Dr. Duke's Blog

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Written by Dr. Duke

Created: 17 September 2022

This was a seriously negative week for the markets. The Standard and Poors 500 index (SPX) closed at 3873, down 28 points or -0.7%. SPX opened the week at 4084, so this close represented a decline of 5.2% for the week. Trading volume spiked higher Friday to 4.4 billion shares, double the 50-day moving average (dma) at 2.2 billion shares. The last time trading volume spiked this high was during the lows in mid-June. Is that level around 3640 the next stop?

VIX, the volatility index for the S&P 500 options, opened the week at 23.6% and closed yesterday at 26.3%. Given Friday’s market decline, I am a bit surprised VIX has not moved higher. Perhaps the large institutional players are already hedged.

The NASDAQ Composite index posted the largest decline of all of the major stock market indices this week, closing Friday at 11,448 , down 104 points or 0.9% on the day and down 6.0% for the week. NASDAQ’s trading volume also spiked Friday, hitting 7.5 billion shares as compared to the 50 dma at 4.7 billion shares.

The decline started by Powell’s Jackson Hole speech on 8/26 continued this week. The S&P 500 broke support at 3925; the next weak support level is at the May low of 3812. Then we are looking at another weak support level at 3727 before we test the June lows around 3640.
 
The next FOMC meeting is scheduled for next week with the rate announcement on 9/21. The consensus expectation of market analysts is for a third 75 basis point rate hike. How will the market respond? Is the expected rate hike priced into the current market prices or will the market continue to track downward toward the June lows?
 
Friday’s market decline of the order of five to six percent was accompanied by a trading volume spike. All of the price volatility up and down over the past couple of months occurred at average or below average trading volume. I doubt that Friday was the classic capitulation volume surge marking a market low, simply because the major market event everyone is talking about remains three days in the future.
 
My counsel is unchanged from last week. Stay on the sidelines until after the September FOMC announcement. Even then, don’t jump too soon; allow the market to digest the news. We could break that June low…

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Written by Dr. Duke

Created: 10 September 2022

The Standard and Poors 500 index (SPX) finally found support and began to trade higher this week, closing Friday at 4,067, up 61 points or 1.5% on the day, and up 3.5% for the shortened holiday week. Trading volume continues to run along the 50-day moving average (dma) and closed below average on Friday.
 
VIX, the volatility index for the S&P 500 options, declined 11% this week, opening the week at 25.5% and closing Friday at 22.8%. In spite of this week’s decline in volatility based on three positive trading sessions, we will have to continue this bullish run much farther before returning to the 19% volatility levels of mid-August before this latest decline began.

I track the Russell 2000 index with the IWM ETF. As one might expect, IWM outpaced the blue chips this week. IWM closed Friday at 187.40, up 2% on the day and up 3.7% for the week.

The NASDAQ Composite index fell between the S&P 500 stocks and the Russell 2000 stocks this week, closing Friday at 12,112, up 250 points or 2.1% on the day and also up 4.0% for the week. However, NASDAQ’s trading volume remained below the 50 dma all week.

Powell’s comments at Jackson Hole on 8/26 started the decline that finally found support this week. However, three data points do not make a trend. Remain cautious.
 
The S&P 500, NASDAQ, and the Russell 2000 all posted very similar chart patterns this week, trading down after the holiday weekend, but then consistently higher each of the remaining three days of the week. Now the market waits for the next FOMC meeting on September 20-21. The consensus appears to be settling at a third 75 basis point rate hike and the market appears comfortable with that prospect. Personally, I don’t understand the apparent change in perception for a lower probability of a “hard landing” for the economy. The seemingly unending debt spiral of our government will have unpleasant consequences and both political parties are on board this train. Remember Greece? We are currently at those levels of debt to GDP.
 
I continue to think it wise to limit your exposure to this market until after the September FOMC meeting. I have had success with short term earnings trades on GME and DOCU and opened the AAPL iron condor for newsletter subscribers. I also opened an OTM Jan 2023 call butterfly on LNG to play the increasing price of natural gas. However, I remain largely in cash.

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Written by Dr. Duke

Created: 02 September 2022

The Standard and Poors 500 index (SPX) put in a tough week, declining 2.8% with a close today at 3924, down 42 points on the day or almost three percent. Trading volume spiked up above the 50 day moving average (dma) midweek but declined back below average today. This bearish pullback for August was almost entirely carried at below average trading volume. This suggests that the large institutional players are not convinced that it is time for wholesale closing of large portions of their holdings.

