Dr. Duke's Blog

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Written by Dr. Duke

Created: 12 November 2021

The Standard and Poors index (SPX) finally took a breather this week, closing today at 4682, up 33 points or 0.7%. SPX opened Monday at 4701 so the index was virtually unchanged for the week (down only 19 points). Trading volume has been lackluster this week, running at or slightly below the 50-day moving average (dma) all week. This level of trading volume is actually encouraging, since a spike higher on Tuesday and Wednesday as the market declined would have been much more bearish.

VIX, the volatility index for the S&P 500 options, closed today’s trading at 16.4%, virtually unchanged from last Friday’s close. VIX opened the week at 17.2% and spiked nearly to 20% on Wednesday before beginning a slow decline. The VIX divergences we observed last week did in fact predict the market’s decline this week, but fortunately it was not too severe.

The NASDAQ Composite index followed the other market indices this week, closing today at 15,861, down 0.8% for the week. NASDAQ posted a 1.0% gain in today’s trading to make up a large proportion of the week’s losses. NASDAQ’s trading volume ran above the 50 dma all week but declined to the average today.

The VIX divergences we observed last week did presage the pull back we observed this week, but it has proven minor thus far. Today’s strong market served to reassure many traders, including me. It is actually very healthy and normal for strong bull markets to take pauses or breathers as they rise. I am still left wondering about the absence of solid economic underpinnings to justify such a strong market. In spite of my doubts, my cash level decreased to 35% this week. I am doing my best to be selective in my trades but also take advantage of this bull market while I have the opportunity.

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Written by Dr. Duke

Created: 05 November 2021

The Standard and Poors index (SPX) set several new all-time highs again this week, closing the week at 4698 for a weekly gain of 1.9%. I don’t believe I have ever seen the S&P 500 index move so far and so quickly. It worries me. Trading volume has reinforced this bullish run, starting at the 50-day moving average (dma) on Monday and then exceeding the 50 dma all week.

VIX, the volatility index for the S&P 500 options, closed today’s trading at 16.5%. VIX opened the week at 16.9% and steadily declined until Thursday when it posted a small gain to close at 15.4%. Today, it moved up a little over one point to close at 16.5%. We call these VIX divergences when both the VIX and the S&P 500 index rise in the same trading session. VIX divergences are rare and here we see two in succession. The market often pulls back after a VIX divergence. It is as though the big players see dangers on the horizon and start to buy protection even as the market continues higher.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and that trading pattern continues. While the S&P 500 has moved up over 7%, it finally broke out of jail on 10/28 and has posted a strong run, setting several new all-time highs this week.

The NASDAQ Composite index is matching the performance of the S&P 500 index this week, setting a new all-time high every day and closing at 15972 today, up 2.8% for the week. NASDAQ’s trading volume ran above the 50 dma all week but declined to the average today.

When I look at the broad market indices, the S&P 500 index and the NASDAQ Composite, everything seems remarkably rosy. Even the Russell 2000 index has joined the “setting all-time highs” party. I have been concerned about this market for several weeks, simply because of marginal economic data that don’t support this booming market. The first VIX divergence posted yesterday when VIX and SPX both increased. Normally, these positive divergences, where the market is up, result in a market decline the next trading session. I think the extremely positive jobs report this morning set a very bullish tone, but that waned as the day wore on. Imagine my surprise this afternoon when I saw that we had posted another VIX divergence. I acted on that observation and closed several positions. I will relax a little more easily this weekend.

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Written by Dr. Duke

Created: 30 October 2021

The Standard and Poors index (SPX) set new all-time highs this week on Thursday and Friday, closing the week at 4605 for a weekly gain of 1.1%. It is hard to overstate how strong this recovery has been since the last pull back. Trading volume has reinforced this bullish run, starting below the 50-day moving average (dma) on Monday, but then exceeding the 50 dma in increasing magnitude all week.

