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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 18 March 2015

Last Updated: 18 March 2015

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The Fed dropped the word, "patient", from their commentary about when interest rates will rise, and the market clearly liked what it heard. SPX ran upward $25 to close at $2100. RUT traded even higher to set a new all-time record at $1252, up $10. Accordingly, volatility contracted with the VIX dropping almost two points to a touch under 14%. Trading volume spiked higher with 2.6 billion shares of the S&P 500 stocks trading.  Trading volume rose 30% on the NYSE and was up 15% on NASDAQ.

I was surprised at the market's intense reaction to the FOMC announcement today. Removing the "patient' adjective would seem to suggest higher interest rates coming sooner, but traders didn't take it that way. The announcement included a downgraded assessment of the strength of the economy and projections of year end interest rates that were lowered from the last announcement. It now seems very strange that just a couple of weeks ago, the markets pulled back because of a fear that the jobs report was so favorable that the Fed would raise interest rates sooner. Trying to put the market on a rational basis that enables some predictability appears to be a difficult, if not impossible, task.

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 16 March 2015

Last Updated: 16 March 2015

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The markets roared back once again - how many times is this "buy the dip" strategy going to work? It will be painful when it doesn't. SPX gained $28 to close at $2081. RUT wasn't quite as enthusiastic, but then again, it didn't fall as far either. RUT closed at $1240, down $8. Volatility contracted a bit with the VIX dropping almost a half point to 15.6%. But it wasn't a super-enthusiastic rally. Trading volume declined  across the board with two billion shares of the S&P 500 trading and trading declined 5% on the NYSE. Volume also declined 8% on NASDAQ.

The Empire manufacturing survey came in at 6.9 for March, down from February's 7.8. Industrial production increased 0.1% in February, somewhat better than January's 0.3% decline. Capacity utilization dropped off a bit in February, from 79.1% to 78.9%. Housing starts and building permits issue tomorrow and then the big kahuna, the FOMC announcement, on Wednesday. Did traders get a hint of that announcement and that set off the rally?

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 17 March 2015

Last Updated: 17 March 2015

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Ho hum. I expected a slow day on the street today and I wasn't disappointed. SPX lost $7 to close at $2074, but RUT gained $2, closing at $1242. Volatility was unchanged with the VIX closing at 15.7%. Trading volume was anemic with 1.9 billion shares of the S&P 500 stocks trading. Trading volume was down 5% on the NYSE and up 1% on NASDAQ.

The only economic news for the day wasn't reassuring. Housing starts fell markedly in February, down to an annualized rate of 987k, down from 1081k. You might think this was weather related, but that was only part of the story; the decline was present across the country. Building permits held steady with 1092k in February, up a bit from last month's 1060k.

Tomorrow may be a volatile day in the markets with so much attention focused on the FOMC and the prospect of increasing interest rates. This topic has taken on "bogeyman qualities", with traders and institutions behaving as though the Fed will move interest rates from zero to 10% overnight and crash the economy. If you don't believe me, tune in to CNBC tomorrow afternoon and listen to the breathless commentary surrounding whether the word, "patient", is present in the announcement.

My April iron condor on RUT at 1110/1120 and 1310/1320 is delta neutral with delta = $1.50 per contract, and stands at a net gain of 7.3% with 30 days to expiration. We closed the March position last week, locking in a 9.5% gain.

Get your popcorn ready, tomorrow afternoon should be interesting. Or maybe it turns out to be a non-event. The market likes to fool us.

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 13 March 2015

Last Updated: 13 March 2015

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Once again, we see the market whip higher one day and then give it all back the next. It wasn't quite that bad, but it does wear on you. SPX closed down $13 today at $2053, after gaining $26 yesterday. RUT lost $5 to close at $1232. Volatility rose a bit with the VIX closing up 0.6 points at 16.0%. At the worst of it today, SPX did in fact give back all of yesterday's gains, but it recovered somewhat in the last hour of trading this afternoon. Trading volume was flat to slightly higher with 2.1 billion shares of the S&P 500 stocks trading today. Trading volume was up 7% on the NYSE, but flat on NASDAQ.

The Producer Price Index (PPI) came in with another negative number for February, -0.5%. This was not quite as bad as last month's -0.8%, but this consistent string of low to negative numbers is beginning to alarm economists who fear a deflationary environment, similar to what Japan has suffered through for the past ten or fifteen years. This probably comes in on the delay raising interest rates side of the Fed's scorecard. The University of Michigan's consumer sentiment survey continues to be pretty high at 91.2 for March, down from 95.4 in February.

I closed my March iron condor on RUT at 1050/1060 and 1290/1300 today, locking in a gain of 9.5%. Both spreads passed my Two Sigma Rule, but the swings of this market back and forth have me a little concerned, so I decided to lock in a nice gain and go to cash. My April position stands at a net gain of 5% today, but this position has more room for adjustments if they prove necessary, so I am more comfortable with that position.

Have a nice weekend. It is actually teasing us here in Chicago with almost warm weather - not really, but at least the snow is melting and I can see the sun.