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Markets traded higher today, but couldn't hold those highs. SPX closed at $1615 for a gain of $9 after trading as high as $1627. RUT closed up $12 at $990. Trading volume was off significantly with only 2.1 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 26% and trading volume on NASDAQ decreased 38%. I guess traders are taking off early for the holiday.
I was impressed with the strength of SPX this morning as SPX broke through the 50 dma at $1623, but it couldn't hold. Traders took their profits and pulled it back to $1615. The extremely low trading volume makes drawing conclusions difficult. Intraday volatility remains a common characteristic of this market. The sell-off this afternoon may suggest a larger number of traders who are concerned about losing their gains in this strong market. This will be an unusual week with a holiday Thursday and then the jobs report Friday morning. I'm not sure what to expect.
My July condor on RUT stands at a net gain of $2,660 or +16% with delta = -$10 and theta = +$67.
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SPX opened lower this morning and then sunk even farther after a disappointing Chicago PMI report. Then SPX strengthened and traded sideways roughly at no change most of the day, but then sold off at the close. SPX lost $7 to close at $1606 while RUT closed at $977, down $2 on the day. VIX ended the day unchanged at 16.9% after moving as high as 17.7% this morning. Trading volume was up with 2.9 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE was up 32% and volume increased 49% on NASDAQ.
The Chicago PMI came in at 51.6 for June, down from last month's 58.7. But the University of Michigan consumer sentiment survey reported 84.1, up from 82.7. The Chicago PMI is closely watched by traders and probably set a negative tone for trading today.
SPX traded up and bounced off resistance at the 50 dma yesterday. This morning SPX traded down and bounced off support at $1600. So those are the "lines in the sand" to watch. A break out above the 50 dma at $1622 would be bullish and a break below $1600 would be a bearish sign. But this market remains very volatile; it is exceedingly difficult to determine a trend. The least little thing seems to push it either way and then it reverses course the next day. But support at $1600 and resistance at $1622 are at least the first signals of a break one way or the other.
My July iron condor stands at a net gain of $2,100 or +12% with position delta = +$24 and position theta = +$86.
Enjoy your weekend.
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Traders breathed a sign of relief today as the markets essentially recovered all of the losses from the extreme lows yesterday. SPX closed at $1588, up $15 and RUT gained $10 to close at $961. SPX's close today is approximately at yesterday's opening price. SPX plunged to $1560 yesterday and then recovered about half of that carnage yesterday afternoon. Today it recovered the remaining losses.The VIX pulled back almost 2 points to 18.5% and trading volume fell markedly with 2.5 billion shares of the S&P 500 stocks trading today, right at the 50 dma. Trading volume on the NYSE dropped 16% and volume on NASDAQ dropped 18%.
A slew of positive economic data probably helped this recovery. Durable orders gained 3.6% in May and the Price Schiller housing price index increased 12.1% in April (a record for that indicator). Consumer confidence increased from 74.3 to 81.4 for June and new home sales increased by 10k for May. All in all, this is probably the best set of economic data in quite a while. It isn't too surprising that these data encouraged traders.
Turning to the SPX chart, the index is bouncing just below resistance at $1600. The 50 dma is at $1619, so we have some significant progress that must be made before one can declare the correction is over. On the RUT chart, the corresponding resistance level is $955, so it was broken today. The RUT 50 dma = $966. But the simplistic choice is either 1) heading lower for a more severe correction, or 2) heading back into strong bull market mode. That ignores the very real (and I think more probable) possibility of a choppy sideways market for the balance of the summer. I think the first couple of weeks of earnings announcements may set the tone for this market.
My RUT July iron condor position stands at a net gain of $1,740 or +10% with position delta = +$28 and position theta = +$81. With a theta/delta ratio of just under 3:1 and about three weeks to go to expiration, this position is very strong.
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SPX actually gapped open to the upside today and closed above resistance at $1600 with a gain of $15, closing at $1603. Next stop is the 50 dma at $1619. RUT gained $3 to close at $964. RUT's chart didn't look as bullish with a run up to $969, but then it pulled back to close at $964. Volatility trimmed back 1.3 points with VIX closing at 17.2%.
First quarter GDP was revised downward once again to a +1.8% annualized growth rate. It makes you wonder about the process that the initial report is always high and then keeps being trimmed back. Some analysts believe this poor showing for GDP actually helped boost the market in a "bad news is good news" effect, making traders think it more likely that the Fed's stimulus will last longer. One has to wonder when the markets will decide that Fed stimulus is actually having some ill effects on the economy. I don't claim to know where this is going, but I am skeptical that the Fed pumping this much into the markets for so long doesn't have some unanticipated consequences.
My July condor position on RUT now stands at a net gain of $2,000 or +12% with delta = +$31 and theta = +$69.
Be careful out there. I closed many positions last week and on Monday, but I'm not convinced it is safe to go back in the water. Maybe I have become gun-shy (for you city folk, it is a term used for hunting dogs that can't get accustomed to the loud noise of the shotguns).
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Wall Street took us on a a wild ride today. First we were spooked by the 5% decline in the Chinese markets overnight, and, of course, that was reflected in the S&P futures this morning. To my surprise, SPX opened roughly at yesterday's close (I expected worse based on the futures), but proceeded to drop like a rock to $1560 before rebounding a bit to close with a $19 loss at $1573. RUT traded down $13 and closed at $951. The wild ride was reflected in the VIX, ranging from 18.5% to nearly 22%. VIX closed at 20.1%, up 1.2 percentage points. The fact that it didn't close at the low of the day is significant - even the most optimistic trader was taken back by today's price swings.
At today's close, SPX is now down just under 6% from its highs in May. SPX has now sliced through the 50 dma and broken a strong support level at $1600. It is basically in no man's land here. The next strong support level is at $1540. Most analysts define a correction as a drop in value of 7-10%, so we are in the neighborhood, but could go lower. Today's rebound was encouraging, but I doubt we are out of the woods. I don't believe there is a rational basis for this drop of the past week or so (although the airwaves are full of explanations). I think we are just observing the natural market correction to earlier excesses.
My July condor on RUT at 870/880 and 1060/1070 stands at a net gain of $1,100 or +7% with position delta of +$43 and position theta of +$81 on 20 contracts. By the way, if you wish to compare the Greeks of your position with mine, just divide my position Greek by 20 and then multiply by the number of contracts in your position.
OK, the market is closed. Go relax and do something mindless (don't listen to the news; it might push you over the edge).
