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.
Make Hay While the Sun Shines
- Written by Dr. Duke
The markets have been on a strong bullish run higher since late March with the Standard and Poor’s 500 Index (SPX) closing today at 4185, up 15 points on the day or 0.4%. The S&P 500 is up nearly 8% since it started this run on March 25th. Trading volume for the S&P 500 companies has risen slowly this week but remains below the 50-day moving average (dma) at 2.50 billion shares.
Volatility for the S&P 500 options, quantified by the volatility index, VIX, continues to decline as the market heads higher, closing today at 16.3%.
The IWM ETF, based on the Russell 2000 group of companies, tracked steadily along its 50-day moving average (dma) this week. I would prefer to see these stocks leading the bullish charge, but they are at least solidly tracking higher. IWM rose 0.9% this week, a bit softer than the S&P 500 at +1.5% for the week.
The NASDAQ Composite index closed at 14052, up 14, and up 1.4% for the week. NASDAQ’s trading volume slowly rose this week, closing today at 4.5 billion shares. However, this level of volume remains well below the 50 dma at 6.0 billion shares.
This week’s news reports seemed to paint the picture of two distinct and opposite perspectives on the pandemic and its effects on the economy. It appears that more and more people and local authorities are rebelling against continued lockdowns and rigid mask and social distancing mandates. The governmental authorities here in Illinois are still adamant about remaining largely locked down and wearing masks everywhere. However, as my wife and I ventured out for dinner a couple of times this week, we witnessed increasing impatience with these restrictions. Businesses are scooting those table closer together and getting back to normal. But it is all being done quietly as the signage and welcoming comments remain along party lines.
I have not changed my market position very much this week. The cash basis of my trading accounts remains similar to last week at 58%. I find it hard to become very confident about this market. The run upward for the past month has been impressive. However, it is hard to ignore the closed businesses I see in my community. I don’t think it is prudent to put too much cash at risk too quickly. I have been jerked around several times this year and I don't want to take another hit.
The Market Sees a Bright Future
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) continued its run higher today, closing at 4129, up 32 points on the day or 0.8%. This was a strong week for the market, rising 2.4% and setting a new all-time high today. Trading volume for the S&P 500 companies continues to decline. Today’s volume came in at 1.85 billion shares, much lower than the 50-day moving average (dma) at 2.50 billion shares. Trading volume has been steadily declining since mid-March.
As one would expect with such a strong bullish run, volatility for the S&P 500 options, quantified by the volatility index, VIX, opened the week at 18.2% and steadily declined to today’s close at 16.7%.
The only bearish news this week came from the Russell 2000 group of companies that populate the IWM ETF. IWM declined this week to close today at 222.59, down 1.7% for the week. The 50 dma at 221.69 appears to be holding as support.
The NASDAQ Composite index appears to be recovering from its recent funk, closing today at 13900, up 71, and up 2.2% for the week. NASDAQ’s trading volume continues its steady decline since mid-March and is even more pronounced than the decline of trading volume in the S&P 500. Today’s volume on NASDAQ came in at 3.26 billion shares, almost half of the 50 dma at 6.31 billion shares. By comparison, SPX trading volume was about 75% of its 50 dma.
Last week’s jobs report was a big boost for this market. That report, combined with continuing distribution of the Covid 19 vaccine and more states reopening their economies, appears to be bringing out the bulls. The market is always discounting the future, and this market sees a much-improved future. I started opening more positions and selling more puts; my cash basis is down to 53%.
Is That A Light Up Ahead?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) gapped open Thursday morning and closed trading at a new all-time high of 4020, up 47 points on the day or 1.2%. SPX gained 1.3% for the week, so most of the week’s gain occurred yesterday. If we assume that Thursday’s rally finally put an end to this most recent market pullback, then maybe traders can take a breath and start to put money to work again. This has been the third pullback this year with the 50-day moving average (dma) acting as the support level in each case. The S&P 500 index trading volume has remained below average since March 12th except for quadruple witching on March 19th.