VIX, the volatility index for the S&P 500 options, opened the week at 16.1% and closed Friday at 16.3%, essentially unchanged for the week. VIX moved higher Tuesday and Wednesday but declined over the last two trading sessions of the week. Historically, this level of volatility remains moderately high. Some are suggesting this represents low volatility based on the averages since the beginning of the pandemic. I continue to view this level of volatility with caution.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and that trading pattern continues. While the S&P 500 has moved up over 7% since the bottom of the pullback on October 4th and set two new all-time highs this week, IWM remains two percent below its recent high. IWM has not even recovered the high it set on Monday. The market’s high beta stocks are not leading this charge. This is bearish.

The NASDAQ Composite index is matching the performance of the S&P 500 this week, setting two all-time highs and closing at 15498 on Friday, up 50 points. NASDAQ’s trading volume ran above the 50 dma all week but peaked on Tuesday and declined thereafter.

The S&P 500 and NASDAQ are on fire, but the Russell 2000 continues to lag behind. When I read and listen to the daily news, I don’t come away optimistic and bullish on our economic future. But the markets are setting new all-time highs. This doesn’t seem consistent. I admit to a bit of stubbornness. I prefer to think of it as tenacity. I do not understand the economic underpinnings of this market and I remain very cautious. A correction appears to be a rational expectation.

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Written by Dr. Duke

Created: 22 October 2021

The Standard and Poors index (SPX) set a new all-time high on Thursday at 4550 and then traded sideways today, closing at 4544, down almost five points on the day. SPX had a strong week, gaining 81 points or 1.8%. The lowest close in this most recent pull back was 4300 on October 4th. That computes to a 5.7% gain in fourteen trading sessions. It may be significant that this strong rise of the market this month has occurred with trading volume for the S&P 500 companies remained largely below the 50 day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 17.3% and closed Friday at 15.4%. Although volatility declined this week, this level of volatility remains moderately high. Traders remain cautious.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and that trading pattern continues. While the S&P 500 has been trading strongly higher since October 4th, up almost six percent, and set a new all-time high yesterday, IWM remains almost one percent below its recent high on September 2nd. The market’s high beta stocks are not leading this charge.

The NASDAQ Composite index managed a weekly gain of 1.7%, but the chart tells a different story. Today’s close at 15,090, down 126 points, took NASDAQ nearly back to Tuesday’s open. Monday’s strong gain was essentially the week’s gain. NASDAQ remains 284 points or 1.9% below its recent all-time high of 15,374 on September 7th. NASDAQ’s trading volume did manage to spike up above the 50 dma yesterday and today, although today was a down day, so that wasn’t reassuring.

I have been reeling from this market’s choppiness this year. It seems like the market twitches every few weeks, trips my stops and hands me a small loss. As I watched the stellar rise of the S&P 500 this week, it caused me to wonder about the long term trend and whether this market makes sense. Is this overall market trend consistent with the growth of the U.S. economy? Both the Producer Price Index and the Consumer Price Index are setting new records. On a recent driving vacation my wife and I took south, we frequently would stop at a fast food restaurant to take a break and get a snack and coffee. The dining room was usually closed because they only had enough staff to serve the drive through window. Even the Fed’s Beige Book mentioned staffing shortages as a common problem for businesses. And many businesses didn’t survive the economic shutdown. One fast food restaurant near our house is offering a hiring bonus of $500. The Fed is printing money every month and Congress is setting spending records. When interest rates finally start to rise, the bill to service our national debt will quickly become a significant burden. Remember Greece a few years ago?

Perhaps this explains the twitchy market this year. And it may explain why both the Russell 2000 and NASDAQ are not following the S&P 500 and setting new highs. My conclusions for this week are relatively unchanged. I am setting tight stops and taking profits early. This is not a healthy bull market and I remain very cautious.

