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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.

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The Standard and Poors 500 index (SPX) closed today at 4136, down 43 points on the day or -1.0%. SPX opened the week at 4049, thus closing with a 2.1% gain for the week. SPX had a strong resistance level defined by the failed recoveries in December around 4100 and SPX solidly broke through that resistance on Wednesday after the FOMC announcement. SPX added to those highs on Thursday with a strong gap opening and a run up to 4180. Trading volume ran at or above the 50 dma all week, a dramatic shift from the low trading volume levels since the December holidays.

VIX, the volatility index for the S&P 500 options, closed today at 18.3% after opening the week at 19.8%. A rare VIX divergence occurred yesterday with VIX rising, in contrast to the strong gap opening and run higher on SPX. That was a prediction of today’s decline on the S&P 500 index.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 196.99, down 1.3 points on the day or -0.7%. IWM hit resistance at 190 both yesterday and today. This is the high from mid-August. By contrast, SPX remains 4% below its corresponding August high. IWM is strongly leading SPX, a very bullish sign.

The NASDAQ Composite index closed at 12,007 today with a loss of 194 points or -1.6%. NASDAQ traded strongly higher this week with a growth of 4.3%. NASDAQ and the Russell 2000 are leading this bullish run. NASDAQ’s trading volume has posted above the 50 dma all of this year with only three exceptions, one of which was today.

With the close of SPX on Tuesday, the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac, posted a positive number for 2023. Since 1950, a positive result for the January Trifecta was followed by positive annual gains on the S&P 500 with only three exceptions. The average annual gain was 17.5% for those years. But we have another interesting statistic. We have seen 13 positive January Trifectas following a midterm bear market since 1950. All 13 posted positive annual gains with an average gain of 22% on the S&P 500 and 32% on NASDAQ.
 
The FOMC announcement on Wednesday, followed by Powell’s press conference, set this bull market running. Powell threaded the needle rather well, assuring the markets that the previous rate hikes are beginning to have positive effects in pulling in the rate of inflation, but he also gently pointed out that this week’s quarter point raise would probably not be the last increase this year. The market was extremely volatile immediately after the announcement but settled into a positive trend during the press conference, although SPX gave back some of those gains as it pulled back into the close. All bets were off on Thursday as the market gapped open higher and solidly broke out above resistance. The bulls were solidly in charge. But VIX moved higher, signaling a shift in market sentiment. The market was much more cautious today, although it retained most of the week’s gains and held above the 4100 support level from August. 



I am starting to enter some bullish trades. But my finger is on the exit button.

The Standard and Poors 500 index (SPX) closed today at 4071, up 10 points on the day or +0.25%. Today’s modest gain was a bit misleading since the S&P 500 gained a full four percent this week. SPX broke out above the 50-day moving average (dma) last week and broke out above the 200 dma this week. We have a solid resistance level defined by the failed recoveries in December around 4100. SPX threatened those highs with an intraday high at 4094, but it then pulled back into the close. If the S&P 500 index runs out of gas next week as the FOMC meeting comes into view, we have intermediate support levels with the 50 dma, then 3900 and 3775. With few exceptions, trading volume has run below the 50 dma since November. In my opinion, that is evidence of the large institutional players cautiously waiting on the sideline. Fed watching will be the principal activity through the announcement on Wednesday.

VIX, the volatility index for the S&P 500 options, steadily declined this week, opening Monday at 20.2% and closing today at 18.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 190, up one point on the day or about one half of one percent. However, IWM posted a strong week, up 2.7% and, most significantly, breaking through 188 on Thursday and trading up to 190 today. That IWM level of 188 is equivalent to 4100 on the S&P 500. That was the resistance level set by the failed recoveries in December. IWM and NASDAQ are the only broad market indices to break out above those December highs.

The NASDAQ Composite index closed at 11,622 today with a gain of 109 points or one percent. NASDAQ broke out above its 200 dma today and also solidly broke out above the highs of the failed recoveries in December. NASDAQ’s trading volume has been running above the 50 dma for the past twelve trading sessions with only one exception. It appears the bulls are bargain hunting among the beat-up high-tech stocks of the NASDAQ.