VIX, the volatility index for the S&P 500 options, moved over a wide range today, opening this morning at 25.6%, declining to 23.2% as the market traded higher this morning, and then closing at 25.5% after this afternoon’s selloff.

I track the Russell 2000 index with the IWM ETF. This was a rough week for IWM dropping nearly four percent on the week. IWM closed today at 180.09, down 0.8%. IWM found support yesterday and again today at 178.50, the lows of 
mid-July.

The NASDAQ Composite index was no exception to the selling pressure this week, closing 154 points to 11,631. Today’s close ended the week down 3.2%. NASDAQ’s trading volume remained below the 50 dma all week and declined even a bit further during today’s sell off.

The markets ended their recovery on August 17th and tried to recover a few days later, but Powell’s comments at Jackson Hole last Friday started a new downward trend, down over 8% through today’s close. The S&P 500, NASDAQ and the Russell 2000 all posted very similar chart patterns this week, with their intraday lows on Thursday and Friday finding support at nearly the same prices. That observation, together with lower trading volume may signal a slowing of this recent trend lower. Perhaps we will trade roughly sideways until the Fed meeting.
 
Consensus on the street was looking for the Fed to slow or even end its rate hikes for 2022, but Powell’s comments have shifted that consensus to an expectation of another 75 basis point move at their next meeting on September 20-21. Market participants are worrying about a “hard landing” for the economy, and by extension, much lower stock prices.
 
I think it wise to limit your exposure to this market until at least after the September FOMC meeting. A few exceptions may be found in the oil and gas sector, e.g., CVX and LNG. Watch your trades closely, if you trade at all.

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Written by Dr. Duke

Created: 28 August 2022

The Standard and Poors 500 index (SPX) fell out of bed after Powell’s remarks Friday at Jackson Hole. SPX closed down 141 points at 4,058, down 3.4% for the day and down 3.2% for the week. However, the S&P 500’s trading volume remained below the 50 day moving average (dma) all week. Even Friday’s decline didn’t spike a significant increase in trading volume.

VIX, the volatility index for the S&P 500 options, opened the week at 22.4%, declined to 21.8% on Thursday, but then spiked up to 25.6% on Friday.

I track the Russell 2000 index with the IWM ETF. IWM closed at 188.98 on Friday, down 3.2% on the day but down much less on the week at -1.6%. Earlier in the week, IWM appeared to find support at the 2021 lows, but Friday broke that support level.

Similar to the other broad market indices, the NASDAQ Composite index closed at 12,142, down 498 points or four percent for the day and down three percent for the week. NASDAQ’s trading volume remained below average all week and didn’t even reach the 50 dma on Friday after Powell’s speech rattled the market.

The markets essentially traded sideways this past week until Friday when traders hit the sell button after Powell’s remarks appeared to suggest plans to continue rate hikes that could cause consumers and businesses significant pain.
 
Friday’s market decline was significant, but trading volume remained weak and generally below the 50 dma. Monday’s follow through will be instructive. Unless we see a bounce or at least a sideways move Monday, I will be moving further into cash.

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Written by Dr. Duke

Created: 19 August 2022

The Standard and Poors 500 index (SPX) hit resistance at the 200-day moving average (dma) on Tuesday and steadily declined to close today at 4228, down one percent for the week. However, the S&P 500’s trading volume remained below the 50 dma all week. Today’s decline triggered a small increase in trading volume.

VIX, the volatility index for the S&P 500 options, opened the week at 20.7%, declined a bit but then rose today to close the week at 20.6%. It may be a minor observation, but VIX peaked at 21.3% today and pulled back a bit to close the week. Closing at the low of the day for a stock or index is often worrisome while pulling back from an intraday low is encouraging. In the same way, VIX is most concerning when it spikes and closes at its high for the day.

I track the Russell 2000 index with the IWM ETF. IWM gapped open lower this morning and closed down 2.2% at 194.65. Historically, the small to mid-cap stocks lead both market rallies and bearish pull backs and that certainly played out this week with a strong decline for IWM.

The NASDAQ Composite index gapped open lower this morning and closed at 12,705, down 260 points or two percent for the day and down 2.2% for the week. NASDAQ broke another resistance level on Friday around 12,985 that was established back in early May. NASDAQ’s trading volume declined all week.

The bullish trend triggered by the FOMC announcement two weeks ago hit resistance this week and began a modest decline. The Russell 2000 broke out above its 200 dma and then pulled back. The S&P 500 index bounced off its 200 dma, but NASDAQ did not even approach its 200 dma before pulling back.
 