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Written by Dr. Duke

Created: 17 October 2021

The markets incurred another mini-correction of 5.2%, roughly over the month of September. This one was a bit more severe and longer lived than the earlier ones this year. The Standard and Poors index (SPX) closed Friday at 4471, up 33 points or 0.8% on the day. SPX had a very strong week, gaining 2%, recovering its 50 day moving average (dma), and gapping open higher on Thursday and Friday. We are a long ways from the last high set on 9/2, but it appears that the bulls are once again in control. Trading volume for the S&P 500 companies remained below the 50 dma all week but managed to move slightly above the average on Friday.

VIX, the volatility index for the S&P 500 options, opened the week at 20% and closed Friday at 16.3%. Historically, this level of volatility remains moderately high, although this has been the norm for 2021. Traders remain cautious.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months but followed the broad market higher this week and closed Friday at 225.16. However, that was a decline for the day when the S&P 500 motored strongly higher. On the other hand, IWM posted a 2.9% gain for the week, the best of the broad market indices. IWM has now recovered both its 50 and 200 day-moving-averages, but it is certainly not leading this bull market. That isn’t a good sign.

The NASDAQ Composite index wins the prize for the week with a 2.5% gain. NASDAQ closed Friday at 14,897, up 74 points or 0.5%. NASDAQ just managed to recover its 50 dma on Friday, so this index is still a bit wobbly. NASDAQ’s trading volume climbed steadily all week and finally recovered its 50 dma on Friday.

The choppiness of this market this year has worn me out. It seems like the market twitches every few weeks, tripping my stops and handing me a small loss. This is getting old. The increasing probability of an inflationary spike has the market on edge and this week’s CPI data exacerbated those fears.  Powell continues his attempts to calm the markets and write off the current price increases as an artifact of the disrupted supply chain. But the minutes from the last FOMC meeting came out this week and revealed that several members are beginning to question whether this inflation spike is really transient.

My conclusions for this week are relatively unchanged. The whipsawing of the markets over the last nine months is wearing me down. The decline of the Russell 2000 index Friday is a significant concern. This is not a healthy bull market and I remain very cautious.

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Written by Dr. Duke

Created: 24 September 2021

The Standard and Poors index (SPX) incurred eight mini-corrections earlier this year with each one displaying a similar pattern: trading down over 3 to 4 trading sessions and then sharply turning higher and recovering the previous high in only 3 to 4 trading sessions. Last week we saw the ninth mini-correction but the pattern changed this time. In all of the previous pull backs, the market bounced back in short order. The “buy the dip” strategy had a near perfect track record. I expect some traders were testing the water last week as they saw SPX appearing to find support at the 50 day moving average (dma). SPX gave us a wicked surprise on Monday, gapping open downward about thirty points and then losing nearly one hundred points before recovering about half of that loss by the market’s close.

SPX began to strengthen Wednesday and closed today at 4455, up 7 points or +0.2%. Today’s close recorded a gain of 1.2% for the week and left the index about 91 points below the previous high. Trading volume spiked higher on Friday and Monday but settled down at or below the 50 dma for the balance of the week.

VIX, the volatility index for the S&P 500 options, spiked on Monday’s severe decline to almost 29% before pulling back a bit. VIX closed at 17.8% today and that remains a rather high level of volatility. Monday’s severe drop acquired the institutional traders’ attention.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months but followed the broad market higher this week, and closed today at 223.05, essentially unchanged from today’s open. But IWM posted a 2.9% gain for the week, the best of the broad market indices. IWM also managed to recover both its 50 and 200 day-moving-averages this week.

The NASDAQ Composite index closed today at 15048, down 5 points, but managed a nice gain of 2% for the week. NASDAQ’s trading volume was above average on Monday but dropped back under the 50 dma for the rest of the week.

I have been wondering when the buy the dip strategy might not work, and that has proven to be true thus far. But the market has been posting some nice gains over the past three trading sessions, so it may just take longer for the recovery this time.

