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SPX spent much of today modestly underwater, but the last two hours of trading became ugly. SPX gave up $19 to close at $1355 while RUT closed at $773, down $16. Trading volume of the S&P 500 stocks jumped up to 3.0 billion shares and trading volume increased 16% on the NYSE. Trading increased 17% on NASDAQ. VIX increased to 17.9%, reflecting increasing concern on the street that the fiscal cliff cannot be avoided.
Retail sales dropped 0.3% in October and the PPI decreased 0.2% in October. Since neither of these reports were really very negative, one has to assume the selling is related to Obama's recent statements taking a hard line on tax increases. Many on the left appear to think taking the country over the fiscal cliff is good politics.
My Dec iron condor on RUT stands at a net gain of $820 or +5% with position delta = +$59 and position theta = +$55 (on 20 contracts). The pressure is increasing as the markets fall; the theta/delta ratio is near 1:1 and the delta of the 720 put is 16. If the carnage continues tomorrow, we will need to adjust this position.
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The S&P 500 Index spent most of the day in positive territory, but sold off during the last hour of trading to close at $1375, down $6. RUT dropped $5 to close at $789. Trading volume jumped back up from the post-holiday numbers with 2.6 billion shares of the S&P 500 stocks trading (this is right at the 50 dma). Trading increased 36% on the NYSE and increased 30% on NASDAQ. VIX closed unchanged at 16.7%.
The SPX chart is looking a little scary with this afternoon's sell-off. With the past four trading sessions, up until about 3 pm ET this afternoon, SPX was holding support roughly at the 200 dma pretty well. I was encouraged. But the close below the 200 dma and just above support at $1370 is on the edge of a large area of "no man's land", i.e., not many obvious levels of support until you get down to about $1330. Hmmm...
My Dec iron condor on RUT is doing fine with a gain of $1,580 (10%) with delta = +$37 and theta = +$51.
I will be watching the market even more carefully than usual tomorrow.
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Traders were encouraged this morning after the University of Michigan consumer sentiment report unexpectedly increased to 84.9, up from October's 82.6. SPX traded as high as $1391 before falling off in afternoon trade. SPX closed up $2 at $1380. RUT rose $1 to close at $795. Trading volume dropped back to the 50 dma with 2.6 billion shares of the S&P 500 trading. Trading on the NYSE dropped 2% while trading volume on NASDAQ decreased 4%. The VIX dropped to a low of 17.7% before rising back to 18.6% at the close. SPX recovered and traded back above the 200 dma at $1381, but could not hold those levels and closed back below the 200 dma. RUT traded as high as $801 today, well below the 200 dma at $807.
Traders are looking for bargains with large short put positions being entered in AAPL and large long call positions in GOOG. These are aggressive traders trying to find the bottom. Until we get some definitive news regarding the fiscal cliff, it is dangerous to commit to a bullish stance.
I closed the 750/760 puts spreads in my November iron condor position for $0.46 today. Assuming the 860/870 calls expire worthless (seems like a safe bet), this position will result in a gain of $2,560 on 20 contracts or 15%. This brings my year to date results for the Flying With The Condor™ service to +35%.
My Dec condor stands at a P/L of +$1,380 or 8% with position delta = +$29 and theta = +$53 (on 20 contracts). The delta of the 720 puts stands at 11, so the put spreads are reasonably safe thus far - but that assumes the devastation has ended. That is far from clear. The wrong news coming out of Washington over the weekend could push us down much farther.
Let's put this ugly and depressing week behind us and focus on enjoying the weekend.
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Veterans day was yesterday, but it appears that many traders took today off to observe Veterans day. Trading volume in the S&P 500 dropped to 1.9 billion shares while volume on the NYSE dropped 60% and trading volume on NASDAQ decreased 23%. SPX closed unchanged at $1380 and RUT lost $1 to close at $794. VIX dropped almost two points to 16.7%. Today marks the third day SPX has traded right at the 200 dma and today's doji candlestick confirms the indecision in the market. We are at a tipping point.
No significant economic news came out today; all traders are watching Washington for evidence of a deal to avoid the fiscal cliff. The dangerous part of this situation for traders is that big market moves in either direction are possible on the slightest news and one can be easily whipsawed in this environment.
My Dec condor sits at +$1,420 or +9% with position delta = +$24 and position theta = +$64.
So we wait and see if tomorrow brings some news.
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SPX appeared to be rallying a bit this morning after opening at yesterday's close and trading higher. But any relief was short-lived. SPX closed at $1378, down $17. RUT followed suit, losing $11 to close at $794. Trading volume dropped form yesterday's highs but remained above the 50 dma with 2.9 billion shares of the S&P 500 trading. Trading on the NYSE dropped off 13% and also fell 9% on NASDAQ.
Today's price action took SPX through its 200 dma at $1381 and there was no rescue by the bulls. SPX closed at its low for the day. RUT broke through its 200 dma yesterday, and at least on my chart, broke through the lower edge of the trend line I had drawn on RUT since mid-September. Today's market levels take us back to roughly late June or mid-July on the broad market averages. We are still well above the low of the market back in October of 2011, but we are giving away this year's gains very quickly. SPX is now only up 9.5% for this year.
The talk on the street focuses on political gridlock, higher taxes, more regulations, and upcoming recession. I didn't foresee it, but there was a lot of hope for change built into the pre-election market prices.
My Nov condor stands at a P/L of +$2,200 (+13%) with delta = +$76 and theta = +$212. The Dec position stands at a P/L of +$980 (+6%) with delta = +$28 and theta = +$61. I will apply my two sigma time stop to the November position tomorrow. Unless this market bounces, I may be closing the Nov put spreads.
Where is the bottom?
