Dr. Duke's Blog
Do you know any trading coaches who discuss the market candidly without any marketing hype? Dr. Duke publishes a weekly newsletter and shares the track records of his trading services. If you have questions about any of his services, Ask Dr. Duke.
Searching For Support
- Written by Dr. Duke
Fridays are becoming the most exciting days in the market. The Standard and Poors 500 index (SPX) opened today at 3927 and traded higher for about 30 minutes before starting a steady decline to a low of 3810 around 1:30 PM ET. But then the bulls took over and drove the market into the close at 3901, essentially a flat day from Thursday’s close. What a ride!
The end result for the week was a 2.8% decline in SPX. The intraday low today updates the correction to 21% since the January 4th open. Trading volume rose steadily all week and moved above the 50-day moving average (dma) for the last three days of the week.
VIX, the volatility index for the S&P 500 options, opened this week at 30%. I found it interesting that Wednesday’s rout of the market only spiked VIX to 31%. Thursday and Friday both saw intraday spikes up to 33%, but VIX settled down to 29% today. This certainly isn’t a low level of volatility, but it is lower than one would have expected for the significant decline we witnessed Wednesday. The large institutional players are not as spooked by this market as I am.
The NASDAQ Composite index closed at 11,355 today, down 34 points or 0.3% today but down 3.2% for the week. Note how the intraday low was very close to the low last Thursday. Is NASDAQ finding support? Trading volume only reached the 50 dma today.
The overall market has been very volatile this year, but the overall trend has been lower. The Ukraine crisis, record levels of inflation, rising energy prices and increasing federal debt are some of the worries keeping traders up at night. Soon after we began to see inflation getting out of hand, a new worry appeared: the prospect of the feds raising interest rates to slow the economy and counter inflation, but perhaps risking a recession in the process.
Traders find themselves coping with two somewhat opposed issues: run away inflation and rising interest rates. We don’t want inflation to get out of control, but we also fear that the FOMC may raise rates too far and/or too fast and the economy will be effectively shut down.
One interesting recent price pattern is common to S&P 500, NASDAQ and the Russell 2000 indices this week. All of these indices rallied off intraday lows on May 12th. Again, all of these indices posted intraday lows today that were close to the intraday lows of May 12th. That may be a sign of the market stabilizing and finding support. The S&P 500 is off 21%; the NASDAQ Composite is off 30%; the Russell 2000 is off 25%. Do the current prices represent good value? One could argue that today’s recovery from intraday lows suggests that traders are starting to bargain hunt. But we have seen that before. Stay cautious. The second mouse gets the cheese. Let the market prices show us the way.
We don’t have solid answers to these questions today. Until we have those answers, we should remain largely in cash. Trade small if you trade at all.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4024, up 94 points or 2.4% in a single day. But SPX had declined this week by 3.7% through Thursday’s close, so even with today’s strong recovery, SPX was down 1.4% for the week. The CPI and PPI announcements this week were the principal reasons for this week’s market weakness. Today’s open on SPX gapped open much higher than Thursday’s close and today’s open was also today’s low; both are very bullish signs.
VIX, the volatility index for the S&P 500 options, opened this week at 32% and then spiked to over 35%, before declining steadily and then gapped lower today to close at 29%. But this remains a high level of volatility.
The NASDAQ Composite index closed at 11,805 today, up 434 points or 3.8% in a single trading session. However, it couldn’t make up for the week’s earlier losses, so NASDAQ closed down one percent for the week. Trading volume ran above the 50 dma all week. Thursday’s intraday low set a 30% correction for NASDAQ since the January highs.
Last week I was complaining about how commonly the market has sold off on Fridays this year, but I thought the market was finally finding support. Well, I was dead wrong as the market took another step lower this week. The difference this week was the strong bullish recovery today on all of the broad market indices. The S&P 500, NASDAQ and the Russell 2000 indices all gapped open at this morning’s open and continued to trade higher into the close.
The inflation data earlier this week appeared to push the market to new lows, but it may be that analysts started to realize that the rate of inflation may have peaked. The Consumer Price Index peaked at a year over year increase of 8.5% last month; CPI increased 8.3% this month on a year over year basis. Similarly, on year over year basis, PPI increased 11.5% last month , but declined to 11% this month.