VIX, the volatility index for the S&P 500 options, gapped open lower on Thursday morning and proceed to decline all day, closing at 17.3%. One must back track on the VIX chart to late February of 2020, just before the March correction, to find volatilities in this range.
IWM, the ETF based on the Russell 2000 index, closed Thursday at 223.74, up 2.80 or 1.3%. IWM recovered its 50 dma on Wednesday but remains well below its recent high of 233.98 on March 15th.
The NASDAQ Composite index closed Thursday at 13480, up 233 points or 1.8% on the day. NASDAQ gapped open Thursday morning and finally recovered its 50 dma. Similar to the S&P 500, NASDAQ’s trading volume continues to decline and has only broken out above the 50 dma once since March 5th (on quadruple witching March 19th).
2021 has been a rough ride for traders. It’s too bad we didn’t have New Year’s Eve parties to celebrate when we could. We have been licking our wounds most of the last three months. The S&P 500 has now pulled back three times, but Thursday’s trading appears to have turned the corner with a much smaller pull back and a bounce off the 50 dma. The NASDAQ Composite has yet to recover all of its losses due to the rotation out of high-tech stocks.
This morning’s jobs report was a huge surprise to traders with over nine hundred thousand new jobs added to the economy. That should help fuel the reopening of our businesses, or at least, those who have survived. Thursday’s market action was encouraging, and I cautiously added a few positions. But I remain 67% in cash. I think the jobs report may be the catalyst to push this market higher. I am anxious to see the market open on Monday.
Is It Safe To Come Out?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) gapped open Friday morning and closed trading at 3975, up 65 points on the day or 1.7%. SPX opened the week at 3916, so the net gain for the week was 1.5% - SPX recovered the entire week’s losses on Friday. 2021 has been rough year so far with three pull backs: one ended January 29th; one ended March 4th and this last one ended Thursday? In all three cases, it appears that the 50-day moving average (dma) was the level for the market to find support and recover. Throughout this series of pull backs, the S&P 500 index trading volume has remained generally below average with few exceptions. That suggests that traders have not yet thrown in the towel and began significant selling. Instead, it appears to represent a rotation out of high tech into more cyclical industrial and commodity stocks.
VIX, the volatility index for the S&P 500 options, closed Friday at 19% after hitting 21.5% intraday. Friday’s close matched Monday’s close and both are the lowest levels of implied volatility observed this year.
IWM, the ETF based on the Russell 2000 group of companies, closed Friday at 220.61, up 3.95 or 1.8%. But IWM remained down 2.9% from its open on Monday. On the positive side, IWM recovered the 50 dma that it broke on Wednesday.
The NASDAQ Composite index closed Friday at 13,139, up 161 points on the day but down 1.1% for the week. NASDAQ broke down through its 50 dma last week and remained well below it on Friday (13,426). NASDAQ’s trading volume remains well below average and has only broken the 50 dma once since March 5th (on quadruple witching last Friday).
This has been a rough ride for traders this year. The S&P 500 has pulled back three times now, but each time it has found support at the 50 dma and bounced back higher. However, the real damage has occurred in the NASDAQ Composite with the rotation out of high-tech stocks. Friday’s market action was very encouraging, and in normal times, I might have invested heavily, but I didn’t. The whipsawing back and forth over the past couple of months has me a little gun shy (a term from hunting with bird dogs). I am now 88% in cash. On the positive side, the 50 dma on the SPX price chart has proven itself as the solid line in the sand, and the VIX is as low as it has been all year. But I am still worn out.
I will be watching the market carefully on Monday to see if it makes sense to begin to dip my toes in the water. I hope the crocodiles are gone.
