Dr. Duke's Blog

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Written by Dr. Duke

Created: 12 June 2012

The markets appeared to falter this morning, but then the bulls took charge and kept control through the close with markets closing near their highs for the day. SPX closed at $1324, up $15 after trading as low as $1307. RUT closed up $11 at $762. Trading volume was flat with 2.5 billion shares of the S&P 500. Volume on the NYSE was down 2% while trading volume on NASDAQ was up 7%. It appears that the resistance level to watch is around $1335 on SPX and the "falling out of bed" number is around $1275. For now, it isn't apparent which direction the market is headed. VIX dropped down almost two points to close at 22%, but that is still fairly high, suggesting a fair amount of tension in the markets at this point.

The main focus of traders appears to still be Europe and the developments there do not appear to be reaching any kind of definitive end. If traders are waiting for an "end" to the debt crisis in Europe, they will be waiting for quite a while. Will the next round of earnings announcements be a distraction? Or will the next earnings disappointment "pile on" to Europe and take the market south? Or will the Greek elections provide the catalyst for the big move downward?

My June iron condor is just about played out with a net gain of $1,840, delta = +$10 and theta = +$125. The maximum gain if both spreads expire worthless is $1,940 or 11% on the capital at risk. The July condor stands at +$1,660 with delta = -$18 and theta = +$56.

Perhaps the market is basically treading water until after the Greek election results? Should we close our positions this week? We should at least hedge any trades that are on the edge because next week could see some big moves.

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Written by Dr. Duke

Created: 11 June 2012

The news that the EU leaders had struck a deal to infuse additional cash into Spain's banks rallied the S&P futures significantly. Early this morning, it looked like the markets were likely to rally very strongly with at least a 10 or 20 point day on the S&P 500. But markets opened upward and abruptly turned downward. And it got pretty ugly during the last two hours of trading. SPX closed near its low for the day at $1309, down $17. RUT closed down $18 at $751. Trading volume was flat to slightly higher with 2.5 billion shares of the S&P 500 trading. Trading on the NYSE was up 8% and volume increased 6% on NASDAQ.

The VIX jumped over two points and closed at 23.6%. You might say this is closer to the "bad neighborhood".

My June iron condor on RUT at 690/700 and 880/890 stands at a P/L of +$1,800 with delta = +$32 and theta = +$297. Even after the dramatic loss on RUT this afternoon, the 690/700 put spreads are over two standard deviations OTM. If this late afternoon sell-off continues, we may be forced to close the put spreads after all. I had assumed they would expire worthless, but that isn't as clear now. My July iron condor at 610/620 and 750/760 stands at a P/L of +$1,420 with delta = -$3 and theta = +$61.

This is an extremely difficult market to trade. The intraday volatility is unnerving. Trying to discern a direction and trade it is nearly impossible as the market turns on a dime. A former neighbor is a big game hunter and he says one of the most dangerous game is the wild boar in Missouri and Arkansas. Apparently the boars stalk the hunters. It feels like this market is hunting the traders. Non-directional trading looks more and more attractive, but that isn't a cake walk either.

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Written by Dr. Duke

Created: 08 June 2012

The markets opened up tentatively this morning, but slowly built strength as the day went on. SPX closed with a nice gain of $11 at $1326. RUT gained $9 to close at $769. On the other hand, VIX ran as high as 23% before closing at 21.2%, so it's too early to relax. Trading volume fell off significantly with 2.5 billion shares of the S&P 500 trading. Volume on the NYSE dropped off 19% and trading volume on NASDAQ was down 15%.

The big question going into next week is news out of Europe over the weekend regarding assistance for Spain's sovereign debt issues. But it seems unlikely that anything definitive will be settled by Monday. But the jobs report from last week is still hanging over the markets. It's one thing to worry about Europe's effect on the global economy; it's quite another to speculate about the U.S. economy slipping back into recession.

My June iron condor on RUT passed its two sigma test today with both spreads over two standard deviations OTM. So I am leaving both spreads open and likely to go into expiration and expire worthless. The June position is now up about 10% and could expire worthless at 11% next week. The July position stands at a P/L of +$1,180 with delta = -$21 and theta = +$69.

So enjoy your weekend and try to forget about this crazy market until Monday.

