Category: Dr. Duke's Blog
Hits: 891
Star InactiveStar InactiveStar InactiveStar InactiveStar Inactive

The broad markets slowed this week, with the Standard and Poors 500 Index (SPX) closing Friday at 2804, up 19 points for the day, but dead flat for the week. It appears that SPX bounced off resistance around 2817, the highs reached in mid-October and early November after the first couple of downdrafts last fall. It will be difficult for the market to make new highs until the trade negotiations with China reach a conclusion. Trading volume on the S&P 500 continues to run well below average, but trading volume broke above the 50-day moving average (dma) on Thursday’s decline. It is a nervous market.

The S&P 500 volatility index, VIX, closed at 13.5% on Friday, almost precisely at its close the previous Friday. Volatility rose this week as the market weakened, but then declined Friday as the market strengthened. This level of volatility is far from calm and complacent, but not really alarming either. It just underscores the cautious nature of this market.

Whereas the S&P 500 index solidly broke above its 200 dma last week, the Russell 2000 Index (RUT) cannot quite make that break higher. This week’s trading just tracked sideways along the 200 dma. The severity of last fall’s corrections is evident in RUT’s chart with the 50 dma so far below the 200 dma. The gap is closing, but remains significant.

The NASDAQ Composite index closed Friday at 7595, up 63 points. NASDAQ confirmed last week’s break out above its 200 dma by consistently trading above the 200 dma all week. Wednesday’s weakness bounced off the 200 dma to recover for a gain and close higher.

My analysis of the market’s condition remains the same as the past several weeks. The series of corrections that lasted through December 24th were not founded on solid economics. The excellent revenues and earnings reported during this earnings cycle are exceptional, but you wouldn’t know it from the broad market averages. The market has recovered significantly, but the China trade negotiations remain the largest worry for market analysts.

My market index iron condor positions are all profiting from this slowly rising and almost sideways market. We now have booked a full year with no losses.

In spite of the overall market being rather sluggish this week, a few stocks continue to make new highs. CYBR, LLY, IBRT, and XLNX all were called away from me this week because the stock price had traded so much higher that I could not roll the calls out for a reasonable credit.

Until we see a definitive resolution of the China trade negotiations, this market will be volatile. Some stocks are trading bullishly in spite of the overall market. Be picky and be cautious.