A Choppy Ride
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) closed today at 3913, down 2 points on the day. SPX opened the week at 3943, so the net loss for the week was 0.8%. From the intraday low on March 4th, the low of this pullback, SPX has increased 5.9%. Trading volume on the S&P 500 has continued to trend below the 50-day moving average (50 dma), but spiked higher today, as a result of quadruple witching, the simultaneous expiration of stock index futures, stock index options, stock options, and single stock futures that occurs once a quarter.
VIX, the volatility index for the S&P 500 options, closed today at 21% after hitting 23% this morning and then pulling back just under 20%. VIX has been running at a baseline in the low twenties since the March 2020 correction.
IWM, the ETF based on the Russell 2000 group of companies, closed today at 226.54, up 1.70. But IWM remained down 2.9% from its open on Monday. On the positive side, IWM remains well above its 50 dma.
The NASDAQ Composite index closed today at 13,215, up 99 points on the day but down 0.8% for the week. NASDAQ broke down through its 50 dma on Thursday and remains well below it today. NASDAQ’s trading volume continues its steady decline and remains well below average. The rotation out of high tech into industrials has hurt the NASDAQ Composite index.
We continue to see many mixed signals on the market. We have suffered through two quick dips since the end of January. The decline in early March tried to test the February low but didn’t quite make it. This week’s pullback has traders spooked again.
On the positive side of the ledger, we have the passage of the stimulus bill, progress with the distribution of the Covid vaccine, and several states beginning to reopen their economies. The FOMC this week upgraded their assessment of the economy, but it remains to be seen how quickly we can recover. Many small businesses won’t be reopening as the states reopen.
I continue to trade cautiously and stop out positions to lock in gains whenever possible. We may be in for a choppy ride.
Happy Days Again?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) closed yesterday at 3943, up 4 points, but up 2.6% for the week. From the intraday low on March 4th, the low of this pullback, SPX has increased 5.9%. Trading volume on the S&P 500 has been declining throughout this recovery, dipping below the 50 day moving average (50 dma) on Friday.
VIX, the volatility index for the S&P 500 options, closed Friday at 21%. The spike intraday to 32% on March 4th represented the high for this pullback. VIX has been running at a baseline in the low twenties since the March 2020 correction.
IWM, the ETF based on the Russell 2000 group of companies, closed at 233.59 Friday. IWM bounced back 12.7% from the intraday low of this pull back on March 5th. IWM set new all-time highs on Thursday and Friday. The small to mid-cap companies of the Russell 2000 are high beta stocks that tend to lead markets higher in the “risk on” phase and lead markets lower in the “risk off” phase.
The NASDAQ Composite index closed Friday at 13,320, up 79 points on the day and up 3.2% for the week. NASDAQ is the weakest of the broad market indices and remains below its 50 dma. The previous all-time high for NASDAQ was set at 14,152 on 2/16 and the index remains nearly 6% below that high. NASDAQ led the previous bull markets but is lagging behind on this cycle. NASDAQ’s trading volume steadily declined all week and remains well below the 50 dma.
Technical analysts use a standard terminology of a market correction being called whenever the market drops by more than 10% and lesser declines are just termed pull backs. By that standard, the S&P 500 index pulled back by 4% before recovering, and the Russell 2000 index pulled back by 7%, but the NASDAQ Composite corrected by 11%. In similar fashion, SPX and IWM reclaimed their all-time highs set in February while NASDAQ remains 6% below its all-time high of 2/16.
Most market analysts are seeing the stimulus bill as the key to this latest recovery. Other analysts are encouraged by progress with the vaccine and several states beginning to reopen. The market appears to be pricing in a strong economic recovery. That analysis may be too optimistic. A large number of small businesses won’t be reopening as the states reopen.
I am not fully invested at this point. However, I am trading cautiously. Keep your stops close.
Should I Panic?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) closed today at 3847, up 73 points. It is surprising to note that today’s close was within one point of the opening Monday morning. This week has been chocked full of large moves both up and down, throwing fear into many traders, but we ended the week where we started. Trading volume spiked up above the 50-day moving average (dma) yesterday and remained above average today as well. The lows both yesterday and today were very close to the lows set in the pullback toward the end of January. In spite of all of the doom and gloom, this market seems to be finding support.
