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Through about half of today's trading, the S&P 500 Index (SPX) was down or flat, but the Russell 2000 Index (RUT) was always in positive territory and just advanced even higher as SPX moved into the black in the afternoon. SPX ended up $7 higher at $1634 and RUT gained $9 to close at $975. But trading volume declined with 2.1 billion shares of the S&P 500 trading and volume on the NYSE dropped 8%. Trading volume on NASDAQ decreased 7%. Seeing RUT leading the SPX is very bullish - the classic definition of "risk on". But lower trading volume continues as a hallmark of this bullish market. This certainly is atypical of strong bull markets.
VIX dropped a half point to 12.6%. There was no economic news of any consequence today.
I closed my RUT May 1010/1020 call spreads today in accordance with my Two Sigma Rule. The 1010 call was 1.9 standard deviations OTM this morning. It was borderline whether to close the call spreads this morning, but the decision appeared more and more correct as the day wore on. That confirms a 9% gain for my May condor, assuming the 840/850 put spreads expire worthless next weekend.
I opened the June iron condor on RUT at 820/830 and 1000/1010 for a credit of $1.50 on 4/24 and hedged with the July 1000 calls on 5/3. Today, I closed the 1000/1010 call spreads and rolled them up to 1020/1030; I left the July hedges in place. This position still retains the potential of a gain of around 5.5% if everything goes well for us - wishful thinking perhaps. But that is the point of hedging: keep the losses in check and buy time for the market to flatten out or pull back.
This bull market is certainly persistent. It is fascinating how many of us traders are wary of it. One of the guys on CNBC today said this was the "most hated bull market" on the exchange floor he had ever seen. It makes traders nervous to be investing in a market that is largely being held up by the Fed.
Enjoy your weekend.
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The major market indexes didn't tack on more gains today - how about that? But the averages didn't drop much either; this bullish trend is still very much alive. SPX dropped back $6 to close at $1627 while RUT lost $4 to close at $966. The VIX added a half point to close at 13.1%, still relatively low. Trading volume was relatively flat with 2.3 billion shares of the S&P 500 stocks trading. Trading on the NYSE was down 3% while trading volume on NASDAQ was up 5%.
The unemployment claims came in this morning at 323k, down four thousand from last week. Continuing claims dropped 27k, but these decreases are small percentage changes; the data trend lines are basically flat, so the market didn't celebrate.
The new support level for SPX is now $1600, so it would take a pretty significant drop to really get traders' attention. The comparable support level for RUT is much closer at $955. Many market analysts feel a correction of some kind is overdue, but so far that has been a futile waiting game. I think three main factors are driving this market: 1) The Fed's QE policies, 2) Reasonable corporate earnings growth, and 3) A search for income in dividend paying stocks for traders leaving the bond market.
My May iron condor on RUT stands at a net gain of $1,560 or +9% with position delta = -$37 and position theta = +$125. I will apply my Two Sigma Rule tomorrow to this position. Unless the market opens down quite a bit tomorrow, I will probably be closing the 1010/1020 May call spreads; those spreads are just inside of two standard deviations today. So the bull market game continues. As soon as the last of the bears are vanquished, the correction will begin!
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After Friday's strong rally, one might have naturally expected a little profit taking today, but no way. SPX tacks on another $3 to close at $1618 and RUT gained $5 to close at $960. That may not seem like a strong rise upward, but the consistency of the upward pressure is what impresses me. But this rally continues to be a low volume affair with only 2.2 billion shares of the S&P 500 trading today. Trading volume fell 15% on the NYSE and fell 13% on NASDAQ.
There weren't any economic data reports today and minimal economic news.
One data point from Friday that I found significant, but forgot to point out in Friday's blog: Germany's equivalent of our Dow Jone Industrial Average, the DAX, jumped upward over 1% on the U.S. nonfarm payrolls report. This underscores a basic tenet driving this stock market - it is the best game in town. We may not see our economy as firing on all cylinders, but it beats the alternatives, so global monies are flowing into our stock market. When combined with fed stimulus, it is a powerful combination.
My May condor is feeling a little of the upward pressure. The P/L now stands at +$1,052 or +6%, with delta = -$4 and theta = +$275. But the 1010 calls still have a delta of 2, so those spreads are still pretty safe. We may still see a pull back or breather of some sort, but the probability of a severe correction is diminished, in my opinion. There are just too many forces pushing this market higher. But remain on guard. Risk management is king.
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The markets sputtered a bit at the open this morning, but the bulls quickly reclaimed control. Even on these slow days, the market averages tack on a few points. SPX gained $7 to close at $1633 and RUT gained $3 to close at $970. Trading volume pumped up a bit with 2.4 billion shares of the S&P 500 stocks trading. This is right at the 50 dma. Trading increased 12% on the NYSE and rose 2% on NASDAQ.
This is a slow week for economic data. Tomorrow will bring the weekly unemployment claims data, but that isn't likely to change much and consequently isn't likely to slow down this market. The major averages appear to be slowing a bit, so maybe we will trade largely sideways for a bit to blow off steam in this rally. At least I hope so; the alternative may not be pretty.
My iron condor on RUT for May stands at a net gain of +$1,759 or +10% with position delta = -$20 and position theta = +$47. It looks like we may be closing the call spreads on Friday as we apply the Two Sigma Rule, unless we see a bit of a pull back before then. Currently, those 1010/1020 call spreads are about one and a half standard deviations OTM.
This has been an interesting bull market; I don't recall having a bullish run this strong with such a large chorus of naysayers predicting an imminent correction. Maybe the last few years have turned us into pessimists.
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It seemed like the more favorable jobs report this morning came as a surprise to the markets. The weaker ADP number earlier in the week had traders worried and many were short the market going into the jobs report. The result was a huge rally. SPX tacked on $17 to close at $1614 and RUT climbed $15 to close at $954. Trading volume was weak with 2.4 billion shares of the S&P 500 stocks, remaining below the 50 dma. Trading was up 6% on the NYSE but down 1% on NASDAQ.
CNBC and other outlets were trumpeting the Dow's breaking 15,000 and the S&P 500 breaking above $1600, but none of the market indexes held their highs. VIX dropped back to 12.9%, off almost one point. SPX's close was well above the trading range it has been trapped within for several weeks. Now we will see if it can hold above that $1600 level. RUT traded up to $960, above the top of the trading range at $955, but pulled back to close at resistance.
The jobs report included an increase of 165k jobs and a reduction in the unemployment rate of one tenth of a percent to 7.5%. While this certainly doesn't suggest all is well for the economy, traders were relieved and traded the report positively. And it assured traders that the Fed will continue its QE programs. So mediocre numbers can be bullish in this environment.
My May iron condor position stands at a gain of $1,500 or +8% with position delta = -$10 and position theta = +$75.
It will be interesting to watch next week's markets to see if this bullish action can continue. We may see some profit taking on Monday.
Enjoy the weekend.