I have previously discussed the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac. The S&P 500 would have to drop over 5% by the close of trading on Tuesday for the January Barometer, and hence, the January Trifecta, to fail. This month and consequently the year, are looking more positive, but I am still licking my wounds from last year.
 
My trading is off to an excellent start this year with the trading group up over 19% and our two open trades are both posting gains. The Flying With The Condor™ service is up eleven percent. The hobgoblin worrying me is the FOMC announcement on Wednesday. That could easily kill this bullish recovery.



Make fun of me if you wish, but I remain cautious.

The Standard and Poors 500 index (SPX) closed today at 3973, up 74 points on the day or +1.9%. Today’s impressive gain salvaged the week for the S&P 500 with a loss of 0.7%. Yesterday’s close would have left the index down 2.5% for the week. SPX broke out above the 50-day moving average (dma) today and closed just above the 200 dma. We have a new resistance level defined by Tuesday and Wednesday’s highs around 4100. Support may be found at the lower edge, 3782, of the sideways consolidation from 12/19 to 1/5. If SPX breaks down through 3782 and then 3700, we could be headed for support at the earlier low at 3497, or even break down for a new low for this bear trend. Trading volume continues to be rather anemic, running along the 50 dma again this week. This suggests that a large amount of cash remains on the sideline and also that a capitulation low has not yet been reached.

VIX, the volatility index for the S&P 500 options, closed today at 19.9% after opening the week at the same level of 19.9%, and then spiking to a high on Thursday of 21.7%. The disappointment of another failure to break out higher isn’t apparent from the VIX levels. The bulls have not yet given up hope. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. On the other hand, the bears have not really taken control of this market. Yesterday was their opportunity but they could not follow through today.

The NASDAQ Composite index closed at 11,140 today with a gain of 288 points or +2.7%. NASDAQ closed above its 50 dma today but remains well below its 200 dma at 11,567. NASDAQ’s trading volume spiked to six billion shares today, well above the 50 dma at 4.9 billion shares. NASDAQ has taken the largest hit in this bear market and traders are looking for an opportunity to get back in the high-tech stocks at attractive prices.

The most negative evidence for this market is the long string of market rallies that have failed to break resistance and then have fallen to new lows. I was able to capitalize on the brief rally this month in AAPL, BA, CAT, and WYNN, but I closed for gains at the first sign of weakness. However, one has to take account of today’s strong rally into the close. If there are any remaining bulls out there, that has to be encouraging. 



I remain cautious.

 

The Standard and Poors 500 index (SPX) closed today at 3999, up 16 points on the day or +0.4%. SPX broke out above the 200-day moving average (dma) today, a positive sign for the S&P 500 but it is far too soon to break out the champagne. SPX has run into strong resistance around 4100 three times since September of last year. Trading volume continues to be rather anemic, running along the 50 dma again this week.

VIX, the volatility index for the S&P 500 options, closed today at 18.4% after opening the week at 21.8%. You have to go back to January of last year to find volatilities below 18%. I am unsure this lower level of volatility actually reflects complacency on the part of the large institutional traders. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. They are waiting for a successful test of the 4100 level on SPX.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 187.05, up 1.2 on the day or +0.7%, but IWM was up 4.5% for the week, much stronger than its big cap brothers. IWM broke out above both its 50 dma and 200 dma this week. The next level of resistance for IWM is around 188, where the rallies in November and December failed. Seeing the Russell 2000 lead the large cap stocks is very encouraging.

The NASDAQ Composite index closed at 11,079 today with a gain of 78 points or 0.7% but closed the week up nearly four percent. NASDAQ broke out above its 50 dma on Wednesday and made additional progress higher for the balance of the week. NASDAQ’s trading volume broke the 50 dma four times this week, but those were modest spikes in volume. However, NASDAQ must grow 3.6% just to challenge the levels of resistance from November and December when the earlier rallies failed.

Yale Hirsch of the Stock Trader’s Almanac was the first analyst to define and publish the Santa Claus Rally. This year’s Santa Claus was weak, but positive, with an opening on 12/23 at 3815 and a close on 1/4 at 3853, or +1%. Yale also would track the first five days of January and that was also positive this year. The January Barometer, defined as the trading record for the entire month, will be the next signal. In years when the Santa Claus rally, the first five days, and the full January results are all positive, the full year has been positive 90% of the time with an average gain in the S&P 500 of 17.5%.
 