That is the best explanation I have for today’s strong market. But next week may bring a new reason to trade lower. I keep thinking the market has turned the corner and I dip my toe in the water. As a result, I have lost several toes. This market has humbled me and I remain largely in cash.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4123, down 24 points or 0.6%. The initial response to the FOMC announcement on Wednesday was positive, but that wore off quickly with SPX trading off significantly the last two days. Trading volume was modestly above the 50-day moving average (dma) this week.
VIX, the volatility index for the S&P 500 options, opened Monday at 30%, traded as low as 25% on Wednesday before spiking higher and closing today at 30%. This level of volatility is not modest, even if we are becoming accustomed to it. Remain vigilant.
The NASDAQ Composite index closed at 12,145 today, down 173 points or 1.4%, and down 1.5% for the week. Trading volume ran below the 50 dma all week. Monday’s intraday low is a 23% correction since the January highs for NASDAQ.
Last Friday’s low was the low for that week, and today’s close was this week’s low. The only good news is the appearance of the broad market finding a support level this week. Of course, I may be proven wrong next week. NASDAQ closed today just below the lows set on Monday and Thursday. SPX’s low on February 24th was around 4115 and trading this week appeared to be trading right along that line.
We have suffered through a lot of bad news: record levels of inflation, FOMC moving to raise interest rates and shrink the money supply and, to top it all off, a negative GDP growth number for the first quarter.
I remain largely in cash, although I did venture out with a couple of trades late in today’s trading session. Those trades were a result of my observations that the market appeared to be finding support this week.
The trades I entered today are just my “toe in the water”. My posture remains very cautious, largely in cash with close stops on the few positions in play.
Correction Or Bear Market?
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4132, down 156 points or 3.6%. SPX closed the week down 2.9%. If I put on my rose-colored glasses, I would point to Monday and Thursday’s moderately bullish trading sessions. The pessimist (or realist) might note that the market closed at or very near the lows for the day both on Tuesday and today. Why is that significant? When the market trades down strongly, buyers often come into the market to buy what they consider bargains. When that doesn’t happen, it is a dire warning. Adding to the negativity was increasing trading volume. SPX’s trading volume was above the 50-day moving average (dma) every day this week. Increased volume reinforces the observed trend, in this case, a bearish trend.
VIX, the volatility index for the S&P 500 options, opened Monday at 30% and closed today at 34%. These levels of volatility aren’t quite back to those of early March, but they are close. I track the Russell 2000 index with the IWM ETF. IWM closed today at 184.95, down 2.9%. IWM opened the week at 190.99, resulting in a loss of 3.2% for the week. IWM is trading at levels not seen since December 2020. IWM is down 22% this year.
The NASDAQ Composite index closed at 12,335 today, down 537 points or 4.2%, and down 3.2% for the week. Trading volume ran below the 50 dma all week. Today’s close represents a 22% correction since the January highs for NASDAQ.
My rose-colored glasses are ruined. I was stomping on them today. It is difficult or impossible to put a positive spin on this market. The S&P companies have now hit corrections of 14% three times this year. NASDAQ and the Russell 2000 are now down 22%. Unfortunately, I don’t see any light in this tunnel. Inflation is setting records. The Fed is reducing the money supply and raising interest rates to fight inflation. Powell appears to be hinting at a half percent rate increase at the meeting next week. We just set our first negative GDP number for the first quarter. Economists label the economy as in a depression after two successive negative GDP declines.
I am largely in cash now, and plan to stay there or may even close more trades. I may be 100% in cash by the Fed meeting. The only exceptions are my index condor trades. They are doing well. My Flying With The Condor™ service is up 16% through April and the May and June positions both remain in the black. But even those positions may be adjusted next week.
I am going to have to see some solid market growth before venturing out with any new trades.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4488, down 12 points or 0.3%. SPX closed the week down 1.3%. The only good news that trading appears to have stabilized over the past three trading sessions. Resistance from early February has proven formidable. Trading volume ran below the 50-day moving average (dma) again this week – no conviction.
