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The markets continue to trade in a tight range with neither the bulls or the bears in control. SPX chopped sideways most of the day, traded into negative territory in the afternoon, but recovered by the close to gain only one dollar, closing at $1686. RUT traded in a similar pattern, closing up $3 at $1044. The volatility index, VIX, closed unchanged at 13.4%. SPX is hammering out a support level at $1680 while RUT seems to be trading down to and bouncing off of support at $1040. Trading volume increased to 2.1 billion shares on the S&P 500 stocks, but remains below the 50 dma at 2.4B. Trading volume increased 16% on the NYSE and increased 21% on NASDAQ.
The Case Schiller Housing Price Index came in at an increase of 1% in May as compared to a 1.7% increase in April. Most analysts were expecting a slightly higher number but remain upbeat on real estate.
All eyes are on the FOMC announcement tomorrow afternoon. It is hard to predict how the market may respond.
MA reports earnings in the morning before the bell and I sold the AugWk1 570/575 and 625/630 iron condor in anticipation of the volatility crush after the announcement.
My Aug iron condor on RUT stands at a net P/L of -$3620 with delta = -$84 and theta = +$233. My short strikes are at 980 and 1080. As you can see from the Greeks, we are gaining quite a bit each day from time decay at this point in the trade.
Grab your popcorn and settle in for the FOMC Show tomorrow!
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Most of today, RUT traded more weakly than SPX. In other words, one is tempted to say that RUT led the markets downward, but that would be extreme. The major market averages are all holding to early support levels. This is only a sideways consolidation thus far. SPX closed at $1685 for a loss of $6. SPX is holding just above a strong support level from $1670 to $1680. RUT closed down $8 at $1041. There is a weak area of support on the RUT chart around $1040. If RUT breaks $1040, there aren't any solid support levels until around $1000, near the 50 dma at $1001. Trading volume declined with 1.9 billion shares of the S&P 500 stocks trading. Trading volume was flat on the NYSE and declined 14% on NASDAQ.
The only significant economic data came in with pending home sales, which declined 0.4% in June after a strong 5.8% gain in May. Price Schiller and consumer confidence come out tomorrow. The FOMC meeting also begins tomorrow, but their announcement will be released Wednesday afternoon.
I don't expect to see much market action until after the FOMC announcement on Wednesday. Then we have the jobs report Friday as the finale.
My Aug iron condor on RUT continues to bleed off time decay, improving the position's P/L day by day. Today's net P/L is -$3,160 or -15% with position delta = -$50 and position theta = +$183 on 20 contracts. So the theta/delta ratio is very positive. Absent an extreme market move, the Aug position will continue to improve.
After several months of positive real estate market data, we seem to be seeing cracks in the story lately. It will be interesting to see if the Price Schiller price data continue to support that positive outlook.
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The markets appeared to be losing their bullish steam today. SPX opened down and just slowly sunk throughout the day, closing at $1686, down $6. RUT lost $8 to close at $1044. Volatility increased about half a point with the VIX at 13.2% - still a relatively low number. Trading volume increased quite a bit, adding to the bearish mood. Trading in the S&P 500 stocks increased to 2.3 billion, still below the 50 dma. Trading on the NYSE increased 9% and volume on NASDAQ increased 13%, probably driven by a spike in AAPL trading after its earnings announcement.
Since the recent rise in the S&P 500 has been largely straight up, it is hard to cite strong support levels to watch in a pull back - perhaps $1680? The peak from May was around $1670 and the high in mid-June was around $1652.
The European PMI was issued today, reporting 50.4 for July. This was the first expansionary number (greater than 50) for 18 months, so it was a pleasant surprise, but Europe is far from out of the woods. Euro Zone unemployment stands at 12.2%. This pushed European markets higher but apparently reminded our traders that Europe remains a problem. New home sales came in at 497k for June, up from 459k, but I suppose good news in the real estate markets is old news.
The stellar run up since June 24 has proven difficult for my August iron condor on RUT. I started with the 860/870 put spreads and the 1050/1060 call spreads. I have hedged with Sep 1040 calls (sold today) and have rolled the call spreads twice, now at 1080/1090. The put spreads were rolled up to 970/980. The position currently stands at a net loss of $4700 with delta = -$71 and theta = +$189. Now I am simply managing the trade to minimize the loss for this month. We have a shot of coming out near break-even, but we'll see.
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The Standard and Poors 500 Index (SPX) paused its upward trek this week. The intraday price action on SPX both yesterday and today challenged $1680, but then bounced back upward. I think today's price action illustrates that the bullish foundation of this market is still very much intact. I think we are seeing the market pause as it looks forward to a key FOMC announcement next week.
But the FOMC announcement Wednesday afternoon is not the only possible source for market volatility next week. The Case Schiller Housing Price Index and the Chicago PMI are two influential and closely watch reports scheduled for next week. And we also have the second quarter GDP growth rate being reported as well as the granddaddy of market moving reports, the Non-Farm Payroll Report Friday. We may see a very volatile week in the markets.
During this strong bull market, the Russell 2000 Index (RUT) has traded even more bullishly than SPX. Market analysts see this as confirmation of the overall bullish trend, but today’s market action strikes me as a possible divergence. SPX opened down at $1687 and traded to a low at $1676. Then SPX steadily climbed all afternoon to close at $1692, recovering all of its losses and gaining one dollar on the day.
Based on the past few months, we might have expected RUT to post gains on a day like this, but it didn’t. RUT closed down at $1048 for a loss of $6. Is RUT signaling weakness ahead? Perhaps today’s divergence of RUT from SPX is just an aberration. But it is a signal worth keeping in mind. At a minimum, it underscores the need for caution going into next week.
My Aug iron condor on RUT is working off its deficit slowly with a net loss of $3,800 with position Greeks of delta = -$102 and theta = +$171.
Have a great weekend.
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Markets slowed a bit today and basically wandered sideways. SPX dropped $3 to close at $1692 and RUT lost $1 to close at $1052. So RUT continues to lead SPX in a bullish fashion, pulling back a bit less on a dull trading day. Trading volume was mixed with only two billion shares of the S&P 500 stocks trading. That is an increase over yesterday, but well below the 50 dma. Trading volume increased 8% on the NYSE and increased 6% on NASDAQ. Volatility was largely unchanged with VIX at 12.7%, up less than half a point.
The only hard economic news today was the FHFA Housing Price Index, reporting an increase of 0.7% in May, up from April's +0.5%. This is consistent with all of the real estate data of the past 2-3 months. The granddaddy of real estate pricing data, Case Schiller, comes out July 30.
The most exciting thing going on in an otherwise boring market was anticipation of Apple's earnings announcement and how to play it. The ATM straddle was pricing in a move between $397 and $449. Thus, the question: would the move be greater or less? If you were in the "greater" camp, the straddle was the right play. But I couldn't believe that the large crowd of Apple naysayers would surrender easily. On the other hand, playing a lesser move with an an iron condor did not appeal to me. It just seemed too probable that AAPL might surprise the market with something clever or simply surprise the naysayers with even greater piles of cash. So, in the end, I sat on my hands - when in doubt, preserve your cash. As of this moment, AAPL is trading up $15 at $434. So, once again, the options market had it priced rather well. The iron condor would have been a good play.
