Dr. Duke's Blog
Do you know any trading coaches who publish the results of their trades daily? Dr. Duke posts the trading track records of his Flying With The Condor™, Conservative Income, Dr. Duke's Trading Group, and The No Hype Zone Newsletter services in the free downloads section of this web site. If you have questions about any of the trades, Ask Dr. Duke.
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) has been setting bullish records for the past several months, but SPX set records of a different type on Friday when it closed down 58 points at 3226. Given all of the doomsday hype in the news on Friday you may be surprised that the week’s loss was only 0.6%. As you may see from the chart, Friday’s intraday low hit two support levels. One was support from December 20th through January 6th, and the other is the 50-day moving average (dma) at 3211. SPX did not close at its low on Friday, a minor but positive sign for the optimists. If SPX breaks that support level next week, it could easily fall to 3175 for a 5% correction.
Trading volume has been very strong this month, and has only dipped below the 50 dma twice since January 2nd. Trading volume during Friday’s sell off was the highest of the month.
The volatility index for the S&P 500 options, VIX, opened the week at 17.4% and reached a low for the week on Thursday at 15.5%. Trading on Friday spiked VIX to an intraday high of 20%, but it pulled back a bit to close at 18.8%.
IWM, the ETF based on the Russell 2000 group of companies, has been trading lower since the open on January 17th. IWM broke support from early December around 162 on Friday and closed at 160.35, down 3.4. This represented a loss of 1.4% for the week, far more than the broad market indices for the blue chips.
The NASDAQ Composite index closed Friday at 9151, down 148 points. NASDAQ gapped open much lower on Monday, opening at 9092. This set up the surprising result that NASDAQ turned in a weekly gain of 0.6%. NASDAQ’s trading volume dropped below the 50-day moving average (dma) on Tuesday and Wednesday, but finished the week well above the 50 dma.
There are now eight confirmed cases of coronavirus infections in the U.S. The markets began to be affected this week as traders fell prey to the alarmist news reports. The normal flu season falls during the fall and winter months with peak flu infections in December through February. At this point in the 2019/2020 flu season, CDC has reported 19 million cases of flu in the U.S. with approximately 10,000 deaths. But those numbers don’t make the evening news. We normally don’t pay too much attention to family members and friends contracting the flu. But the flu can be very serious for children and older adults. News reports of a new flu virus strain with a specific name and nightmarish reports out of China captivate our attention. We forget that the sanitary conditions and level of healthcare in this country are light years beyond most of China. And few countries have anything comparable to the CDC. Take reasonable precautions and don’t panic.
The driving forces behind this strong bull market remain valid: two major trade agreements and strong economic data. Those trade agreements will add a minimum of one percent to this year’s GDP growth rate. The fact that the FOMC appears committed to low interest rates for the near future is icing on the cake. Earnings and revenue growth in this earnings announcement cycle have been very strong. Market prices are ultimately determined by the underlying economics. My trading posture is unchanged. I describe it as cautiously bullish. Some stocks are holding up well while others are taking a hit. My ADSK diagonal call spread is an excellent example. It now stands at a gain of 44%. ADSK declined Friday, but didn’t hit my stop loss price at $189.75. ADSK hit a low of $193.31, but recovered most of its losses as it closed at $196.85.
Remain disciplined and follow your stop loss prices. Don’t panic.
High Tech Takes the Lead
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) opened this first full week of the new year at 3218 and closed today at 3265, for an increase of 47 points or 1.5%. The January Barometer, was created by Yale Hirsch in 1972 and publicized in his Stock Traders Almanac, currently run by his son, Jeff Hirsch. There are two parts of the January Barometer: trading results for the S&P 500 index over the first five days of January and then for the full month of January. The first five days were narrowly positive with the new year opening at 3245 and the fifth trading day, 1/8/20, closing at 3253. So now we anticipate the close in three weeks for the full January barometer forecast for the year. Both measures have success records of over 80% in predicting the direction of the market for the coming year.
