healing. I remember when journalists were very scrupulous to never allow their opions and political posture be revealed in their reporting - but no more.
My Aug iron condor on RUT stands at a net loss of $1,700 or -8% with delta = -$43 and theta = +$141. The Sept position is up $1,140 or +7% with delta = -$22 and theta = +$71. I have my trading group meeting this evening, so I have to cut this blog short. I hope you are long PCLN...
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The S&P 500 Index (SPX) opened up lower this morning and then the bulls tried to take it higher, but were once again rebuffed at $1700 (reached $1699 as the intraday high). Then the bears took over and traded it down to the low of the day at $1686. A compromise was reached as SPX closed at $1691, down $6. RUT traded more strongly, closing down one dollar at $1048. Volatility increased almost one point to 13.4%, which is still pretty low historically. Trading volume fell off with 1.8 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 7% and trading volume decreased 13% on NASDAQ.
The first three days of trading this week created a lot of correction chatter, but the last two days appear more consistent with overall market trading since mid-July. During that period of time, SPX has traded from $1680 to $1710 and RUT has traded in the range of $1040 to $1062. Since the discussions of Fed tapering in September earlier this week didn't panic the market the way it did in late May, we may just see some sideways consolidation range trading for the near future. But the next Fed meeting is over a month away; traders may get nervous waiting.
I decided to leave my RUT Aug 1080/1090 call spreads open into next week. I will probably close them next week and allow the Aug 970/980 puts to expire worthless unless the market drops quite a bit. The Sept position stands at a net gain of $1,180 or +7% with delta = -$17 and theta = +$70.
I need to clear out of here and meet my wife for dinner. Have a great weekend.
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Each day in the markets can be thought of as a tug of war between the bulls and the bears. Today's intraday pattern of trading was interesting. Both RUT and SPX hit their lows around 10:30 am ET, but then they diverged from each other. RUT traded sideways and closed at $1044, down $8 and near the low at $1043, whereas SPX recovered a fair amount of its losses, closing at $1691 for a loss of $6 on the day (the intraday low was $1685). Given that the RUT tends to lead SPX up or down, I find this divergence interesting. It suggests this market could go lower before it goes higher. With all of the talk about the Fed tapering and traders looking forward to the September FOMC meeting, I think the most optimistic near term course for the market is chopping sideways.
Trading volume today was pretty flat with 1.9 billion shares of the S&P 500 stocks trading (identical to yesterday and well below the 50 dma at 2.3B). Trading volume on the NYSE was down 4% and trading was up 8% on NASDAQ.
The VIX increased about one third of a point to close at 13%. As long as VIX remains reasonably calm in this 12-13% range, I doubt we will see a more serious sell off.
My Aug condor position stands at a loss of $1980 or -9% with delta = -$37 and theta = +$197. The September position stands at a P/L of +$880 or +5% with delta = -$17 and theta = +$78. Both positions are now delta neutral and well positioned, but who knows the future?