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Written by Dr. Duke

Created: 07 June 2012

The markets were expecting good news from Bernanke as he testified before Congress this morning. The markets opened in positive territory and traded up as Bernanke testified. Interestingly, as this was going on, the VIX was also moving upward. That turned out to foretell the market's disappointment in Bernanke's remarks. Traders were expecting a promise of more quantitative easing, but Bernanke held his cards close and the markets retreated.

SPX traded as high as $1329 before retreating to close unchanged at $1315. RUT closed down $5 at $760. Trading volume also dropped off with 3.0 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE was off less than 1% but volume was down 7% on NASDAQ.

VIX closed the day down less than half of a point at 21.7% - still at anxious levels.

My June iron condor on RUT now stands at a net gain of about 9% with delta = +$26 and theta = +$104. Currently, the 690/700 put spreads are about two standard deviations OTM, so I may or may not close them tomorrow. The July RUT condor stands at a net gain of 7% with delta = -$14 and theta = +$66.

It appears we are on a cusp here: has the last couple of days been a brief short covering rally in an otherwise bearish trend downward? Or is the bullish trend resuming? It is too early to tell. Watch $1295 on SPX. If we close below there, watch out below.

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Written by Dr. Duke

Created: 06 June 2012

Rumors of another round of Fed easing and positive comments out of the ECB boosted markets today. In fact, the bounce back was so strong, it's worrisome. This reminds me of the volatility we experienced last fall: big up days followed by down days, etc. SPX closed at $1315, up $30. RUT closed at $765, up $19. Trading volume spiked up with 3.1 billion shares of the S&P 500 trading. Trading volume on the NYSE was up 20% and volume was up 10% on NASDAQ.

The market must have seen my blog yesterday when I said I would feel better if SPX broke the resistance levels at $1295 and $1305. Well, breaking through those levels in one session doesn't make me feel better - ironic, I know. Now I worry about this spike upward blowing out all of the shorts and then turning back down hard. Some calm sideways trading for a few days might ease my stress. The VIX dropped to 22% today, so we are definitely not yet out of the woods.

My June condor on RUT stands at a P/L of +$1,480 with delta = +$27 and theta = +$99. The Jul condor is up $860 with delta = -$23 and theta = +$73.
I will be watching the futures tonight and tomorrow morning, looking for clues...

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Written by Dr. Duke

Created: 05 June 2012

The markets staged a bit of a come-back today, but the trading volume was unenthusiastic. SPX closed near its session highs at $1286 for a gain of $7 and RUT gained $9 to close at $746. Trading volume declined across the board with 2.5 billion shares of the S&P 500 trading; trading on the NYSE dropped 14% and trading volume on NASDAQ declined 9%. The only real economic news of the day was the ISM Services Index which came in at 53.7 for May, up slightly from April's 53.5.

The big question is whether this is just a temporary rally before the market continues downward? One way to address that question is to look for significant resistance levels to be broken. On SPX, the first would be around $1295 where SPX appeared to bounce back upward in mid-May. The next level of resistance would be around $1305 from late January. If SPX can break through those levels with some volume, we could breathe a bit easier.

Today's rally prompted me to remove my hedges on the Jun condor; it now stands at a P/L of +$380 with a delta of +$71 and theta = +$172. The 690/700 put spreads are about 1.5 standard deviations OTM, but that doesn't feel very safe in this market. My July condor stands at a gain of $920 with delta = +$1 and theta = +$62. So the July position is almost perfectly delta neutral, but if the market rebounds strongly, those call spreads will be pressured next - if it isn't one thing, it's another!

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Written by Dr. Duke

Created: 04 June 2012

Traders pondered the question all weekend: is this the low of the correction or do we have more to go? A related question might be whether a new global recession is on the horizon, led by Europe's sovereign debt problems. SPX broke below the 200 dma Friday and really spooked the markets in the process. SPX opened up in the black this morning, but quickly turned south. But an afternoon rally brought the market back to close at $1278, up less than a dollar. RUT behaved similarly, closing flat at $737. The SPX candlestick today was the classic doji, but with a longer shadow to the downside. This principally an indicator of balanced trading between the bulls and bears, but the lower shadow holds out some hope that the bottom of this correction is being tested. The purists will quibble whether this candlestick should be termed a hammer; the bottom line is that the market traded downward very strongly this morning, but then the bulls showed up and started buying - a positive sign, but not definitive. Trading volume was down from Friday at three billion shares of the S&P 500, but still above the 50 dma. Trading on the NYSE was down 15% and trading volume was down 12% on NASDAQ.