VIX, the volatility index for the S&P 500 options, closed today at 25%. After spiking as high as 32% yesterday, this was a dramatic reversal.
IWM, the ETF based on the Russell 2000 group of companies, closed at 217.71 today, down 2.6% for the week. The high this year for IWM was 215 in mid-January and that level has been tested several times over the past couple of weeks. The 50 dma was tested yesterday and IWM opened this morning and ran down through the 50 dma before turning and closing well above that level today. The Russell 2000 remains the only broad market index that has not broken its 50 dma this week.
The NASDAQ Composite index closed today’s trading at 12,920, up 197 points on the day but down 3.6% for the week. NASDAQ broke its 50 dma once last week and then recovered, only to break down through the 50 dma on Wednesday this week. Even after a dramatic reversal this afternoon, NASDAQ remains well below the 50 dma at 13,341. NASDAQ’s trading volume remained below average all week, except for a spurt higher on Thursday.
This was an interesting week in the markets with three very bearish trading days and two gap openings lower Wednesday and Thursday. With the exception of the Russell 2000, the other broad market indices all broke their 50 day moving averages this week. Yesterday’s performance caught my attention and caused me to start playing defense and being reticent to add new positions.
But what a difference a day makes. SPX opened roughly at the intraday high from yesterday, tested yesterday’s lows and then proceeded to trade higher and soundly recover the 50 dma. The S&P 500, NASDAQ and the Russell 2000 all staged strong intraday recoveries today, but NASDAQ’s was the most dramatic. It closed a few points higher than this morning’s open after falling almost 500 points from the open, even setting a lower low than yesterday’s intraday low. You don’t see that very often.
Well, that is all very interesting, but where does it leave us? After the dust settled today, we have two indicators that appear surprisingly positive. One is the strong intraday recoveries staged by the S&P 500, NASDAQ and the Russell 2000. A stronger bullish signal came from the Russell 2000 index. This index is comprised of small to mid-capitalization stocks. These are the classic high beta stocks that tend to outperform the S&P 500 whether it is moving higher or lower. They are the stocks sold first in a panic. But that didn’t happen this week.
Since the first of this year, the S&P 500 is up 2%, the NASDAQ Composite is down 0.3%, and the Russell 2000 is up 10%. Yes, I checked my numbers. The Russell 2000 has gained a little over 10% for 2021 year to date.
By contrast, what we saw in the March correction last year was more typical: the S&P 500 lost 35%, the NASDAQ Composite lost 27%, and the Russell 2000 was the winner of the race downward at 43%. These are the classic stocks bought when traders yell “risk on” and sold when the tide turns. Why are they holding up so well this year?
I will remain cautious as trading opens Monday, but I don’t feel nearly as anxious as I did at yesterday’s close.
Will Support Hold?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) bounced off of its 50-day moving average (dma) on Tuesday, recovered and then tested that support level again today, closing at 3811, right at the 50 dma at 3808. Trading volume in the S&P 500 companies increased steadily all week. I believe this shows some selective selling in anticipation of additional pullbacks next week.
VIX, the volatility index for the S&P 500 options, closed today at 28%. Both yesterday and today, VIX spiked as high as 31%. Volatility ranged quite a bit today, from as low as 25% to a high of 31%. Traders are nervous.
IWM, the ETF based on the Russell 2000 group of companies, closed at 218.31 today, down 2.3% for the week. IWM continues to show support at 215, bouncing from that level Tuesday and again today. That makes 215 a good “line in the sand” to watch.
The NASDAQ Composite index closed today at 13,192, down 72 points on the day but down 3.8% for the week, exceeding the losses of both the Russell 2000 index (-2.3%) and the S&P 500 index (-1.9%). NASDAQ’s trading volume declined steadily this week, remaining below the 50 dma.