FactSet Research published a report this week on the projected earnings of the S&P 500 for the fourth quarter of 2022. They predict a decline of 3.9%. This would be the first decline since the third quarter of 2020, at -5.7%. This earnings decline sets up the next question. Has the S&P 500 index price decline of 2022 been sufficient to balance that projected earnings decline? Or do we need prices to decline further to reach reasonable P/E ratios?
 
I remain cautious. I entered a few trades this week, but I am watching them like a hawk. My condor trades are on fire in this market. I have already closed both the January and February positions, leaving us up 11% for the year. The S&P 500 is only up 3% over the same period of time. Ouch! I just threw my arm out patting myself on the back.

The Standard and Poors 500 index (SPX) closed yesterday at 3895, up 87 points on the day or 2.3%. That close was very close to the 50-day moving average (dma) at 3904. Breaking out above the 50 dma would be a positive sign for the S&P 500 that has been trading sideways since December 19th. On the other hand, a break below 3775 and then 3700 would be a significant bearish signal. Trading volume has run along the 50 dma in this first week of January and that is a great improvement from the last two weeks.

VIX, the volatility index for the S&P 500 options, opened the year at 23% and closed yesterday at 21% with a decline of 1.3 points yesterday alone, based on the strong bullish gain on Friday.

I track the Russell 2000 index with the IWM ETF. IWM closed Friday at 177.58, up 3.90 on the day or +2.3%, but IWM was up less than one percent for the week. The next level of resistance for IWM is the 50 dma at 179, although Friday’s move was a definite departure from the sideways channel of trading since December 16th.

The NASDAQ Composite index closed at 10,569 yesterday with a gain of 264 points or 2.6% but closed the week essentially flat with a gain of less than one percent. NASDAQ’s trading volume ran consistently along the 50 dma during this first week of trading in January.

The period from Thanksgiving into the first of the year has historically been bullish and small caps have normally outperformed the blue chips over this period of time. That didn’t happen this year.
 
Yale Hirsch of the Stock Trader’s Almanac was the first analyst to define and publish the Santa Claus Rally. Hirsch’s famous saying was: If Santa Fails To Call, Bears May Come to Broad and Wall. The Santa Claus Rally is defined as the net gain or loss during the last five trading days in December together with the first two trading days in January. This year’s Santa Claus was weak, but positive, with an opening on 12/23 at 3815 and a close on 1/4 at 3853, or +1%.
 
The Stock Trader’s Almanac also tells us to watch the first five days of trading in January and the full month of January, known as the January Barometer, as additional signs of what the new year has in store. The first five days of January trading will be confirmed with the close on Monday.
 
In years when the Santa Claus rally, the first five days, and the full January results are all positive, the full year has been positive 90% of the time with an average gain in the S&P 500 of 17.5%.
 
I am not forgetting the pain of 2022 and I remain cautious. I will be entering fewer and smaller trades as I watch the market pattern develop this month.

The Standard and Poors 500 index (SPX) closed yesterday at 4072, down less than five points on the day but up 1.7% for the week. With the exception of the trading volume spike on Wednesday, volume has run well below the 50-day moving average (dma) at 2.6 billion shares. The week closed with 2.1 billion shares traded.

VIX, the volatility index for the S&P 500 options, opened the week at 22.1% and declined all week to today’s close at 19.1%. VIX opened 2022 at 17.6% and hit highs over 35% several times. Friday’s close was slightly lower than the previous low in August but above the April low of 18.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed Friday at 188.05, up 1.09 on the day, and up 2.1% for the week. IWM has held up with three closes above its 200 dma but is encountering resistance around 189 from highs set in September and mid-November.

The NASDAQ Composite index closed at 11,462 yesterday with a loss of 21 points or 0.2% but closed the week up 2.8%. NASDAQ’s trading volume spiked on the large gain on Wednesday but declined the rest of the week, closing below the 50 dma.

The period from Thanksgiving into the first of the year has historically been bullish and small caps have historically outperformed the blue chips over this period of time. Although trading  was technically up this week, the market was very choppy. The S&P 500 index has managed to hold above the 200 dma, but we are off to a weak start for the Santa Claus Rally.
 
