Dr. Duke's Blog

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Written by Dr. Duke

Created: 25 May 2012

But then, that is what the optimist was heard to say as he passed the 10th floor after falling off the 80 story building! Markets traded largely sideways today until about 2 pm ET when the bears staged a raid. SPX fought back a bit but ended the day off $3 and closing at $1318. RUT closed down less than a dollar at $766. Trading volume fell off sharply - I guess everyone left early for the long holiday weekend. Trading in the S&P 500 fell to 2 billion shares and volume on the NYSE decreased 23%. Trading volume on NASDAQ dropped 27%. The VIX was basically unchanged at 21.8%.

The University of Michigan consumer sentiment survey came out at 79.3 for April; this is up a bit from March's 76.4 and is the highest level for this survey since October, 2007. But the market is focused on Europe so this data point was ignored.

The S&P 500 index has held pretty steady above support around $1305 - $1310 the past several days. If it were to break down through support, I would be watching the 200 dma at $1282 for the next possible support level. We have a long weekend with the possibility of market-moving news coming out of Europe some time before Tuesday morning's open. I left my hedges in place for any positions that were the least bit tight on the downside. My June iron condor on RUT at 690/700 and 880/890 is not hedged at this point; it stands at a net gain of $940 with delta = +$52 and theta = +$88 with 20 days left to go.

Enjoy your long weekend. Don't forget the true meaning of this holiday.

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Written by Dr. Duke

Created: 24 May 2012

 The S&P 500 Index started the day in positive territory but then moved into the red around noon and stayed there most of the afternoon. Then it scrambled out of the hole in the last thirty minutes and managed to close with a gain of $2 at $1321. RUT gained $1 to close at $767. All of this choppy trading occurred on lower trading volume with 2.9 billion shares of the S&P 500 trading (the 50 dma = 2.8B). Trading volume declined 11% on the NYSE and dropped 10% on NASDAQ. The last two trading sessions in SPX have seen long lower shadows on the candlesticks with closes near the session highs; in and of itself, this suggests some building of support. But this is still a precarious market; any news or even rumors out of Europe could send it tumbling.

The VIX dropped to 21.5% today, down from recent highs, but still at an elevated level. Take heed; be cautious.

Initial unemployment claims came in at 370k, down two thousand from last week. Continuing claims dropped 29k to 3.26 million. Durable orders increased 0.2% in April, an improvement from last month's 3.7% drop. So hard economic data for the states continues to muddle along - not terrible, but not great either. Traders are primarily focused on the events unfolding in Europe: will Greece leave the EU? What effects will that have on the global economy? Who is next after Greece? At best, Europe is in for some hard times; will that drag down the global economy? So far, institutional traders appear to be adopting the posture of "shoot first" and try to ascertain the facts later. That makes for a lot of volatility. Thus far, we aren't seeing the extremes of price volatility we saw last August, but who knows what tomorrow may bring?

My June iron condor position on RUT stands at a P/L of +$1,040 with position delta = +$43 and position theta = +$87.

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Written by Dr. Duke

Created: 23 May 2012

The futures were looking pretty bleak last evening, but the markets opened only slightly down this morning. However, the bears started pulling the major market indexes lower until around mid-day when buying pulled the markets up to recover most, if not all, of the earlier losses. SPX traded as low as $1297 before recovering to close at $1319, up $2 on the day. RUT closed $6 higher at $765. It appears like SPX is trying to establish support around $1290 to $1295 over the past four trading sessions. Trading volume bumped up modestly with 3.2 billion shares of the S&P 500 stocks changing hands. Volume on the NYSE was up 1% and trading on NASDAQ was up 4%.

New home sales for April came in at 343k, a gain of eleven thousand over March. The FHFA Housing Price Index increased 1.8% in March. It doesn't seem like we have had positive news in housing for some time. To be sure, these reports aren't worthy of fireworks, but the data does give us hope. Real estate fuels a large portion of this economy.

My June iron condor on RUT at 690/700 and 890/900 stands at a P/L of +$700 with delta = +$51 and theta = +$83. Is it safe to get back in the water? I would be very cautious. Bad news continues to flow out of Europe; future news reports could push us over the edge, searching for support down around $1265. If you are trading non-directionally, be careful to follow your rules and hedge yourself appropriately. If you are trading directionally, trade small and carefully.

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Written by Dr. Duke

Created: 22 May 2012

The markets opened up positively this morning, but afternoon trading took its toll. SPX rose as high as $1328, but pulled back to close at $1317, up $1. RUT lost $5 to close at $760. Trading volume was pretty flat with 2.9 billion shares of the S&P 500 trading today; Trading on the NYSE was up 9% but trading was flat on the NASDAQ.