Some news over the weekend could be interpreted as positive for the European debt issues, but the fact remains that the debt problems in Europe are much as they are here. No politician has the courage to touch them. But the markets are largely about perception and if European leaders appear to be saying the right things, the market may stabilize here.

My June iron condor on RUT is hedged with Jul 700 puts and stands at a net loss of $710 with delta = +$38 and theta = +$151. My July condor at 610/620 and 850/860 is up $700 with delta = +$8 and theta = +59. If RUT stabilizes here, the June position should be fine; in that case, our two sigma rule will likely close the put spreads on Friday. The July position is almost perfectly delta neutral; I built in a little extra safety margin to the downside and that has proven helpful.

Enter your bets in the office pool for the SPX low...

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Written by Dr. Duke

Created: 31 May 2012

Markets opened lower this morning as some disappointing economic news supplanted worries about Europe. SPX traded as low as $1299 before recovering to close at $1310, down $3 on the day. RUT lost less than a dollar to close at $762. Trading volume spiked upward with 3.1 billion shares of the S&P 500 trading. Trading volume increased 27% on the NYSE and increased 29% on NASDAQ.

ADP reported private payrolls increased by 133 thousand jobs - not great, but not terrible. Initial unemployment claims increased by ten thousand but continuing claims decreased by 36k. The Chicago PMI caused some heartburn by decreasing to 52.7 for May, down from 56.2.

Reports that the IMF is considering programs to help Spain with their debt crisis helped pull the market out of its tailspin. SPX appears to be establishing support over the past few sessions around $1295 to $1300 with those long lower shadows on the candlesticks, but this remains a dangerous, volatile market.

My June iron condor on RUT stands at a net gain of $980 with position delta = +$56 and position theta = +$133. The put spreads are about 1.5 standard deviations OTM and the call spreads are about three standard deviations OTM, so this position is looking pretty strong in spite of the ugly market conditions.

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Written by Dr. Duke

Created: 30 May 2012

Traders turned their attention to Spain's sovereign debt problems today and the markets gave back everything that was gained yesterday. SPX opened up in the red and drifted downward all morning; then it bounced along the bottom all afternoon, hitting lows near $1311. SPX closed just barely above those lows at $1313, for a loss of $19 on the day. RUT gave up $15 to close at $762. Trading volume remained low at 2.5 billion shares of the S&P 500 trading today, well below the 50 dma at 2.8B. Trading on the NYSE was up 4% but volume was flat on NASDAQ with an increase of less than 1%.

The VIX gapped up at the open and rose to 24.1%. This is close to the highs around 25% set about a week ago. To put this in perspective, VIX peaked just under 31% in mid-December when the bull market trend began that took us into 2012 so strongly.

My Jun RUT condor position stands at a P/L of +$1,140 with delta = +$51 and theta = +$107. The jobs report and GDP data later this week may turn traders' attention away from Europe, but I am doubtful. Spain is a much larger economy than Greece. This is getting serious.

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Written by Dr. Duke

Created: 29 May 2012

Traders took a break today from worrying about Greece, Spain and the European Union. SPX gained $15 to close at $1332, while RUT gapped up at the open and gained $11 to close at $777. Trading volume jumped up with 2.4 billion shares of the S&P 500 stocks trading; trading on the NYSE increased 19% and volume rose 28% on NASDAQ. However, much of that increase is explained by the low trading volume last Friday before the long holiday weekend. Trading in the S&P 500 remains well below its 50 dma.

The VIX was sounding a cautionary note with only a small drop to 21.1% - traders remain on guard.

A few positive signs have been seen in the real estate market the past few weeks, but the Case Schiller housing price index fell 2.6% in March - a smaller decrease than the previous month, but still the wrong direction. The Conference Board released their consumer confidence figures for May today; they dropped from 68.7 to 64.9 - not a good sign. Many analysts track this number since consumer spending is such a powerful factor in the economy.

Today's strong move upward for RUT pushed my June iron condor at 690/700 and 880/890 close to its maximum gain of $2,640 or 15% with about two weeks to go to expiration.