Trading volume remains well below average, suggesting that the large institutions and hedge funds are waiting on the sidelines for a clear direction to solidify.
 
SPX hit its low for the year on October 13th with a decline of 27% from the year’s opening. The market has risen 17% from that low to yesterday’s close. But this rise has been erratic and choppy. It doesn’t instill confidence. I remain largely in cash, but I am entering a small number of trades when I see opportunities. However, I am taking profits and closing out losses quickly.

 

The Standard and Poors 500 index (SPX) closed this holiday shortened week at 4026, down 1.1 point on the day, but up 1.8% for the week. Trading volume was typical of Thanksgiving week with many traders on holiday. The period between Thanksgiving and the end of the year is traditionally bullish and this week appears to be following that trend, but this is an unusual year for the country and the economy. Volume ran below average all week and came in at 893 million shares today, well below the 50-day moving average (dma) at 2.6 billion shares.

VIX, the volatility index for the S&P 500 options, opened the week at 24.1% and declined all week to today’s close at 20.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 185.58, up less than half a point on the day, but IWM rose 1.5% this week. IWM broke through its 200 dma on Wednesday and held that level today.

The NASDAQ Composite index was essentially unchanged today, closing at 11,226, up only 59 points or less than half a percent. NASDAQ’s trading volume ran well below the 50 dma all week and traded only 2.2 billion shares today with the 50 dma at 4.75 billion shares.

Using the S&P 500 as our proxy for the market as a whole, the bullish rally that began on November 10th was stopped by the bears last week, but the support level at 3900 held (that support level was the high of the October rally that was stopped on November 1st).
 
Traditionally, the period from Thanksgiving into the first of the year has usually been bullish and small caps have outperformed the blue chips. So, this may be a reasonably bullish period for the market, even though we are far from being able to say the bear market has been broken.
 
To put things in perspective, The S&P 500 opened the year at 4797, declined and then rallied back to 4632 on March 29th. The latest rally took SPX to 4305 on August 16th. Today’s close is 16% below the high at the beginning of the year. Even if this bullish period culminates in the classic Santa Claus rally at the end of the year, we aren’t out of the woods yet. My caution will continue until we reclaim that SPX high of 2022.
 
However, I am trying pick off some low hanging fruit from now until the end of the year. But my finger is on the button for the escape hatch. I remain largely in cash, trading small, and taking profits whenever I can.

The Standard and Poors 500 index (SPX) posted a classic doji candlestick on Friday with a close at 3695, up 0.5% on the day and down 0.3% for the week. Doji candlesticks are signals of indecision as the bulls push the market higher, only to have bears pull it back lower, and the market closes very close to where it opened. The bulls and bears are at a standoff. SPX essentially traded sideways this week with a high of 4029 and a low of 3907. Trading volume ran below the 50-day moving average (dma) all week with a minor exception on Tuesday.

VIX, the volatility index for the S&P 500 options, closed down yesterday at 23% after opening the week at 24%. Volatility effectively tracked sideways for the week with a high at 26% and a low at 23%, consistent with market trading action.

The NASDAQ Composite index closed Friday at 11,146, essentially flat with a rise of only one point, but down 0.8% for the week. NASDAQ’s trading volume spiked higher on Tuesday’s strong bullish run but declined the balance of the week.

The market continues to focus on record rates of inflation and fear that the Fed will raise interest rates too aggressively to curtail inflation. Last week’s CPI report provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%. That prompted the bulls to push the market higher, reasoning that the Fed would relax their pace of rate hikes and the economy would begin to fire on all cylinders.
 
A couple of hawkish comments from FOMC members threw cold water on those expectations for the Fed slowing their rate hikes and the market stalled. The good news is that a new bearish downtrend didn’t occur. Thus far, the market is churning sideways on declining trading volume. My assessment is that the large majority of institutional traders are essentially sitting on the sidelines, waiting for a clear signal one way or the other.
 
Market analysts expect corporate earnings to take a hit as companies are unable to pass through the price increases they are incurring. Earnings growth for the third quarter of 2022 grew 2.2%, the lowest rate of growth since Q3 2020. Analysts expect stock prices to decline further to compensate for the decline in earnings.
 