The market remains wary of a possible inflationary spike, but Powell continues his attempts to calm the markets and write off the current price increases as an artifact of the disrupted supply chain. The market was reassured this week that the Fed doesn’t foresee a need to increase the federal discount rate until late in 2022. That appeared to be the principal factor behind the bullish trading for the past three days.

My conclusions for this week are very similar to my mindset at the end of last week. The whipsawing of the markets over the last nine months is wearing me down. Much of the basic economic data are headed in the right direction, but inflation fears overwhelm everything. The strong gains of the Russell 2000 index this week were good news. But I remain very cautious.

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Written by Dr. Duke

Created: 17 September 2021

The Standard and Poors index (SPX) made the ninth mini-correction this year last week but the pattern changed. In all of the previous pull backs, the market almost immediately bounced back. The “buy the dip” strategy had a near perfect track record. SPX continued to weaken this week and even sold off near the end of today’s market – an ugly end to two ugly weeks. SPX closed at 4433, down 41 points or 0.9%. Trading volume spiked today, due to quadruple witching.

VIX, the volatility index for the S&P 500 options, closed today at 21%. This was the peak of the weakness last Friday, but the mini-correction still has life in it.

I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and has generally traded lower as we saw the broad market strengthen. That was the bearish advance signal for the past two weeks of trading. However, today was different. IWM closed at 222.48, up 0.29 or 0.1%. That is a small gain, but markedly different from the losses on the S&P 500 and NASDAQ. Perhaps there is hope for the bulls after all.

The NASDAQ Composite index closed today at 15044, down 137 points or nearly one percent. NASDAQ’s trading volume was above average through Wednesday but declined for the past two days.

We have now seen nine mini-corrections this year. Previous downturns only lasted a few days and then bounced back in a classic V pattern. I wondered whether the traders would come in to buy the dip one more time? The answer as of today is, “No, not yet.”

I think this week’s CPI report, documenting an increase of 5.3% over the past 12 months served to underscore inflation fears. The last two weeks of trading just reinforce my nervous attitude toward this market. Much of the basic economic data are headed in the right direction, but I think inflation fears overwhelm all else. The positive Russell 2000 prices today were essentially the only positive news this week.

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Written by Dr. Duke

Created: 12 September 2021

This wasn’t a banner week in the market and the losses accelerated Friday. The Standard and Poors index (SPX) closed at 4460, down 35 points or 0.8%. The holiday shortened week posted a dismal 1.7% decline. Trading volume rose slightly, but never touched the 50-day moving average (dma) this week.

VIX, the volatility index for the S&P 500 options, opened Tuesday at 17% and closed Friday at 21%. The pattern of a mini-correction roughly every month continues.

I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined once again this week, closing Friday at 221.62 for a 1% decline on Friday and a 2.7% decline for the week.

The NASDAQ Composite index set another high on Tuesday but declined the rest of the week, closing Friday at 15115, down 0.9% on the day and down 1.7% for the week. But NASDAQ’s trading volume surprised me, finally breaking its 50 dma on Friday (first above average break since July 20th).

I have previously noted the eight 
mini-corrections of 2-6% we have experienced this year. I guess we were overdue. Friday’s close on the S&P 500 marks a pullback of 1.7%. Previous downturns have ranged from 2% to 6%, only last a few days and then bounce back in a classic V pattern. Will traders come in to buy the dip one more time?

Fears of runaway inflation continue to haunt the market. However, Friday’s strong pullback appeared to be triggered by a court ruling that went against Apple and, by extension, may hurt Google as well. Will that be forgotten on Monday? This week just reinforces my nervous attitude toward the market this year. These mini-corrections of 2-3% plague conservative traders more than most because those stop losses are tighter. It is the basic nature of conservative trades – small potential returns with tight break-evens. I didn’t close as many positions in light of market weakness this week. I may regret that next week.

