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- Written by Dr. Duke
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- Hits: 1976
Waiting on the Fed. I don't recall any time in my long history of trading that I have heard that phrase more often. On the other hand, I can't think of another time in history when the Fed was so intertwined in our markets. But that is the reality; we are anxiously awaiting the FOMC announcement to see if the Fed has decided to start the slow tick higher of interest rates. Then the question will be the market's reaction. Everyone has an opinion, but those pronouncements are really just guesses. Higher interest rates normally slow down the economy since it effectively increases the cost of capital. But a quarter or half point increase from here doesn't seem like it would hinder much in the economy. One could argue that an interest rate hike has been priced into this market for some time, so it shouldn't have a devastating effect. One could even reason that a rate hike would be taken as an endorsement of the state of the economy and the market would trade higher. Who knows? So we wait on the Fed.
SPX closed down $8 at $1953 today and RUT lost $4 to close at $1153. Volatility increased a bit with the VIX closing one point higher at 24.2%.
Trading volume fell way off with only 1.8 billion shares of the S&P 500 stocks trading; the 50 dma is 2.4B. Trading volume on the NYSE dropped 5% and volume fell 13% on NASDAQ.
Today's low volume, sideways to lower trading will probably be typical until Thursday afternoon. Even then it will be at least 24 hours before we see the full effect on the stock market. Sometimes traders have to read the announcement and sleep on it before they are convicted of a course of action. If you are on the sidelines, don't jump too quickly on Thursday. In fact, I don't plan to make a move until Friday or possibly even Monday.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1926
The markets opened positively this morning, but started weakening in the early afternoon and ended the day in negative territory. SPX lost $27 to close at $1942 and RUT closed down $14 at $1148. The VIX rose over one point to 26.3%. Trading volume was flat to slightly higher with 2.3 billion shares of the S&P 500 stocks trading (down a bit from yesterday), but the NYSE trading volume rose 5% and trading on NASDAQ rose 4%.
The JOLTS job openings for July increased from 5.323 million to 5.753 million. There wasn't any other significant economic news. Apple's announcement of new iPhone and iPad models didn't seem to excite investors as Apple traded lower. Maybe it was just following the overall market. Oil prices pulled back and that may have contributed to market weakness. It is hard to say. This is a nervous market; it doesn't take much to move it.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2001
Maybe it isn't too safe to jump into this market. Analysts are telling clients that many excellent stocks should be snatched up at what they regard as bargain prices. That may be true, but the time frame is the question. How long before the market bounces and I make money on these investments if I jump today? I am inclined to think we have hit the bottom, but we could wander sideways with days like today for some time before this market stabilizes. In fact, it seems likely to me that we won't see a clear direction higher or lower until after the FOMC meeting in a couple of weeks. It is hard to buy confidently with the Fed's actions a mystery.
SPX lost $30 to close at $1921. RUT traded down as well, closing at $1136, down $9. That marked a 1.5% decline for SPX, but only -0.8% for RUT. RUT is normally the "risk off" index. Should I be encouraged?
Trading volume also declined again today with 2.2 billion shares of the S&P 500 stocks trading. Trading on the NYSE declined 6% and volume dropped 13% on NASDAQ. Trading volume has been declining pretty steadily since August 24th. I find that encouraging; declining trading volume isn't a sign of traders in a panic and selling before the impending collapse. However, traders are concerned and at least somewhat fearful as indicated by the VIX moving up over two points today to 27.9%. The VIX spiked to over 53% on 8/24, but has declined since then. But a VIX level of 28% can't be ignored.
The jobs report contained mixed signals with a weak jobs number of 173k, but a lower unemployment rate of 5.1%. And the labor force participation rate stayed flat so this decline didn't just reflect people giving up and leaving the labor force. Will that lower unemployment rate push the Fed to move on interest rates?
The last couple of weeks have been stressful for traders. I hope you can put this all aside and enjoy a nice long holiday weekend. Labor Day is an important celebration. The American work ethic has formed the foundation of our prosperity, coupled with the freedom to take risk and compete. Relax and pat yourself on the back. You deserve it.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2026
Fears about China appeared to take a back seat and the markets traded back rather strongly with SPX gaining $48 to close at $1969. RUT gained $26 to close at $1162. And volatility pulled back quite a bit with the VIX closing at 24.8%, down three points today. Trading volume was slightly higher with 2.3 billion shares of the S&P 500 stocks trading, but this remains slightly below the 50 dma at 2.4B. Trading volume rose 5% on the NYSE and rose 10% on NASDAQ.
SPX opened higher this morning, in line with higher European markets today, and then basically traded sideways until about 1:30 pm ET, when SPX began to trade higher, closing the session at $1969, nearly its high for the day ($1970). That was pretty bullish chart action, but was missing the strong trading volume one would like to see confirm that bullish trading. SPX closed twenty dollars shy of its recent high after the crash, but RUT's close was within one dollar of its post-crash high.
I jumped back into the market after the crash and split my October put spreads on RUT between 950/960 and 1040/1050. Both spreads are now profitable. The lower spread is quite safe, but the 1040/1050 spread could require hedging if the market tests support again. A series of re-tests of support after a strong correction is common historically. But last October's correction was followed by a straight-up recovery. V-bottoms seem to be the new normal. But the jury is still out on this correction.
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- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1961
After spooking us yesterday, the markets are tempting us to jump back in today. SPX gained $35 to close at $1949. RUT closed up $18 at $1146. Trading volume pulled back across the board with 2.4 billion shares of the S&P 500 companies trading today. Trading volume on the NYSE declined 12% and volume also declined on NASDAQ, down 18%. Volatility pulled back with the VIX dropping to 26.1%, down a little over five points.
Let's recap. The closing low on SPX last Tuesday was $1868. Then SPX rebounded strongly, trading as high as $1993 just three days later on August 28th. Just as we relaxed a bit, the markets did what they do best and surprised us with another move lower, trading down to $1914 at yesterday's close, and hitting that close on higher volume - not a good sign. But today, the bulls stepped back in and pushed SPX back higher to a close at $1949. Can we say the correction is over? I don't think so. I will feel much more confident once SPX trades and closes back above last Friday's close $1989.
I think we remain in classic "no man's land" as long as SPX remains between the low of 8/25 at $1868 and the intermediate high of $1989 last Friday. One likely scenario is that we trade within that range until after the FOMC meeting later this month. In the meantime, err on the side of caution; protect your downside.