Whether we like it or not, the economy is in recession. We clearly have a large number of able bodied Americans who are choosing not to work. Today, I saw a sign at Walgreens offering a starting bonus of $1,250 for a pharmacy technician.
 
I remain largely in cash, trading small, and taking profits whenever I can.

 

The Standard and Poors 500 index (SPX) gapped open higher on Thursday recovering the losses on Wednesday. SPX closed today at 3993, up 37 points or +0.9% on the day and up 5.6% for the week. Trading volume ran below the 
50-day moving average (dma) early in the week and spiked higher on Thursday’s strong run higher.

VIX, the volatility index for the S&P 500 options, closed down today at 22.5% after opening the week at 25.7%. The largest decline in the week was on Thursday as the market spiked higher.

I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips all week, down on Wednesday and then spiking higher on Thursday. IWM closed today at 186.90, up 1.52 points or 0.8%, but up a full four percent on the week.

The NASDAQ Composite index closed today at 11,323, up 209 points or 1.9%, and up 7.7% on the week. NASDAQ’s trading volume spiked higher on Thursday’s strong bullish run but fell below the 50 dma today.

The market has been focused on two issues: record rates of inflation and the fear that the Fed would raise interest rates too aggressively to curtail inflation. Last week’s FOMC announcement pushed more analysts into the hard landing camp and the market responded negatively. The election results appeared to initially disappoint traders with a weak day on Wednesday. But the other core issue worrying the market has been the record rates of inflation and the CPI report this week provided some welcome news with the year over year CPI declining to 7.7% from the last reading of +8.2%.
 
I believe the decline in the CPI numbers encouraged traders that the Fed may be more inclined to moderate their rate hikes. However, all it will take is some hawkish comments from a Fed member to scare the market. I expect the extreme price volatility we have seen all year may continue.
 
The markets traded to a high on September 12th before entering this latest decline. At today’s close, SPX is 3.2% below those highs, NASDAQ is 8.4% below and IWM is only 1.1% below. The most bullish point here is how close the small to mid-cap stocks of the Russell 2000 (IWM) are to the earlier highs in September. IWM actually pulled back from that resistance level today. Those most recent highs are the next significant hurdle for the bulls.
 
This economy is far from healthy and one good CPI report doesn’t provide much confidence. I am testing the waters with a couple of bullish trades, but I remain cautious.

 

The Standard and Poors 500 index (SPX) recovered earlier losses in the week and closed up 51 points at 3882, up 1.4% on the day and up 2.9% for the week. Trading volume ran at or above the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed down today at 24.6% after opening the week at 26.9%. Even though the market declined significantly after the FOMC announcement, VIX steadily declined all week. This divergence was an early signal that the decline earlier in the week wasn’t likely to continue today.

I track the Russell 2000 index with the IWM ETF. IWM followed the lead of the large blue chips today and rallied 1.4% to close at 178.68. But IWM remains down nearly two percent for the week. IWM’s rise yesterday was another signal that the decline earlier in the week wasn’t likely to continue.

The NASDAQ Composite index closed up 1.3% at 10,475 but remained down five percent for the week. NASDAQ’s trading volume fell below the 50 dma today.

The market has been focused on two issues: record rates of inflation and the concern that the Fed would raise interest rates significantly to curtail inflation. Market analysts have been debating whether the Fed policies will result in a so-called soft or hard landing for the economy. This week’s announcement has pushed more analysts into the hard landing camp.
 
The key question now is the degree to which earnings will be decreased by the record rates of inflation. The most fundamental analysis of a stock price is to view it as the price of the time adjusted cash flow for the stock’s business. Hence, if earnings are declining, the stock price must decline. Higher interest rates exacerbate this decline.
 
This week’s announcement of another 75 basis point increase in the federal discount rate was priced into the markets – no surprise there. However, Powell’s comments during the press conference spiked worries that more rate hikes are coming. Markets rose initially but then plummeted. Yet the VIX declined. This VIX divergence was a signal that the market consensus has not panicked.
 
I am not in the camp of the “sky is falling” bears, expecting a severe market crash, but I can’t be bullish in the middle of a recession. My recommendation remains to stay on the sidelines.