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Written by Dr. Duke

Created: 27 August 2021

Powell’s speech this morning calmed traders and sent the markets soaring. The Standard and Poors index (SPX) closed at 4509, up 39 points or 0.9%. Today’s run set another all-time high and completed the week’s track record with a gain of +1.3%. Trading volume never touched the 50-day moving average (dma) at any time this week.

VIX, the volatility index for the S&P 500 options, spiked into the mid-twenties last week as the market traded lower, but proceeded to decline this week and closed today at 16.4%. However, it would be a mistake to put your portfolio on autopilot and take a nap. This remains a nervous and twitchy market.

I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined severely in mid-July. IWM almost matched those July lows on August 19th while breaking down through the 200 dma. IWM has traded below the 50 dma since July 13th and flirted with that key moving average on Wednesday. IWM decisively broke out above the 50 dma in today’s strong market, closing up 2.8% at 226.41.

The NASDAQ Composite index broke out above its 50 dma last Friday and continued a strong run this week, closing today at 15,130, up 184 points or 1.2% for the day and up 3.8% for the week. NASDAQ’s trading volume has consistently run under the 50 dma since July 20th.

The overall market trends of the S&P 500 and NASDAQ have tracked higher this year, but it has been a rough ride. In eight months we have experienced eight mini-corrections of 2-6%. In each case the downturn only lasts a few days and bounces back in a classic V pattern. Many traders are betting on a strong economic recovery, but the fears of runaway inflation are weighing on the market. Powell’s speech at Jackson Hole soothed the market’s fears and caused a strong bullish run today. But it is anyone’s guess how long that lasts before we see another twitch. Historically, strong bull markets require the leadership of the small to mid-cap stocks, typical of the Russell 2000 index. I am encouraged by Russell's strong performance today and this week. Russell has an uphill climb to get back in sync with its big brothers, but this is the best it has looked all year. Maybe we are turning the corner?

I continue to trade cautiously. I started the week 70% in cash and ended the week at 62% cash. I was a little more aggressive this week, but I have too many scars from these
mini-corrections tripping my stops and then leaving me behind.

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Written by Dr. Duke

Created: 22 August 2021

The Standard and Poors index (SPX) appeared to bounce off support around 4389 on Thursday and closed Friday at 4442, up 36 points or 0.8%. SPX opened Monday at 4462, so it recovered much of the week’s losses and ended the week down 0.4%. Trading volume spiked above the 50-day moving average (dma) on Thursday but remained below average the rest of the week.

VIX, the volatility index for the S&P 500 options, opened the week at 17.1%, spiked up to an intraday high of 24.7% on Thursday and closed Friday at 18.6%. It appears the mini-correction is over, but I will be watching very carefully on Monday.

I plot the prices of the IWM ETF to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and declined severely in mid-July. IWM almost matched those July lows on Thursday while breaking down through the 200 dma. IWM bounced upward strongly on Friday, closing at 215.52, up 3.58 points or +1.7%. Even with Friday’s strong close, IWM lost 1.9% this past week. The Russell 2000 would have to gain 3.5% to regain its 50 dma.

The NASDAQ Composite index broke down through its 50 dma on Wednesday and didn’t recover that benchmark until Friday when it closed up 173 points at 14715. This resulted in a decline of 0.4% for the week. NASDAQ’s trading volume has consistently run under the 50 dma since July 20th.

The overall market trends of the S&P 500 and NASDAQ have tracked higher this year, but it has been a rough ride with frequent and sudden pullbacks. We are caught between bullish expectations for the economy’s recovery and the fear of inflation. The Russell 2000 chart is downright ugly. It is difficult to see the overall market continuing higher without the leadership of the small to mid-cap stocks. I continue to trade cautiously. I started the week 58% in cash and ended the week at 70% cash. This shift is primarily the result of my closing out this month’s Conservative Income positions. I was unwilling to roll them out to next week. I preferred the safety of cash for the weekend.