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Markets seemed a little lost today. SPX opened positively this morning, but then quickly dove into the red, traded slightly upward for the balance of the day, and then deteriorated from about 2 pm ET through the close. SPX gained $3 to close at $1669 while RUT closed at $999, up $1. Trading volume bumped up a little from yesterday but remained below average. Trading in the S&P 500 rose to 2.3 billion shares and trading on the NYSE was up 6%. Volume on NASDAQ rose 2%. Volatility rose a touch with the VIX closing up 0.4 points at 13.4%. It is too early to be conclusive, but the SPX chart of the past few days seems to be treating $1670 as resistance; a similar pattern is emerging with RUT tentatively trading above $1000, but then pulling back.
Traders seem to be obsessed with any news, rumors, or even baseless speculations concerning the Fed scaling back its quantitative easing. I think it is evidence of the market finding itself in new territory, i.e., a strong bullish trend with minimal underlying economic support. Yes, one can point to good corporate earnings, but we all know the macroeconomic data remain weak. Companies aren't posting good earnings by expanding and hiring. Traders know the picture is flawed and they are spooked by the idea of the Fed pulling out and the markets having to stand on their own. Perhaps that is a problem with the entire country with more and more people feeling they must depend on the government.
My Jun condor position on the Russell 2000 Index remains hedged with a P/L of -$2,850 with position delta = -$13 and position theta = +$77. Be careful about adding more capital to positions until after the Bernanke testimony and the release of the FOMC meeting minutes tomorrow.
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The SPX opened this morning and started another relentless climb higher, peaking at $1673 around noon ET. But then it bled off all of those gains and went into the red, dropping to $1664 by 2 pm ET. It recovered most of that by the end of trading, closing at $1666 for a loss of one dollar. RUT fared a little better, with a $2 gain at $998, but those gains came in the last 4-5 minutes of trading. Trading volume was down significantly with 2.1 billion shares of the S&P 500 trading. Trading volume was lower by 5% on both the NYSE and NASDAQ. VIX popped up a half point to 13.0%, still a low value historically.
There wasn't much economic news today. The Chicago Federal Reserve Bank released its national activity index that measures manufacturing activity. It decreased to a -5.3 for April from the previous month's -2.3, with negative numbers indicating contraction. This is consistent with other similar manufacturing surveys of the past few months. The stock market going higher every day causes us to forget that the economy is still struggling.
I rolled the 1020/1030 call spreads in my RUT Jun condor to 1030/1040 this morning, and, of course, then the market pulled back. This position now stands at a loss of -$2,530 on 20 contracts with delta = -$7 and theta = +$66. We still hold the July 1000 calls as a hedge. This condor still has the potential to make a nice profit if the index levels out or pulls back from here, so our rolls and hedges have served their purposes.
Traders are focused on Bernanke's testimony before Congress on Wednesday, so tomorrow's market may be very quiet.
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The market opened weakly this morning, then climbed to an intraday high around 1 pm ET and then lost almost all of its gains only to recover most of the gains in the last hour. You may wonder - what's my point? Traders continue to come in and buy any weakness; it isn't hard to find nervous traders - nearly everyone is on high alert for a correction. But it is also true that no one wants to miss out on any more of this bull market. SPX ended up $8 higher at $1659 and RUT gained $3 to close at $989. Trading volume was essentially flat with 2.4 billion shares of the S&P 500 trading; trading volume on the NYSE rose 4% and trading on NASDAQ was up 1%.
There was a large amount of economic data released today, but most of it was mediocre to poor. Perhaps that explains the early weakness in the markets today. The Producers Price Index (PPI) decreased 0.7%, but the Empire Manaufacturing Survey dropped from +3.1 to a negative 1.4. Industrial production for April declined 0.5% and capacity utilization declined a half percentage point to 77.8%. The only bright spot was the NAHB Housing Market index that increased 3 points to 44 for May. One of the bizarre aspects of this particular bull market is that poor economic news is often seen as bullish simply because it means the Fed will continue its stimulus programs.
My Jun condor position on RUT is largely unchanged at a P/L of -12% with a position delta = -$8 and position theta = +$73. The position is still hedged but I have rolled the call spreads higher. As you can see, the position is delta neutral with a large positive theta, so we are in pretty good shape.
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Consumer sentiment data appeared to give the market a boost today and resumed the uptrend. SPX closed up $16 at $1666. RUT increased $11 to close at $996. VIX lost almost a percentage point to close at 12.5%. Trading volume was mixed with a slight decrease in the S&P 500 to 2.5 billion shares, but a 17% increase on the NYSE. But on the other hand, trading volume fell 7% on NASDAQ.
The University of Michigan consumer sentiment data jumped up in May to 83.7, significantly higher than April's 76.4. Leading economic indicators were released for April and were up 0.6%.
RUT settled at $989.53 today, so the remaining put spreads in my May condor will expire worthless this weekend, resulting in a 10% gain. This brings the Flying With The Condor™ service to break-even for 2013 (making up for the Jan loss). My Jun position stands at a P/L of -$2,670 with position delta = -$44 and position theta = +$76.
Have a great weekend.
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There was an enormous amount of talk about the old "Sell in May and Go Away" adage on CNBC for the past few weeks.
Needless to say, anyone
who followed that advice is very disappointed, as the market has simply
continued on a tear upward almost without even a slight pause and certainly no
correction. A pullback or correction is always possible, but so far
I have lost money on the puts I have bought as insurance on my stock portfolio.
SPX closed at $1650,
up $17 today and RUT ran up $12 to close at $986. RUT closed at its high for the day - very bullish behavior.
It appeared like David Tepper’s comments on CNBC this morning set
the tone for today’s bullish run. Trading volume spiked up today, but barely made it to the 50 dma. Trading in the S&P 500 has not exceeded the 50 day moving average even once in May. Just under 2.4 billion shares of the S&P 500 traded today and trading volume increased 19% on the NYSE and increased 11% on NASDAQ.
Market bears have been pointing to the lower trading volume as a warning sign on this market.
Traditional bull markets occur on higher than average trading volume and today's spike upward in volume matches that historical tendency. But daily
volumes above the 50-day moving average in this bullish run have been relatively rare and so the
average is actually declining. When one
considers how many individual investors have been spooked and have left the
markets since 2008, perhaps this low volume isn’t surprising.
VIX is currently at 12.85%, a historically low level. This morning, VIX
rose as the markets traded upward – an unusual divergence. This could be a result of continued
high volume of puts being bought as this market hits new highs and correction
concerns abound. Many institutional traders see these low levels of volatility
as an opportunity to buy inexpensive insurance on their portfolios. Or it could be that the bulls are loading up on SPX calls.
The PPI will be announced tomorrow. That may raise the debate about inflation, but I doubt it will derail this market. It appears like it will require an extraordinary surprise of some kind to even give the bulls a pause.
My June iron condor position on RUT stands at a P/L of -$2,670 or -12% with delta = -$11 and theta = +$71. I closed the 820/830 put spreads today and rolled them up to 890/900. These adjustments have retained a nice potential gain for this position, assuming (big assumption) the bulls' truck slows down a bit.