VIX, the volatility index for the S&P 500 options, opened Monday at 20.8% and closed today at 21.2%. Declining VIX over the past two days underscores the sideways nature of recent trading. The large players aren’t concerned about a large decline.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 197.87, down 0.3%. IWM opened the week at 207.87, resulting in a loss of 2.4% for the week. IWM is again below both its 50 dma and its 200 dma.
The NASDAQ Composite index closed at 13,711 today, down 186 points or -1.3%, and down a whopping 4.1% for the week. Trading volume ran below the 50 dma almost the entire week.
Last week’s market began to show the resistance set by the highs in early February but Wednesday’s gap down on the broad market indices was a large step lower.
The one redeeming factor for this week’s market is the trading of the S&P 500 right along that 200 dma. At least the bleeding has stopped – for now. NASDAQ and the Russell 2000 are leading the market lower. Defensive stock sectors such as utilities and healthcare are gaining and technology and transportation stocks are being sold. Increasing fuel costs are certainly a factor in transportation but these stocks are also sensitive to declining economic growth. Rising interest rates will be a headwind for economy and, in turn, the stock market.
My trading stance is unchanged. I am cautious about entering new trades; I take profits whenever I can rather than hold and hope for larger gains; I close the losers quickly. So far it doesn’t appear the markets are declining farther, but I remain cautious.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed yesterday at 4546, up 15 points or 0.3%. SPX closed the week nearly unchanged with a 0.1% gain. The good news was a recovery from yesterday’s intraday lows at 4508. Resistance from early February has proven formidable. Trading volume was well below the
50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened Monday at 22.1% and closed yesterday at 19.6%. VIX is now approximately at the levels of early February before the market declined for the second correction.
The NASDAQ Composite index closed at 14,262 yesterday, up 41 points or +0.3%, and up +0.6% for the week. Trading volume was modest, running around the 50 dma most of the week.
Last week’s market began to show the resistance set by the highs in early February and the bounce off of that resistance was even more clear this week. My trading stance is unchanged. I opened some new trades this week for my trading group, but I closed several trades in my Conservative Income service to avoid the weekend risk. I am proceeding cautiously.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4543, up 23 points or 0.5%. SPX closed the week with a 1.8% gain. After last week’s very strong gains, a bit of sideways choppiness was to be expected. Trading volume was not only below average all week but steadily declined each day this week. It may be difficult for SPX to break through resistance at the highs of early February.
VIX, the volatility index for the S&P 500 options, declined steadily this week, opening Monday at 25.1% and closing today at 20.8%. That decline is seductive but recall that VIX is now where it was in early February before the market took another run to establish a lower correction.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 206.12, up less than a half a point, or 0.1%. IWM recovered its 50 dma last week but stalled and traded sideways this week. The Russell 2000 is not leading this bull market.
Similar to the Russell 2000, the NASDAQ Composite index recovered its 50 dma last week, but NASDAQ continued its gains, closing at 14169 today for a 2.2% increase this week. Trading volume was modest, running around the 50 dma.
Last week’s market was strong with SPX, NASDAQ and the Russell 2000 all recovering their 50-day moving averages. But the market proceeded more cautiously this week, making only modest gains. It appears that the resistance set by the highs in early February may be starting to slow this market. I would feel more positive if the Russell 2000 began to lead this market higher, but we may have too many headwinds for that degree of bullish strength.
The Fed Moved the Market
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4463, up 51 points or 1.2%. SPX opened the week at 4203 and ended the week with an impressive 6.2% increase. Trading began to strengthen on Tuesday and took off the rest of the week. Trading volume was below average most of the week but spiked strongly higher today. Usually, I would interpret that volume spike as an endorsement of the market’s move higher, but today is quadruple witching which always causes a large volume spike as four major derivatives are settled each quarter.
VIX, the volatility index for the S&P 500 options, declined steadily this week, opening Monday at 31.0% and closing today at 22.9%. That is a large decline. Is the market recovery really here?
