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Bernanke will be testifying before Congress Wednesday and Thursday. It appears as though traders were taking some of their profits off the table just in case his comments spark another rout like we had in May and June. On the other hand, his comments could spark an incredible rally like we saw last week after his speech in Cambridge. One thing is clear: it is impossible to predict the market's reaction.
SPX closed at $1676, down $6 and RUT lost $5 to close at $1039. Volatility rose almost a full percentage point to 14.4%.
The economic data that were reported today didn't help the markets. Industrial production increased 0.3% (better than last month's zero, but still poor). Capacity utilization was flat at 77.8% and the CPI rose 0.5%. Increasing inflation could put a serious cramp in Bernanke's efforts to shore up this economy. That wouldn't be fun for anyone, whether you are a Bernanke fan or not.
When the RUT opened up weakly this morning, I took that opportunity to close my July 1060/1070 call spreads. For those of you with more patience, you would have received a much better price later in the trading day. Assuming the Jul 870/880 puts expire worthless this weekend, this results a gain of 10.7% for July and pushes the year to date results for Flying With The Condor™to +5.2%. Normally, I pride myself on beating the S&P 500 index performance, but I still lag far behind this year. Hopefully, I will continue to close the gap in the coming months.
Grab your popcorn and let's watch the Bernanke games...
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The markets slowed a bit today, but not much. SPX opened higher this morning and then pulled back into negative territory; but by late morning, it had moved into positive gains and stayed there the rest of the day. SPX gained $2 to close at $1683. RUT continues to lead the markets and today was no exception. RUT gapped open this morning and gained $7 to close at $1043 for a new all-time high. Trading volume fell off from Friday with only 1.8 billion shares of the S&P 500 trading today. Trading volume declined 11% on the NYSE and also declined 7% on NASDAQ.
We heard some positive economic news today and that may have helped push markets higher. Retail sales for June increased 0.4% and the Empire manufacturing survey increased to 9.5 from the previous month's 7.8. The FOMC Beige Book comes out on Wednesday and Bernanke testifies before Congress Wednesday and Thursday, so we might expect some market volatility around those events.
I chose to allow some more time decay to assist my July 1060/1070 call spreads and held them open over the weekend, but I will close those spreads soon. The July condor position on RUT stands at a gain of +6% with position delta = -$221 and position theta is a whopping +$801. IBM announces earnings Wednesday after the close; that announcement will be watched carefully as an indicator of the economy's health.
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The markets continue to amaze me. I recognize that the economy has been showing improvement, but we still have record unemployment and corporate earnings are being held up only because those companies dumped so many people when the financial crisis started. But the markets continue to march higher and they aren't moving slowly. SPX tacked on another $12 today to close at $1652 while RUT set another all time high at $1018, up $9. Trading volume declined significantly today with 2.1 billion shares of the S&P 500 stocks trading; trading volume declined 7% on the NYSE but increased 7% on NASDAQ. The VIX declined to 14.4%, bringing it back to the levels in late May just after the markets started this most recent decline.
SPX broke support at $1650 today. SPX has gapped upward at the opening bell for the past three sessions, as has RUT. In addition, RUT has set new all-time highs for three days in succession. What can I say? This is exceptional behavior.
The FOMC minutes will be released tomorrow at 2 pm ET, so watch the markets as that happens. I don't expect anything new from those minutes, but don't forget how the market reacted to Bernanke in late May - the market doesn't have to be rational. Bernanke also has a speech scheduled tomorrow, but it will occur after the market closes. That could affect Thursday's open, but again, I doubt it.
My July condor position stands at a net gain of $2,860 or +17% with delta =-$28 and theta = +$55. Unless the market slows, the 1050/1060 call spreads will probably flunk the Two Sigma test this Friday. So I look forward to my recent early morning routine: as soon as I climb out of bed, I check the S&P futures and say, "good grief - positive again". I long to go back to my normal routine where I at least get a cup of coffee before checking the news, overnight markets, and then the futures.
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The markets basically slogged slowly sideways on low volume as traders waited to read the FOMC minutes. I listened to several of the talking heads on CNBC complain about the lack of a "clear timetable" - really? How can Bernanke deliver a clear timetable when Fed actions have been clearly communicated as dependent on economic data to assure the committee that the economy is strong enough to stand on its own? Do we expect him to predict that unemployment will decline to 6.5% in September and then he will reduce the bond purchases by 15% each month, etc.? Really?
This is the reward Bernanke receives for his attempts to better communicate FOMC reasoning and decisions. Perhaps this is just more evidence of why the FOMC had no business doing QE in the first place.
SPX closed the day flat at $1653 while RUT gained $2 to close at $1020. VIX was essentially unchanged at 14.2%. Trading volume was flat with 2.1 billion shares of the S&P 500 trading. Trading volume declined 5% on the NYSE and volume declined 4% on NASDAQ.
My July condor position stands at a net gain of 15% with position delta = -$34 and theta = +$222. The 1050/1060 call spreads are far OTM (delta of the 1050 call = 4), but I will most likely close them this week unless the market pulls back from these levels.
Bernanke will deliver the Humphrey-Hawkins report to Congress next week, so the Fed watching craziness is far from over.
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Friday's jobs numbers stimulated some bullish trading, and I was surprised to see the market indexes gap open and continue that upward trend today. SPX traded up $9 and closed at $1640. RUT closed at $1009, up $4. This makes the second day SPX has closed above the 50 day moving average, so I think we can safely say that that resistance level has been broken. SPX had bounced off that resistance several times, but now seems to be well on its way higher. Trading volume in the S&P 500 jumped up above the 50 dma to 2.6 billion shares. Trading volume was up 15% on the NYSE and increased 20% on NASDAQ, but those increases were off very low numbers on Friday. The VIX actually increased this morning, but then settled back down to 14.8%, up one tenth of a point on the day.
The FOMC minutes will be released Wednesday. Alcoa started the earnings announcement parade this evening and the early market response appears positive. It is possible that some comments in those Fed minutes or some earnings surprises later this week might derail this bullish recovery, but this market is looking pretty solid at this point.
My July iron condor position stands at a net gain of $2,900 or +17% with position delta on 20 contracts = -$21 and position theta = +$51.
