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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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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).
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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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After yesterday's strong run upward, I was expecting a bit of a breather today, if not a small pullback. And for most of today, that was exactly what was happening. But the last thirty minutes were straight up! SPX closed at $1418, up $3 and RUT ran up $7 to close at $820. Trading volume fell off from yesterday, which was a little surprising for an options expiration Friday. 2.2 billion shares of the S&P 500 traded today; the 50 dma = 2.6B. Trading volume fell 6% on the NYSE and decreased 16% on NASDAQ.
The University of Michigan Consumer Sentiment survey released its findings for August this morning: 73.6, up slightly for the 72.3 level from July. This wasn't news to rally the market and it didn't. I'm not sure what sparked the last few minutes of bullish trading; maybe one of the big boys' computers saw a news item it liked and took off to the races.
VIX closed at a new low for this year, 13.5%. This bullish run is perplexing.
SPX August options settled at $1419.02 and RUT settled at $811.65. The 650/660 put spreads from my Aug condor will expire worthless; this brings our Flying With The Condor™ track record to +40% for this year. The Sept condor sits at -$880 with delta = -$139 and theta = +$99.
Enjoy your weekend.