The NASDAQ Composite index also turned in a positive week of trading with an 8.6% gain, outperforming all of the broad market indices. NASDAQ closed today at 13893 with a gain of 279 points. Of course, NASDAQ took significant losses in this correction, so one would expect it to run faster when the skies cleared. NASDAQ trading volume ran above the 50 dma all week and spiked higher on quadruple witching today.
Jerome Powell and the FOMC said all of the right things this week and really encouraged the market. It isn’t common to see four days of advances like we saw this week. Now the question becomes whether we continue to see strong advances or perhaps we will see the classic stair step advance with occasional “breathers” starting next week.
I am beginning to put additional capital to work in this market, but I am proceeding cautiously.
Waiting On the Fed
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed yesterday at 4204, down 55 points or 1.3%. SPX opened the week at 4327 and ended the week down by 2.8%. Trading began very weakly on Monday and declined 3.6% by the close on Tuesday. Trading the balance of the week kept SPX largely on a sideways track. Trading volume of the S&P 500 companies spiked early in the week but declined the rest of the week, moving below the 50-day moving average (dma) Thursday and Friday.
VIX is the volatility index for the S&P 500 options, and it declined steadily this week, opening Monday at 35.9% and closing yesterday at 30.8%. Volatility remains elevated; don’t let your guard down.
The NASDAQ Composite index followed all of the broad market indices yesterday and closed down 2.2% at 12844. NASDAQ opened the week at 13328, so NASDAQ remains the weakest index this week with a decline of 3.6%. NASDAQ trading volume ran above the 50 dma all week.
The broad market indices traded largely down and then sideways this week. On 2/24, the S&P 500 index traded down to 4115 before recovering a bit to close at 4156. This is the latest area of support during this correction. Tuesday’s low this week at 4158 bounced off that support level and yesterday’s close was well above those levels.
Thus far, the news from Ukraine has not done any more damage to the stock market. I believe the bullish foundation that seems to support this market is largely due to the relaxing of the Covid restrictions and the expected strengthening of the economy. The primary hobgoblins worrying the market are record-setting levels of inflation coupled with the Fed’s expected increase of the discount rate next week. A quarter point rate increase is probably priced into this market, but a half point increase might push traders to sell.
The broad market indices are largely trading sideways as the FOMC meeting approaches, albeit a very choppy sideways movement.
I have had good results with small positions in oil and gold stocks, e.g., the GLD spread I sent to newsletter subscribers on 2/22. But I remain largely in cash and will wait on the FOMC announcement and the market’s reaction before changing that position.
It's All About Ukraine
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) corrected 12% on January 24th and then the market moved to retest that correction on February 24th and broke through to a new low of -14% (It makes you wonder what will happen on March 24th). SPX closed today at 4329, down 35 points. SPX opened the week at 4354 and ended the week down by about half of one percent. Trading volume of the S&P 500 companies ran above the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, was very choppy this week but largely unchanged, closing today at 32.0% after beginning the week at 32.4%. Volatility remains elevated; don’t let your guard down.
The NASDAQ Composite index gapped open lower today and closed at 13,313, down 225 points on the day and down 1.9% for the week. NASDAQ trading volume ran above the 50 dma all week but fell below the average today.
The broad market indices traded sideways this week, with the Russell 2000 and NASDAQ trading lower. SPX pulled back this morning but recovered much of that loss going into the early afternoon. The intraday low for SPX bounced off the support level formed by trading last Friday and on Tuesday this week. That shows the bullish sentiment that is holding this market up after these bearish twitches.
News and rumors from Ukraine may spook this market at any time. Relaxing the Covid restrictions here in the states will strengthen the economic recovery but concerns about inflation will intensify as cost data increase, fueled in part by higher oil prices. Uncertainties over the Fed’s expected increase of the discount rate as the March FOMC meeting approaches (March 15-16) will likely result in a choppy, sideways market.
Considerable damage has been done to our markets since late January. SPX remains below its 200 dma. The 50 dma of the Russell 2000 and NASDAQ have crossed the 200 dma, heading lower. All of these markets have a long ways to go for a full recovery. All in all, remaining largely in cash and being very conservative with your investments remain sound advice.