Some cited existing home sales as the basis of today's strong open, but those came in at 4.62M for April, up modestly from March's 4.47M. Analysts expected 4.65M. The VIX dropped as low as 20%, but jumped back up in the afternoon to close at 22.5%.

My June iron condor on RUT stands at +$240 with position delta = +$57 and position theta = +$85. Are we bouncing back after this market correction, or is this just a pause before the next negative news flash comes from across the pond? I don't think the sovereign debt situation in Europe is anywhere near being resolved. So I am inclined to anticipate further declines at some point. Use caution.

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Written by Dr. Duke

Created: 21 May 2012

The markets rebounded strongly today with SPX running up $21 to close at $1316. RUT closed at $765, up $17. VIX pulled back to 22% today after being up over 25% intraday on Friday. Trading volume declined to 2.8 billion shares of the S&P 500. Trading on the NYSE was down 33% and trading volume on NASDAQ decreased 31%.

Today's move on SPX takes us back above the $1305 support level. But one day does not end a correction. There weren't any domestic economic data reports today, and, to my knowledge, we didn't get any new encouraging news out of Europe. So I'm not sure why the markets rallied today. Some positive comments came out of China over the weekend and that was said to have encouraged traders, but that seemed thin.

My June RUT 690/700 and 880/890 iron condor stands at a P/L of +$400 with delta = +$54 and theta= +$75. Now for the big question: can the markets trade upward two days in succession?

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Written by Dr. Duke

Created: 18 May 2012

There was a glimmer of hope in the markets this morning, mostly driven by the Facebook IPO, but then the bears started to take control once again. SPX closed down $10 at $1295 and RUT broke through its 200 dma and closed at $747, down $7. Today's close on SPX confirmed yesterday's break of support at $1305; now we look to about $1265 for the next support level. The 200 dma is at $1278. Even more bearish is the trading volume level which increased again today to 3.4 billion shares of the S&P 500; trading on the NYSE increased 23% and trading volume increased 30% on NASDAQ. Some of this volume increase can be attributed to options expiration, but I still see it as predominantly bearish.

VIX increased again today, closing at 25.1%. We aren't seeing the free fall of last August or the volatility swinging back and forth as it did then, but this correction is getting nasty. In fact, I started to wonder today if the trend has shifted. Perhaps it is the beginning of a bearish trend rather than a minor correction within a bullish trend.

The remaining 910/920 call spreads in my May iron condor will expire worthless with RUT settling at $753.60 (I closed the 720/730 put spreads yesterday). I hedged the June 690/700 and 880/890 RUT iron condor today with July 700 puts. This position closed today with a P/L = -$100 with delta = +$11 and theta = +$12. Our hedge will serve to hold losses to a minimum while we buy time for the index to either slow down and trade sideways or pull back. With the closing of our May position, the year to date results for the Flying With The Condor™ stand at +26% with the S&P 500 up 3% for the year. If SPX trades down to $1258, the market will have given up all of 2012's gains, but we are making money.

So now I put the hectic expiration Friday behind me and look to dig some holes to plant whatever my wife bought at Costco - I'm the unskilled labor this weekend. Enjoy.

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Written by Dr. Duke

Created: 17 May 2012

Sounds like we are dancing the limbo, doesn't it? Unfortunately, this isn't a harmless pastime, it's real money. SPX tumbled again yesterday after rising in early trading. SPX closed at $1325, down $6 and RUT gave up $5 to close at $772. Trading volume of the S&P 500 rose to 3.2 billion shares while volume dropped 1% on the NYSE and rose 7% on NASDAQ. SPX is nearing that congestion area of $1310 to $1320 of late January. We have now given up about half of 2012's gains. The most troublesome aspect of the chart the past two days is the fact that SPX hits highs during the day, but cannot hold anywhere near those highs. The bears are in charge. As I write this blog, the futures are basically flat, but those long upper shadows on the candlesticks of SPX the past two days are bearish signs. We may not have seen the bottom of this correction yet. Consistent with that view, VIX rose to 22.3% on Wednesday.

Most analysts see Greece leaving the EU, but analysts are divided on the effects of that eventuality on the global economy. And that uncertainty is driving the markets lower. European chaos is also strengthening the dollar and that increases the downward pressure on US markets.

My May condor on RUT stands at +$1,700 with delta = +$10 and theta = +$135. The put spreads remain outside of two standard deviations. The Jun condor stands at a net P/L of +$940 with delta = +$41 and theta = +$64.