Trading volume remained weak and generally below the 50 dma during this entire bullish streak. Above average trading volume accompanying a bullish or bearish trend is always a strong endorsement of the trend.

I will be maintaining a cautious stance this week, but I guess that is nothing new for me.

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Written by Dr. Duke

Created: 13 August 2022

This month’s CPI and PPI reports encouraged traders and the Standard and Poors 500 index (SPX) gapped open on Wednesday and traded higher to close Friday at 4280, up 3% for the week. However, the S&P 500’s trading volume declined steadily all week, remaining below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 21.7% and closed Friday at 19.5%. VIX has been steadily trending lower since its recent peak in June. Friday’s close is the lowest level of volatility since April.

I track the Russell 2000 index with the IWM ETF. IWM closed at 200.36 Friday, up 4.01 points or 2.0% on the day and up 4.3% for the week. Friday’s gain broke through the 200 dma. Historically, the small to mid-cap stocks lead market rallies and that certainly played out this week with a strong run for IWM.

The NASDAQ Composite index closed Friday at 13,047 , up 267 points or 2.1% for the day and up 2.7% for the week. NASDAQ broke another resistance level on Friday that was established back in late April and early May. NASDAQ’s trading volume ran at or above the 50 dma all week but fell below average on Friday.

The current bullish trend began after the FOMC announcement two weeks ago and was fueled by a strong jobs report for July. The market paused for the CPI and PPI reports this week and traded strongly higher based on signs of a slowing rate of inflation. All of the broad market indices have now broken through the highs of the failed June recovery.

I will be actively looking for bullish trade candidates this week.

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Written by Dr. Duke

Created: 07 August 2022

The Standard and Poors 500 index (SPX) barely held onto a sideways trend last week, closing Friday at 4145, down 6.75 points. The week opened at 4112, so we maintained a positive return for the week at +0.8%. The S&P 500’s trading volume remained below the 50 day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, opened the week at 22% and closed Friday at 22.4%. Volatility continues to decline, but I remain on alert.

I track the Russell 2000 index with the IWM ETF. IWM closed at 190.80 Friday, up 1.45 points or 0.8% on the day and up 3% for the week. Friday’s gain broke through the resistance level set by the June recovery high at 190.

The NASDAQ Composite index closed Friday at 12,658, down 53 points or -0.5%, but remained up almost 3% for the week. NASDAQ broke through its failed June recovery high on 7/29 and confirmed that over the last three days of last week. NASDAQ’s trading volume climbed Wednesday and Thursday, but dropped below the 50 dma on Friday.

The post-FOMC bullish trend continued last week, in part fueled by a strong jobs report on Friday. NASDAQ broke through the highs of the failed June recovery on 7/29 and was joined by the Russell 2000 on Friday. However, that resistance level is still holding for the S&P 500 index and the Dow Jones Industrial Average.
 
The administration continues to try to tell us we are not in a recession, but the facts are clear. Two subsequent negative growth rates in GDP have always been considered the basic definition of a recession. I see no signs of inflation abating anytime soon. The CPI numbers will be reported on Wednesday. That report will be critical to a continuation of this market’s bullish trend.

I am carefully picking a few trades that take advantage of the bullish trend, but I remain cautious and will close or hedge several positions in advance of the CPI report on Wednesday morning.

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Written by Dr. Duke

Created: 29 July 2022

The Standard and Poors 500 index (SPX) put up a very bullish chart after the FOMC announcement on Wednesday, closing higher and finishing the week up over 4%. SPX closed today at 4130, up 58 points or 1.4%. SPX has yet to break above the failed June recovery high. The S&P 500’s trading volume climbed every day this week and broke above the 50-day moving average (dma) on Thursday.

VIX, the volatility index for the S&P 500 options, opened the week at 24% and closed today at 21%. That decline is certainly a welcome move, but color me nervous.

I track the Russell 2000 index with the IWM ETF. IWM followed the other indices higher after the Fed announcement. IWM closed at 187.25 today, up 1.32 points or 0.7% on the day and up 4% for the week. However, IWM remains nearly two percent below the failed June recovery high at 190.

The NASDAQ Composite index followed the lead of the other broad market indices today, closing at 12,391, nearly two percent higher on the day and almost 5% higher for the week. NASDAQ broke through its failed June recovery high today. NASDAQ is the only broad market index to achieve that mark. NASDAQ’s trading volume climbed all week but remains below its 50 dma.