We close another bearish week for the markets with all of the broad market indices losing 2% or more of their value. The markets are holding at key levels of support this week, but a pullback or correction appears more and more likely. Perhaps we will retest those early February lows.
I am continuing to sell these elevated levels of volatility, but I am also closing positions aggressively when they move against me. Several stocks continue to post strong gains. Deere (DE) is a good example, posting gains this week after its earnings announcement on Monday. I sold the Feb(2/26) 345 put on Wednesday for a 1.2% yield in two days. It will expire worthless tomorrow. But I chose not to roll it out to next week. A weekend can be a long time in this market.
Watch your positions very closely. It is a nervous market.
Are We Near the Cliff?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) closed Friday at 3907, down 7 points on the day, but down 0.8% for the week. I am watching the support level formed this week and last week around 3875. If SPX breaks support, it could be headed lower. SPX’s trading volume ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, closed Friday at 22%. As one might expect for a flat market week, VIX was in a narrow range this week of 21% to 24%.
IWM, the ETF based on the Russell 2000 group of companies, closed at 225.19 Friday, down 1.9% for the week. IWM has shown weak support at 219 and stronger support at 215. A break below 215 would be a warning signal.
The NASDAQ Composite index closed Friday at 13,874, up 9 points on the day but down 2% for the week, close to the losses of the Russell 2000 index. NASDAQ’s trading volume ran slightly above and below average all week, and closed Friday almost precisely at the 50 dma.
This was a bearish week for the markets with the Russell 2000 index (the basis of IWM) and the NASDAQ both losing about two percent and the S&P 500 index losing almost one percent. The only positive signs were some weak signs of recovery on Friday.
Market analysts are in two camps. One remains bullish and the other is nervous, expecting a pullback or possibly a correction soon. Of course, the usual doomsday gurus are being interviewed on the financial networks. I find it hard to take them too seriously. It’s the “boy cried wolf” problem. I doubt the end of the world scenario, but a pullback or correction would not be surprising at all.
I am continuing to sell these elevated levels of volatility, but I am also closing positions aggressively when they move against me the least bit. Several stocks continue to post strong gains. Watch your positions very closely. It is a nervous market.
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) continued its steady climb higher this week, closing today at 3935, up 18 points and up 1.1% for the week. It seems too good to be true, especially when one looks at the weak economic data. However, SPX is continuing this march higher with steadily declining trading volume. One should not bank too heavily on higher prices being achieved on lower volume.
VIX, the volatility index for the S&P 500 options, closed today at 19.97%. I was surprised when I expanded the chart and found that today is the first day VIX has closed below 20% since its close at 17.1% on 2/21/20, just before the market went off the cliff.
The NASDAQ Composite index closed today at 14,095, up 70 points today and up 1.1% for the week, identical to the gains of the S&P 500 index. NASDAQ’s trading volume advanced all week but suddenly retreated to close at the 50 dma today. Did everyone leave early for the long weekend?
This market is whipping traders back and forth. Consider the S&P 500 index price chart over the past three weeks. SPX lost 4% during the week ending 1/29, but then gained it all back with a 4% gain last week. SPX continued its run higher this week, although at a somewhat slower pace of 1%. It isn’t surprising that traders are nervous and the “sky is falling” crowd are all carrying their “end of the world” posters.
The S&P 500 volatility index, VIX, closed below 20% today for the first time since February 21st of last year, just before the March correction. An old adage about VIX goes, “When the VIX is low, it’s time to go”. This is based on the observation that volatility cycles between the lows and highs as the market cycles. However, the same disclaimers apply here as predicting market highs and lows. The VIX may be lower than it has been in nearly a year, but it could go lower. At a minimum, it is wise to be cautious and watch the market very carefully.
I am carefully positioning my stops tighter, closing trades when they trip the stop, and closing early when I can lock in gains and take some risk off the table.
Enjoy the long weekend.