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Written by Dr. Duke

Created: 15 May 2012

Today marked the second day that the bears took control around 2 pm and closed the markets near the lows for the day. This morning, the S&P futures were positive and the market opened up in positive territory, but it didn't last long. SPX closed down $8 at $1331, definitely breaking support at $1340. RUT lost $2 to close at $777 (too bad it isn't a slot machine). Trading volume bumped upward today with 3.0 billion shares of the S&P 500 trading. Trading on the NYSE was up 12% and volume on NASDAQ increased 10%. VIX rose as high as 23% and then closed at 22%. Today marked a ten session losing streak - where's the bottom? SPX hit a temporary high in late January around $1325 before heading higher - that is the most logical support level at this point. All in all, not a good day for the bulls: bears driving the market to lows at the close on higher volume - not good.

Most of the economic data was positive today, but that didn't seem to matter as much as worrying about Europe and Greece in particular. The CPI came in flat and the National Association of Home Builder's survey of members bumped up to 29 for May from April's 25. The Empire manufacturing survey came in stronger than expected at 17.1, up from 6.6 in April.

My May condor stands at a P/L of +$1,400 with delta = +$32 and theta = +$378. The put spreads remain well OTM at 720/730. The June position stands at +$840 with delta = +$35 and theta = +$75. Assuming the May spreads expire worthless, our year to date returns will hit just under 26%.

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Written by Dr. Duke

Created: 14 May 2012

The markets played out what has become the usual game plan up to a point today: the S&P futures were down last night, the markets opened downward this morning, and then started strengthening. But then the markets broke the pattern by selling off in afternoon trading, driving the closes to values near the lows of the day. SPX broke support and traded below $1337 this morning before rebounding. About 2 pm this afternoon, SPX reached $1347 and then sold off into the close at $1338, down $15. RUT closed at $779, down $11. This was not the usual bullish support pattern we have been seeing of late. On the other hand, trading volume fell off today, after being above the 50 day moving average for the past four sessions, it dropped below the 50 dma to 2.6 billion shares today. Trading volume was flat on the NYSE and down 4% on NASDAQ.

Support and resistance levels are a bit fuzzy, so it isn't obvious that SPX has broken the support level at $1340 with today's close. I felt better this morning, seeing SPX bounce back above $1340 after flirting with $1336. If the markets open weakly again tomorrow, we could be searching for the next support level - $1310? To continue that pessimistic thought, note that the VIX spiked up and closed at its high today of 21.9%. The big institutions are starting to hedge themselves and that worries me.

I find it interesting that only a few weeks ago, traders had decided the European debt problems didn't pose a problem for the global economy. Even when S&P downgraded Spain's debt by two categories, the markets yawned. But that has all changed. Now the sky is falling. Of course, the bungling over at J.P. Morgan doesn't help.

My May iron condor on RUT continues on toward expiration with a net gain of $1,280 with delta = +$37 and theta = +$315. Even with the recent market weakness, the put spreads at 720/730 remain well OTM; the delta of the 730 puts is 4. The June condor stands at a P/L of +$700 with delta = +$33 and theta = +$80.

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Written by Dr. Duke

Created: 10 May 2012

S&P futures were down significantly again last evening due to reports that China's exports were down for April. But somehow, by the time our markets opened this morning, the futures were back in positive territory. The recent intraday trading pattern was reversed today; it has been common for the markets to open down, trade farther down and then rebound to recover most of the losses. Today reversed that pattern - we opened higher, traded higher yet, but then gave back a large portion of those gains. SPX traded as high as $1366 before closing at $1358, up $3. RUT closed up $3 at $792. This price action is disconcerting; it suggests the bulls had control early in the day, but they couldn't hold it and the bears pulled it back down. This is basically the opposite of the price action of the past two days. The earlier pattern where the market trades downward, but is pulled back up, suggests the strengthening of support; today's action suggests just the opposite - as soon as the market traded higher, the bears took it back down. So don't let your guard down just yet.

Another interpretation of this price action is that this market is effectively in balance between the bulls and bears, which suggests some choppy sideways action until some news or event tips the market one way or the other. Trading volume declined today with 2.9 billion shares of the S&P 500 trading. Trading on the NYSE was down 16% and trading declined 3% on NASDAQ. The VIX declined to 18.8%, suggesting some lessening of tension, but still on the high side.

Initial unemployment claims for last week were flat at 367k and continuing claims declined 61k to 3.23 million.

My May iron condor stands at a gain of $1,260 with delta = +$31 and theta = +$133. The June position is up $1,220 with delta = +$16 and theta = +$72. Tomorrow I will run the Two Sigma Rule on the May position, but it looks like we will allow both spreads to expire worthless at this point - but that could change overnight!