Several analysts have declared that we have seen the market bottom and the bullish trend is returning. This week’s post-FOMC run was impressive and the markets have recovered their 50 day moving averages. Although NASDAQ has broken through the highs of the failed June recovery, the S&P 500, the Russell 2000 and the Dow Jones Industrial Average remain short of that high.

I found it surprising that Powell’s comments on Wednesday, explaining the need for two sequential 75 basis point discount rate hikes, rendered Thursday’s second negative GDP number inconsequential. The market consensus appears to be that Powell has taken strong action against inflation and the Fed will now wait patiently to see the rate hikes take effect. Therefore, happy days lie ahead and the bulls will take charge. Ignore that pesky GDP number.

The next FOMC meeting is in late September. I had a horrible thought as I looked at the calendar. What if the Feds announce another rate increase in September, bursting the current expectation that they were done raising rates? That surprise would occur just in time for October, the month of nasty market crashes.

The Covid lockdowns destroyed small businesses in this country. I believe that is core to the weak GDP numbers. I see no signs of inflation abating anytime soon. I hope I am wrong, but I fail to see the underlying economic strength necessary for a bullish stock market.

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Written by Dr. Duke

Created: 23 July 2022

The Standard and Poors 500 index (SPX) initially traded higher yesterday, but then retreated, closing down 37 points at 3962 for an decline of nearly one percent. But the week remained positive, trading up 2% from the week’s open at 3884. The S&P 500’s trading volume remained below the 50-day moving average (dma) all week. Lower than average trading volume remains a negative factor for this market.

VIX, the volatility index for the S&P 500 options, closed down yesterday at 23%, down over 7% for the week. Volatility seems to be on a see saw, remaining in the mid-twenties plus or minus a couple of points week after week. To my mind, that connotes nervous institutions.

I track the Russell 2000 index with the IWM ETF. IWM declined yesterday, closing at 179.51, a decrease of nearly two percent. But IWM remained up by 2.5% for the week. IWM finally recovered its 50 dma this week.

The NASDAQ Composite index followed the lead of the other broad market indices yesterday, closing down 226 points at 11,835, nearly two percent lower. NASDAQ finally recovered its 50 dma this week. NASDAQ’s trading volume remains below its 50 dma.

The markets have recovered much of the previous losses and have finally recovered the 50 day moving averages, but we are far from where we started the year. Traders are worried about the effects of increasing inflation on the economy on the one hand and equally worried about the Fed raising interest too far and too fast and possibly pushing the economy into recession.
I remain largely in cash; my only longer term trades are the SPX condors of the Flying With The Condor™ service, up 25% this year. The calendar spread we opened on AAPL to play the implied volatility rise in advance of its earning announcement worked out very nicely.

I remain cautious. Don’t expose too much capital to this market.

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Written by Dr. Duke

Created: 15 July 2022

The Standard and Poors 500 index (SPX) gapped open and traded higher today, closing up 73 points at 3863 for an increase of 1.9%. That almost made up for the losses from earlier in the week, resulting in a weekly decline of 0.5%. Trading volume increased this week but remained below the 50-day moving average (dma). Below average trading volume remains a negative factor for this market.

VIX, the volatility index for the S&P 500 options, closed down over two points today at 24.2%, down over 8% for the week. Volatility seems to be on a see saw, remaining around 25% at best week after week. To my mind, that connotes nervous institutions.

I track the Russell 2000 index with the IWM ETF. IWM gapped open and rose today, closing up at 173.09, a 2.1% increase. But IWM remained down over 0.7% for the week. IWM remains well below its 50 dma.

The NASDAQ Composite index followed the lead of the other broad market indices today, closing up 201 points or nearly two percent higher, but is down almost one percent for the week. NASDAQ, like all of the broad market indices, remains well below its 50 dma. NASDAQ’s trading volume was flat this week and well below its well 50 dma.

We seem to be just chopping sideways at this point. The bulls and bears are relatively well balanced. Inflation remains a central concern but the Fed’s moves to raise interest rates as the cure for inflation is another major worry for traders. This week’s CPI and PPI numbers continue higher and the FOMC’s July meeting will almost certainly raise the discount rate; it is only a matter of how much. Will the Fed cure inflation by causing a recession?

I remain largely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I opened a calendar spread on AAPL to play the implied volatility rise in advance of its earning announcement on 7/28. That is working out very well for us.

I remain cautious. It is safer on the sidelines.