Details

Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 25 February 2023

Last Updated: 25 February 2023

Hits: 1346

The Standard and Poors 500 index (SPX) closed Friday at 3970, down 42 points on the day or -1.1%. SPX opened the week at 4052 for a weekly loss of 2.0%. 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 21.3% after spiking as high as 22.9%. VIX opened the week at 21.8% with minimal change for the holiday shortened week. That was surprising given the weakness of the market.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 187.51, down 1.8 points or 0.9% on the day and down 1.7% for the week. IWM stood out last week, finding support at the failed rally highs of November and December. That support level was broken yesterday.

The NASDAQ Composite index closed at 11,395 yesterday with a loss of 195 points or -1.7%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran below the 50 dma and steadily declined all week.

Last week, comments from two FOMC members and strong numbers from the CPI and PPI reports appeared to support the prospect that more rate hikes may be required to get inflation to subside. The PCE price index report this week reinforced that fear and led to more selling.
 
The S&P 500 index fell 2.0% this week; NASDAQ declined 2.1% and the Russell 2000 dropped 1.7%. Traders were closely watching the support levels established in December by the failed recovery highs. SPX broke that level last week; the Russell 2000 index broke down on Tuesday and NASDAQ broke down on Friday.
 
The market is selling off because it fears continued rate increases by the Fed will drive the economy into recession, the often cited “hard landing”. The next Fed announcement is scheduled for 3/22 and all evidence suggests another rate increase. The only debate is the amount. The March FOMC announcement will most likely trigger another sharp market decline. Is this month’s market decline the result of the large institutional players pulling back and hedging their portfolios in preparation for that announcement? Using the S&P 500 as our market proxy, a decline of 12% from Friday’s close would return to the lows around 3500 from last October.
 
That analysis only leaves us with questions: Will February give back January’s gains? Is the bear market that began in early 2022 beginning a new leg lower? The best course of action is to stay largely in cash and focus on long term 
ultra-conservative positions.

Details

Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 11 February 2023

Last Updated: 11 February 2023

Hits: 1240

The Standard and Poors 500 index (SPX) closed Friday at 4090, up 9 points on the day or +0.2%, but that didn’t save the week, ending down 0.7%. SPX broke resistance at 4100 last week and advanced to a high around 4200 on February 2nd before beginning the pull back that continued this week. This latest rally set a new resistance level a hundred points higher, but the bear market isn’t over yet. Trading volume was mixed all week, running just above and just below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, closed yesterday at 20.5% after opening the week at 19.2%. VIX spiked on Friday to 22% but pulled back into the close at 20.5%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 190.31, up less than a point on the day, but down 2.7% for the week. Unlike SPX, this latest IWM rally hit resistance around 199, the level set back in August by the failure of that rally. SPX never came close to its August levels. IWM found support on Friday at its January highs around 188.
 
The NASDAQ Composite index closed at 11,718 yesterday with a loss of 71 points or -0.6%. NASDAQ trended lower this week, losing 1.6%. NASDAQ’s trading volume ran above average three days this week before falling significantly below the 50 dma on Friday.

The FOMC announcement last week, coupled with the positive January Trifecta, seemed to bring the bulls back to the table, but that enthusiasm faded this week. The market broke out above the most recent rally highs last week but could not hold those highs and gave back all of those gains this week. On Friday, I entered bullish trades on ENPH and SLB. Both stocks were trading positively in the midst of a bearish market. Our AAPL diagonal spread is still in the black after a tough week.
 
This market remains solidly in its bearish posture, having quashed the latest bullish recovery. I am largely on the sidelines at this point.

Details

Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 18 February 2023

Last Updated: 18 February 2023

Hits: 1125

The Standard and Poors 500 index (SPX) closed Friday at 4079, down 11 points on the day or -0.3%. SPX opened the week at 4097 for a weekly loss of 0.4%. Resistance at 4100 was set by the failed rallies in December and that level was solidly broken with a high at 4195 on February 2nd. This week witnessed a rally attempt that made it to 4150 before faltering and closing well below support at 4100. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, opened the week at 21.7% and declined to 18.1% on Wednesday. Comments from a couple of the FOMC members on Thursday spiked volatility to 20.3%. VIX declined on Friday to close down slightly lower at 20.0%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 193.13, up 0.3% on the day, but up 1.4% for the week. IWM had a remarkable week, posting positive trading gains every day this week. In contrast to the S&P 500 index, IWM found support at the failed rally highs of November and December and steadily climbed higher this week.

The NASDAQ Composite index closed at 11,787 yesterday with a loss of 69 points or -0.6%. NASDAQ trended higher the first three days of this week but declined with the S&P 500 index on Thursday and Friday. NASDAQ’s trading volume ran below the 50 dma all week. Unlike SPX, NASDAQ remains well above the support levels of the failed rally attempts in November and December.

Comments from two FOMC committee members threw cold water on the market on Thursday, renewing fears that additional rate hikes are in store. Of course, the strong numbers from the CPI and PPI reports didn’t help. Those reports support the Fed’s case that more rate hikes may be required to get inflation to subside. The next Fed discount rate announcement is scheduled for March 22nd.
 
The most encouraging sign in the markets this week is the strength shown in the Russell 2000 this week. Those small to midcap stocks are the classic high beta stocks that the large funds tend to move into when they foresee a bullish market.
 
Trading volume has again fallen below the 50 dma. Note the spiking trading volume around February 2nd when the market broke through resistance to the upside. That money has returned to safety.
 
I will be watching the markets carefully on Tuesday for signs of strength. I noted the long lower shadows on the SPX and NASDAQ candlesticks for Friday. That often shows that traders sold off and drove prices lower but then met a group of buyers who found those prices attractive. We will see if that action follows through on Tuesday.
 
This market looks somewhat better than last week, but it is entirely too early to say the bear market is over. Stay vigilant.

Details

Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 03 February 2023

Last Updated: 03 February 2023

Hits: 1294

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.