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The ISM manufacturing index surprised analysts this morning with a reading of 51.5 for September, the first sign of expansion after three months of contraction. This prompted a big market rally with SPX surging as high as $1457 before the bears pulled it back down. SPX closed at $1444, up $4 and RUT gained $3 to close at $840. VIX increased 0.6 points to 16.3%; the VIX dropped as low as 15.1 this morning before the bears came back to play.
The SPX candlestick looks like a shooting star, but the body is a bit large for the purist. But the trading activity depicted by that candlestick isn't encouraging. The bulls drive the market quite a bit higher, but then the bears are able to pull the market almost all the way back - not good. Trading volume was basically flat with 2.6 billion shares of the S&P 500 trading; trading volume declined 10% on the NYSE and dropped 4% on NASDAQ.
Construction spending dropped 0.6% in August. Maybe we got ahead of ourselves with the ISM report; after all, it wasn't long ago we were given the anemic 1.3% GDP growth for the second quarter. Today's trading is just one more indicator of the extreme volatility of this market. Imagine if we get a truly bad bit of news...
My Oct condor stands at a P/L of -$520 with delta = +$65 and theta = +$83. Remember: we are working our way toward another jobs report Friday.
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Most traders were watching for the results of the Spanish bank stress tests; they figured that was the most likely bad news that might hit today, but that news item turned out rather positively. But then the Chicago PMI came in at 49.7, down from 53.0 and the University of Michigan consumer sentiment survey declined to 78.3 from 79.2. So SPX fell as low as $1436 and then chopped sideways most of the day to close at $1441, down $6. RUT followed suit, closing down $6 at $837. If one draws the trend line below this run on SPX since early June, you will see that SPX is just bouncing along that line the past few days. A break down through $1430 would be the first warning sign that the upward trend may be in trouble. RUT appears to be a bit weaker (not a good sign for the overall market) since it is just below resistance at $840 which was where it sat after Draghi's press conference and before Bernanke's announcement. But to a first approximation, both indexes are roughly at the pre-QE III levels. The VIX rose to 15.7%, up almost one point.
All in all, the market is looking rather tentative as we get close to earnings season and we have already had several warnings from some leading companies, such as FedEx. A few poor earnings announcements could prove to be a problem for this market.
My Oct iron condor on RUT at 790/800 and 900/910 stands at a P/L of -$1,220 with delta = +$56 and theta = +$111.
Enjoy your weekend.
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The market opened weakly this morning, based on worries out of the Euro Zone. The Greeks were rioting in the streets, protesting the government's austerity measures necessary to receive their bail out funds. Meanwhile, yields on Spanish bonds exceeded 6% as investors worry about that economy needing a bail out as well. New home sales here in the states didn't help. They came in at an annualized rate of 373k; that was a 0.3% decline from July and analysts were expecting 380k.
SPX dropped as low as $1431 by mid-morning, but then struggled back upward a bit to close at $1433, down $8. RUT dropped $5 to close at $834. SPX now stands where it was after Draghi's press conference on Sept. 6 and before Bernanke's QE III announcement Sept. 13. After the run up on 9/6, SPX established support at $1430; today's action appeared to suggest that the $1430 support level held.
If the rally since early June is based on quantitative easing and now the consensus is turning to a conclusion that the Fed is out of ammo, and worries about Europe are returning, then we have a lot of ground that could be lost. Maybe that Goldman Sachs prediction around $1285 isn't that far off after all? That could be ugly.
I hedged my October iron condor on RUT today and it stands at a P/L of -$1,095 with position delta = -$7 and position theta = +$32. The small delta reflects the effects of the hedge, but you will see that theta was also reduced - that's the trade-off. But amid all of the worries in this market at this time, having such a small delta is comforting.
Be careful out there.
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I know I pointed out that we bounced off support yesterday, but today, SPX gains $14 to close at $1447 and RUT tacks on $10 to close at $844. What stimulated that huge move? Spanish government officials announced a new budget that will focus on spending cuts and reform. So yesterday the Greeks were rioting and Spanish bond yields went over 6%, and the market tanked. Today, Spanish officials say the right things and everything is now rosy? Good grief! How do you trade this market? My theory is that the high frequency trading algorithms are pushing these extreme market moves. The program picks up a few key words in a news story, triggers a large buy and then it snowballs. That sure makes it a stressful day for us ordinary humans trying to trade in this environment. It certainly isn't too surprising that a lot of individual investor money remains on the sidelines. Between Madoff and the computers, it's a spooky place.
Initial unemployment claims dropped to 359k, which is a move in the right direction, but all of the other economic news was negative. Durable orders dropped 13%; GDP for the second quarter only gained 1.3% on an annualized basis (down from 1.7%) and pending home sales dropped 2.6% after a 2.4% gain last month.
SPX solidly bounced off support and pushed itself back well into the upward trend band, but trading volume fell off to 2.2 billion shares of the S&P 500. Trading on the NYSE was down 16% and trading on NASDAQ dropped 1%.
My Oct condor position stands at a P/L of -$980 with position delta = +$47 and position theta = +$106.
So what happens tomorrow? Draghi is photographed frowning and the market plummets?
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The markets rose this morning on positive housing and consumer confidence numbers, but then the averages slowly declined all afternoon to close at or near lows for the day. SPX lost $15 to close at $1442 and RUT closed at $839, off $13 for the day. Trading volume picked up with 2.7 billion shares of the S&P 500 trading. Trading on the NYSE was up 20% and trading volume on NASDAQ was up 15%. The VIX increased a little over one point to close at 15.4%.
The Case Schiller housing price index increased 1.2% in July and consumer confidence came in at 70.3, up from 61.3. These numbers boosted the markets, but the euphoria was short-lived. SPX traded as high as $1463 before starting its slow descent. SPX has nearly given back the huge gains after Bernanke's announcement of additional Fed easing last week. RUT has now given back all of those gains, closing today near the $840 support level that was established after Draghi's press conference on September 6. SPX is sitting just above its support in the region of $1430-$1440. If we draw a trend line for this latest market rally that started in early June on the SPX chart, the bottom edge of this upward trend is $1430. So $1430 on SPX is a significant "line in the sand". Breaking $1430 could signal a break in this uptrend.
My Oct iron condor on RUT stands at a net P/L of -$940 with delta = +$57 and theta = +$94. Our theta/delta ratio is still strong, but the put spreads are beginning to be pressured. So the debate intensifies: is this bullish uptrend for real, or is a significant market correction around the corner?