SPX trading volume remained weak, running roughly at or below the 50-day moving average (dma) all week. Trading volume fell off today almost like we were entering a three-day weekend.
The volatility index for the S&P 500 options, VIX, opened the week at 15.5%, and steadily declined to close today at 12.5%. This suggests that the mood of the large institutional traders remains largely bullish on the market.
IWM, the ETF based on the Russell 2000 group of companies, traded more bearishly than SPX, opening the week at 163.85 and closing at 164.89, up 0.6%. These are the high beta stocks that should be leading this bull market, but they aren’t. The bulls remain somewhat tentative.
The NASDAQ Composite index set the pace for the bulls this week, opening at 8944 and closing at 9179, up 2.6% for the week, eclipsing the S&P 500 by a full percentage point.
NASDAQ’s trading volume was also much more bullish, running consistently above the 50-day moving average (dma) every day this week.
This market is undeniably strong. In fact, it is so strong that it unnerves many observers, and I feel some of that sentiment as well. It is interesting that the current crop of bears can only argue that the bull market has lasted too long, but they have no argument other than the length of this bull market. The economic data are strong, and the Fed remains committed to low interest rates.
Draw trend lines from early October through today on the SPX, IWM and NASDAQ charts and I think you will see something interesting. Note that SPX and NASDAQ are trading well above their trend lines. Even the recent hiccups over the last couple of days of December and first couple of days in the new year didn’t take either index close to that trend line. But the IWM trendline is markedly different. Intraday trading on January 2nd touched the trend line but bounced higher. But the price action on January 3rd broke that trend line and IWM remains below the trend line today. I consider this a shot across the bow of the bulls’ ship. The bulls are running, but that run is largely in the high-tech favorites, the FANG stocks and others. You see that favor in the strong performance of NASDAQ versus the S&P 500. The high beta stocks, that are members of the Russell 2000 and make up the IWM ETF, are trading sideways. These are the stocks that should be leading the bulls’ charge, but they aren’t.
My posture remains unchanged. I am bullish, but I also remain cautious. This week’s market largely ignored the sword rattling in the Middle East, but this market remains nervous. The large institutional traders will act quickly to preserve their profits. They will sell first and analyze their actions later.
Take advantage of the bullish run, but stay alert. Don’t get too euphoric.
A Strong Holiday Week
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened this shortened holiday week at 3226 and closed Friday at 3240, up about 0.4% for the week. Monday, Tuesday and Friday were typical for a holiday week, with largely sideways trading. Exchanges closed early on Tuesday and were closed Wednesday. But SPX traded strongly higher as the market reopened on Thursday. Friday’s trading was subdued and trading volume was significantly below average all week.
Traders are increasingly optimistic about the passage of the Mexico/Canada trade agreement and the proposed trade agreement with China. The bulls have been released and they are going all in. Apple (AAPL) is a good example, trading up 12% just in December. Apple’s stock price has been subject to some volatility as the trade negotiations with China seemed to spurt forward, stall, and then resume.
The volatility index for the S&P 500 options, VIX, has been running around 12% for the past two weeks. VIX dropped below 12% intraday on Thursday and Friday, but could not hold those lows and closed Friday at 13.4%. The small rise on Friday betrays some residual concern on the part of large institutional traders. The prevailing concern appears to be whether the market has run too high and too quickly. Traders may be hedging portfolios.
IWM, the ETF based on the Russell 2000 group of companies, pulled back a bit on Friday, closing at 166, down 0.8 on the day. This appears to be a magnification of the broad market indices trading a little more weakly on Friday. The Russell 2000 serves as a measure of the degree of “risk on” or “risk off” for the large institutional traders.
The bulls drove the NASDAQ Composite index higher on Thursday, but surrendered about half of those gains on Friday, closing at 9007, down 16 points on the day, but up 0.6% for the week. Trading volume on NASDAQ came in below the 50 day moving average (dma) every day this week.
