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It isn't hard to hear many analysts deliver what appear to be sound arguments for the bearish case in this market, but the bears have yet to take any of the recent opportunities to drive the market significantly lower. SPX opened and immediately sold off this morning, but the bears couldn't hold it down. By noon, SPX was trading around $1414. SPX did weaken in the last hour or so of trading today and closed down $1 at $1410. RUT moved up $1 to close at $810. In spite of the market averages holding up rather well, VIX increased by over a percentage point to close at 16.4%. This divergence in VIX makes me wonder, but just looking at the price action leads me to believe the bulls are still in control of this market.
No significant economic news was reported today; tomorrow brings some housing price data and consumer confidence numbers. The Fed beige book is due out on Wednesday, but I don't think anyone expects any surprises there. Whatever you may think of Bernanke, he deserves credit for trying to be much more open than his predecessor.
My Sept iron condor on RUT at 650/660 and 850/860 stands at a P/L of +$200 with position delta = -$90 and position theta = +$89. As the Greeks show, this position is still being pressured on the call side. My Oct iron condor on RUT was opened August 21 at 710/720 and 880/890 and now stands at a net P/L of +$580 with delta = -$9 and theta = +$66.
Trade what the market gives you, not your predictions.
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The recent story in the markets has been the last minute rushing in by the bulls to recover much, if not all, of the market's losses. But today's charts were quite different - the market indexes basically trended downward all day. If you can believe the talking heads, traders are losing faith in Uncle Ben coming to the rescue.
SPX lost $11 today to close at $1402 while RUT closed at $806, down $7. SPX has broken that $1405 support level that it struggled to break through when it was resistance on the way upward. RUT appears to have stopped just above the $800 - $805 support level. CNBC appears to have found all the bears to interview the last few days. Suddenly, we are hearing all the reasons why the Goldman forecast of $1250 is probable, why a recession is coming and so on. As those of you who follow me know, I see many reasons for this market to be trading sideways at best and have been very skeptical of this rally. But sometimes it just seems like media in general think we are all adolescents with 30 second attention spans.
VIX moved up one percentage point to 16%, so nothing earth shattering is happening on the volatility front.
My Sept iron condor stands at a P/L of +$180 with delta = -$82 and theta = +81. So my call spreads remain under pressure while the put spreads are nearly worthless. It is tempting to roll them up, but what if the gloom and doom crowd is right?
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The markets opened strongly this morning and appeared to be on a mission to break this year's previous highs. SPX traded as high as $1427 this morning, breaking the April highs of this year; one has to go back to the spring of 2008 to match $1427. But it was almost as though that effort was too much for the markets, as they pulled back sharply. SPX closed down $5 at $1413 and RUT was almost flat, losing $1 to close at $815. Trading volume bumped up a bit to 2.4 billion shares of the S&P 500, but that is still below the 50 dma. Trading increased 17% on the NYSE and was up 8% on NASDAQ. The pullback resulted in VIX increasing one percentage point to 15%.
No economic news appeared to be responsible for either the bullish run this morning or the pull back. Perhaps breaking the April highs triggered a lot of profit taking from the recent run upward. I find it interesting how the economic woes of Europe are no longer in vogue. I still see articles and books about Europe's debt issues and our own looming "fiscal cliff", but the market seems oblivious.
My Sept iron condor stands at a P/L of -$1,060 with delta = -$128 and theta = +$100. Today's whipsaw in the markets cost me $1,080 in hedging my position today. But what can you do but follow your rules? Sometimes you are the windshield of that big BMW cruising without a care and sometimes you are the bug on the windshield.
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I am reading many analyst reports either predicting a pullback or describing yesterday's action as the pullback. But it seems to me that analysts are discounting the bulls - they are just unflappable. Yes, it is true that SPX pulled back yesterday after breaking this year's highs, but it sure didn't collapse. And look at today's price action; after trading as low as $1407 (not very low), the bulls jumped back on board and pulled SPX up to close even on the day at $1413. RUT dropped $3 to close at $813, but this market is holding up rather well. In fact, I still find it surprising that we can have a bullish trend with the number of significant headwinds we are facing, both domestically and globally. But we are.
Some have suggested that reading the FOMC minutes this afternoon gave the bulls hope that the Fed will intervene to prop up the market; maybe that fueled the afternoon rally. But I am a little skeptical that the Fed has any bullets left or is willing to use them. A separate question is whether they should use them.
Existing home sales bumped up by 100k to 4.47 million in July, so that was encouraging. But we are a long ways from declaring the real estate problem solved.
My Sept iron condor position closed the day about $500 underwater with a position delta = -$107 and theta = +$102. So we continue to watch the bullish run that defies explanation.
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Today's trading was subdued and lacked much direction. SPX traded down as low as $1412 but recovered in the afternoon to close unchanged at $1418. RUT lost $3 to close at $817. Volume pulled back with 2.1 billion shares of the S&P 500 stocks trading; trading volume dropped 19% on the NYSE and dropped 11% on NASDAQ.
No significant economic data was released today. Some news stories over the weekend were a bit negative on the European debt situation. Perhaps that affected today's markets. More likely the markets are just taking a breather after a strong bullish run. Today's trading certainly was bullish, in my opinion. After trading down a bit (but not very far), the bulls brought the markets right back up near or at the starting point. Maybe a pullback is in the cards in the near future - certainly several technical indicators are looking much more over-bought. But so far, the bulls remain in control.
My Sept iron condor on RUT at 650/660 and 850/860 stands roughly at break-even with position delta = -$131 and position theta = +$99 (on 20 contracts).