It would be a mistake to read too much into the market’s trends based on a week shortened by one and a half days of trading and extremely low trading volume on the days the market was open. It is probably safe to expect the bulls to continue to push higher into next week, but the big question mark will be whether the so-called Santa Claus rally ends with the year or continues into January. Historically, the first five days of trading in January provide a pretty reliable prediction for the year’s market. But the November elections may throw a wrench into the works.
I am bullish, but I also remain cautious. The trends in VIX are instructive. It is reasonably low, but not too low. The large institutional traders are watching carefully. Retail traders like us would be well advised to do the same.
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3184 and closed Friday at 3221, up 16 points on the day and 1.2% for the week. SPX gapped open higher Friday morning and held its gains through the day. Trading volume spiked higher, but this was probably due to the expiration of several index option and futures contracts, viz., this quarter’s quadruple witching.
The strength of the market this week was primarily due to increased optimism concerning our trade negotiations with China. Those reports are very preliminary with few solid details, so that remains a possible source of volatility for the markets.
VIX, the volatility index for the S&P 500 options, opened and closed the week at 12.5%. This isn’t a record low, but it does suggest that the large institutional traders are relatively calm. In the absence of any surprising news, volatility is likely to remain low this week as many traders are on holiday.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week, opening at 164 and closing up 1.2% at 166. IWM gapped open higher each morning this week. You don’t see that every day.
The bulls didn’t forget the NASDAQ Composite index this week, closing the week at 8925, up 1.5% on the week. NASDAQ displayed a strong gap opening higher Friday morning. Trading volume on NASDAQ came in above the 50 dma every day this week, and then spiked yesterday, primarily as a result of quadruple witching.
This week’s market delivered a strong performance with each of the broad market indices gaining 1.2% to 1.5%. If we take a longer term view of this year’s market, we find three major trading sessions. The first was a strong bullish market from the first of the year until early May.. Then the market traded roughly sideways through early October, and blasted higher for the balance of the year. The price action of IWM this week reinforced the overall bullish nature of this market. The high beta stocks are finally seeing some action as bullish traders begin to take on more risk. Speculation about the China trade negotiations will continue to deliver periods of price volatility. Threats from North Korea may send the markets a surprise as the new year approaches. I am bullish, but I also remain cautious. Keep a close eye on this market and keep your stops tight.
Merry Christmas and best wishes for a prosperous and happy new year.
All About China
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3142, almost exactly where last week’s trading opened, and managed to finally gain some steam on Thursday, closing Friday at 3169, up almost 1%. The bullish trading pattern was similar to recent weeks, with price volatility driven by the latest news and rumors about the progress of the China trade negotiations. Thursday’s strong run higher on increased trading volume was driven by the announcement of a phase one deal, but then Friday’s market was much more subdued as traders realized that the specific terms of the deal were a bit cloudy. Trading volume for the S&P 500 companies increased this week, strongly breaking the 50-day moving average (dma) on Thursday, but remaining only slightly above average on Friday.
VIX, the volatility index for the S&P 500 options, opened the week at 14.3% and spiked upward to close Monday at 15.9%. VIX then steadily declined the balance of the week, closing Friday at 12.6%. The large institutional traders are relatively calm.
IWM, the ETF based on the Russell 2000 group of companies, mimicked SPX’s price action pretty closely this week and I view this as a bullish sign since markets are typically led by these small to mid-cap stocks.
The NASDAQ Composite index also traded in a similar pattern to the S&P 500, closing the week at 8735, up 1% on the week.
This week’s market was much more steady than last week’s wild ride. Traders are a little cautious about going “all in” based on the vague announcements about the China trade deal. Even when the details of the phase one trade agreement are made public, the market may not trade significantly higher. Much of that positive trade agreement news may be already priced into this market. Any surprises in the trade agreement could result in a sharp pullback.
The price action of IWM this week once again matched SPX toe to toe. IWM has traded much weaker than the broad market blue chips most of this year. But that relationship has been turning positive over the past couple of weeks and that is a bullish sign.
This week was more encouraging, but I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. My best guess is that the phase one trade agreement will be somewhat disappointing when we finally see the details. The phase two agreement may be several months into next year, if not after the November elections. Therefore, we may be in for more of the price volatility we have been living with for the past three or four weeks, as rumors and speculation about the China trade negotiations hit the market. I remain cautious.
The following stocks traded strongly this week and will be on my watch list for next week: AAPL, AXP, BSX, GOOGL, BMY, MRK, and UNH.
A Wild Ride
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week at 3144 and plunged nearly one percent to close at 3114 on Monday. But the worst was yet to come. Tuesday’s open was again nearly one percent down, but after trading as low as 3070, SPX recovered to close at 3093. Then Wednesday brought a gap opening higher and the Standard and Poors 500 Index closed today at 3146, almost a perfect round trip from Monday’s open. The bulls are in charge, but they are very nervous. Be careful you aren’t trampled in the stampedes.
Just as we have seen in recent weeks, this week’s market schizophrenia was triggered by comments about the trade negotiations with China. An off-handed comment from President Trump while he was in Europe triggered this sell off, but many times it starts with only a rumored comment from an unnamed insider. Trading volume for the S&P 500 companies continues to run below average, only breaking the 50-day moving average (dma) on Tuesday’s scary gap downward.
The volatility index for the S&P 500 options, VIX, opened the week at 12.7% and closed on Monday at 14.9%. But the severe drop on Tuesday pushed the intraday VIX to 18% before settling back and declining the rest of the week, closing today at 13.6%.
IWM, the ETF based on the Russell 2000 group of companies, has traded much more weakly than the S&P 500 companies all year. That correlation shifted this week. IWM matched SPX’s price action almost exactly, breaking support on Tuesday, but then recovering strongly to close today at 163, slightly higher than Monday’s open. This price action is bullish. Bull markets are typically led by these small to mid-cap stocks. Many analysts call these stocks the “risk off” stocks as traders swing for the fences in a strong bull market. I can’t be that bullish as long as the China trade cloud hangs over the market. But it is a bullish indicator.
The NASDAQ Composite index opened the week at 8673, and closed the week at 8657, up 86 points today – almost a round trip from Monday’s open. NASDAQ trading volume has been consistently running above the 50 dma far more often than the S&P 500 index. NASDAQ’s trading volume this week was at or above the 50 dma every day. That is probably driven by the so-called FANG stocks, FB, AMZN, NFLX and GOOGL. I would add AAPL to this list. The large high-tech stocks have been driving this bull market.
This week’s roller coaster ride was a little scary. That gap down in price on the S&P 500 Tuesday morning was alarming. But then we end the week where we started? This week’s trading is the best evidence yet of the nervous nature of this market. The large institutional traders have their fingers poised over the sell buttons (actually they have programmed their computers, but the poised finger delivers a more powerful image).
On the positive side, the price action of IWM was very bullish. IWM matched SPX toe to toe this week and even closed the week higher than it started. IWM has traded much weaker than the broad market blue chips most of this year.
I am putting more of my cash to work, but this week was unnerving. I still have a significant amount of cash on the sidelines. I won’t be strongly bullish until we settle the trade dispute with China. But it is anyone’s guess when that might happen. Be cautious.
New All-Time Highs
- Written by Dr. Duke
I have almost become accustomed to the Standard and Poors 500 Index (SPX) setting new all-time highs every week. It seemed quite reasonable that the markets would slow a bit this week, but then the S&P 500 index gapped open higher Friday morning and set a new all-time high. Wow.
But before we run off and sell everything we own and buy stocks, it is a bit sobering to pay attention to the trading volume. Friday was the only day this week that trading volume for the S&P 500 companies reached the 50-day moving average (dma). And it just reached it; volume did not break higher. That serves to moderate my bullish enthusiasm.
VIX, the volatility index for the S&P 500 options, closed Friday at 12%. This was the lowest closing level for volatility this year. One must go back to September 21st, 2018 to find a lower close for VIX. Traders are feeling calm and bullish.
IWM consists of the Russell 200 companies, largely small to mid-cap domestic companies with higher beta values. These are the “risk on” stocks. IWM has been trapped in a sideways channel defined on the lower edge by the highs from August and September around 157.50, and on the upper edge by the intraday highs around 160 from the last two weeks. IWM closed Friday at 158.9, up 0.82. A breakout of IWM would be a strong confirmation of the bull market.
Similar to the S&P 500 companies, the NASDAQ Composite index set a new all-time high on Tuesday, but traded flat most of this week. NASDAQ gapped open Friday morning and ended the day at a new all-time high of 8541, up 62. NASDAQ trading volume was stronger than the S&P 500 companies, breaking out above the 50 dma three out of five days this week.
We continue to see consistent bullish signals over the past several weeks with new all-time highs on several of the broad market indices, Dow Jones Industrials, S&P 500, and NASDAQ. Moderately weak trading volume and IWM’s sideways trading are the principal cautionary signals.
The strong market surge on Friday came as a result of positive news on the trade negotiations with China. Be careful not to jump too soon or too strongly. We don’t have a signed trade deal as yet. The market is certain to leap higher on the news of a signed deal, but it also bears repeating that even a rumor that a deal is being delayed once again will cause a pullback in the markets.
My trading posture is bullish but I remain cautious. My stops are tighter and I don’t hesitate to close my losers. The price charts for the following stocks are impressive: AAPL, EW, GOOGL, LULU, MSFT, and PANW.
A Strong Week
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) opened the week by setting a new all-time high at $3032 and then added 1.2% this week to close Friday at 3067, another all-time high. The choppy trading resulting from the China trade negotiations that has characterized recent weeks was generally absent this week. The bulls are in charge. Unlike recent weeks, trading volume for the S&P 500 companies broke out above the 50-day moving average (dma) four days this week. That has not happened in a long time. Perhaps the bulls have opened up their wallets a bit.
VIX, the volatility index for the S&P 500 options, opened the week slightly above 13% and steadily declined to close the week at 12.3%. Volatility hasn’t been this low since July. The market apparently isn’t too concerned about the China trade negotiations and all of the breathless impeachment talk.
I have always used the Russell 2000 Index (RUT) to track small capitalization stocks and compare those performances to the large blue-chip stocks of the S&P 500. Unfortunately, the Russell company has raised their prices so much that my charting service, StockCharts.com, has given up carrying the Russell 2000 index. A few months ago, the software that I use to analyze and back test option trades quit offering intraday pricing for RUT options due to the rising prices for the data. I am changing over to tracking the price chart of the ETF, IWM, which is based on the Russell 2000 group of companies. IWM is roughly one tenth the price of the Russell index (similar to the relationship of SPX and SPY). IWM closed at 158.10 on Friday, and RUT closed at 1589.33. The minor differences in price are due to the stocks in the Russell 2000 index being weighted by shares outstanding whereas IWM contains shares of the Russell 2000 companies weighted by market capitalization.
IWM broke through the previous highs from September and July, and closed Friday at 158, up 3 points. IWM remains well below its all-time high of 171 in August 2018.
The NASDAQ Composite index gapped open Monday morning at 8286, and proceeded to add another 1.2% to close at 8386, up 94 points on Friday. This represents another all-time high for NASDAQ. NASDAQ trading volume hit the 50 dma on Monday and traded above the average Thursday and Friday.
This week brought us several bullish signals. First of all, we finally are beginning to see some increased trading volume. Money is coming in off the sidelines. An even more bullish signal came from IWM. The Russell 2000 companies, all domestic small cap stocks, outperformed both the S&P 500 and NASDAQ this week, up 1.3%, as compared to 1.2% for SPX and NASDAQ. SPX and NASDAQ set new all-time highs this week and the Dow is one point away from setting a new all-time high. Several of these broad market indices displayed multiple gap openings higher this week – all in all, a very bullish week.
My caution is beginning to diminish a bit and I am putting more of my cash to work. However, I won’t be strongly bullish until we settle the trade dispute with China. Some negative news on that front could hit the market at any time. On the other hand, a signed deal would spike this market higher. Stay alert. Whenever possible, use trailing stops to protect your gains.
- Written by Dr. Duke
The Standard and Poors 500 Index (SPX) closed Friday at 3023, up 12 points. Friday’s close represented a gain for the week of 0.9%. Although it was a bullish trend for the week, it was a choppy path higher as each day brought a new report or rumor about the trade negotiations with China.
Trading volume for the S&P 500 companies only broke above the 50-day moving average (dma) on one day this week, and Friday’s trading came in significantly below average. The lower volume continues to stand as a caution flag for this market. The bulls are buying, but they are also nervous and taking profits when they are available.
VIX, the volatility index for the S&P 500 options, declined significantly Wednesday through Friday, closing the week at 12.7%. Volatility hasn’t been this low since July. The market is calming in spite of all of the China trade and impeachment talk.
The Russell 2000 Index (RUT) continued to track higher this week, closing Friday at 1559, up 1.1% on the week.
The NASDAQ Composite index broke through resistance this week and closed Friday at 8243, up 57 points, capping off a strong week’s performance of 1.3%. Watch for the next resistance level at July’s high of 8330. NASDAQ trading volume was below average all week, but managed to touch the 50 dma on Friday.
It is worth noting that both the Russell 2000 and the NASDAQ Composite outperformed the S&P 500 index this week. That is a strong bullish signal.
This week’s trading was generally bullish, but each day brought a new twist, sometimes higher and sometimes lower. The trade negotiations with China continue to hang over the market. We are fortunate the U.S. economy is strong enough to persevere through these tariffs.
I am continuing to be somewhat cautious in this market. It is certainly a bullish market, but the bulls are nervous and it doesn’t take much to cause them to hit the sell button. I am picking my stocks carefully and favoring the solid blue chips like AAPL, COST and JPM. My iron condor trades on SPX are doing very well, gaining 27% in October and 16% for the November position. Stay alert. Whenever possible, use trailing stops to protect your gains.
- Written by Dr. Duke
News and rumors continue to jerk this market around on a daily basis. The Standard and Poors 500 Index (SPX) closed Friday at 2986, down 12 points. SPX remained modestly positive for the week, up 0.7%. It was a choppy week for the markets with a new report or rumor about the trade negotiations with China driving the market almost on a daily basis. Last Friday’s evening star candlestick was not confirmed by trading this week. The bullish underlying trend remains, but each day brings a new dose of either confidence or pessimism. It is a difficult market to trade. When it moves higher, traders take profits, and then the next rumor drives it lower, and the bulls buy the lows.
Trading volume for the S&P 500 companies broke above the 50-day moving average (dma) on Friday but the first four days of the week traded at volumes well below average. The lower volume continues to stand as a caution flag for this market. The bulls are buying, but they are also taking profits.
VIX, the volatility index for the S&P 500 options, reflected the choppy market action this week, opening the week at 15.7% and then moving to a low on Thursday of 13.8%. But Friday’s market weakness took its toll, increasing volatility to 14.6%. This is a moderate level of volatility, not exactly calm, but not scary either.
The Russell 2000 Index (RUT) appears to be attempting a rebound over the past couple of weeks after a very weak September. Russell closed Friday at 1525, down five points on the day, but up 1.2% for the week.
The NASDAQ Composite index appeared to hit resistance this week at the highs set in May and September. NASDAQ closed Friday at 8090, down 67 points, but up 0.6% for the week. NASDAQ trading volume was below average all week, but managed to touch the 50 dma on Friday.
This week was a repeat of last week’s trading with wide swings one day and then a doji candlestick the next day, driven by the latest rumors and/or news on the trade negotiations with China. This remains a dangerous market. I expect the volatility will continue and I remain less than fully invested. Pick your trades carefully and stop out positions aggressively.