Dr. Duke's Blog

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Written by Dr. Duke

Created: 06 November 2015

The jobs report was surprisingly good this morning with 271 thousand jobs and a slight reduction in the unemployment rate, down to 5.0%. However, the Labor Force Participation Rate sunk to a new low as people continue to give up on looking for work. The markets opened weaker after the jobs report, presumably because traders fear this will result in an interest rate hike in December. However, SPX strengthened as the day wore on, closing down one dollar at $2099. RUT actually traded stronger than SPX for a change, rising $9 to close at $1200. But RUT remains relatively low as NASDAQ and SPX near their all-time highs. RUT must grow 8% before it can reach the high set in June. But SPX and the NASDAQ Composite are only one percent off of their highs.

The VIX pulled back almost a point to 14.4%. Trading volume increased today with 2.6 billion shares of the S&P stocks trading. Trading volume rose 10% on the NYSE, but rose only 1% on NASDAQ.

SPX is nearing its all-time high around $2130, but the economic data and the results of the latest cycle of earnings announcements don't appear to be sufficiently positive to push the market to new highs. And the markets appear to be slowing down as we move closer to those highs. As I wrote on Wednesday, another V-bottom has now been entered into the record books. SPX gained over 12% in October!

Enjoy your weekend.

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Written by Dr. Duke

Created: 04 November 2015

SPX backed off a bit today, trading down $7 to close at $2102. RUT was essentially flat, down one dollar at $1190. I was surprised to see volatility bump up a full point today with the VIX at 15.5%. Trading volume was flat with 2.4 billion shares of the S&P 500 stocks trading today. Trading on the NYSE was down 1% and trading volume increased 4% on NASDAQ.

The NASDAQ Composite is now at the high set in June and about one percent off of the all-time high set in July. SPX is about thirty points off of its all-time high set in June and then reaffirmed in July. RUT has been the laggard. RUT has not even made it back up to the 200 dma. Ever since the correction low was retested in late September, SPX has been on an incredible run, up $228, or 12% in about a month! Even more surprising, this run has occurred in the midst of almost nonstop news of China's slowdown, evidence that we can't trust China's numbers, and the global economic slowdown that is bound to follow China's decline. Apparently, the Fed's support is a more powerful tonic for the markets.

This strong recovery off of the correction books one more V-bottom, a phenomenon that once would have been considered unusual, but no more. SPX is now running along the upper edge of its Bollinger band, so we may be starting to see some moderation in the upward push of the past month.

The ISM services index reported 59.1 for October, up from September's 56.9. ADP reported private employment today at +182 thousand, down a bit from last month's 190k. The Non-Farm Payrolls Report, aka the jobs report, will be issued Friday morning before the market open.

Our Dec iron condor on SPX at 1870/1880 and 2160/2170 is being squeezed; I have hedged the trade with Jan 2140 calls. We'll see if that is enough to hold off the bulls.

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Written by Dr. Duke

Created: 03 November 2015

The markets continue their climb higher, seemingly without an sign of slowing. It is hard to see the economic drivers; everyday, we have mediocre economic data being reported and more evidence of a global economic slowdown. Don't get me wrong. I am not preaching recession, but this isn't a booming economic recovery either. SPX tacked on another six dollars to close at $2110. RUT closed up $5 at $1192. Volatility rose a touch with the VIX closing at 14.5%.

RUT finally has traded above its mid-September high. It has lagged behind SPX but seems to be working to catch up now.

Both RUT and SPX are running right along or even outside the upper edge of the Bollinger bands. So we are stretching the probabilities here. But the market can do what I don't consider rational for much longer than I think probable. But it sure seems as though we are overdue for a little bit of a pause.

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Written by Dr. Duke

Created: 23 October 2015

Markets opened this morning, gapping higher after yesterday's strong performance. SPX closed up $23 at $2075 and RUT closed at $1166, up $12. Volatility remained flat with the VIX unchanged at 14.5%. Trading volume remained above average but dropped from yesterday's highs with 2.8 billion shares of the S&P 500 stocks trading. Trading volume dropped 5% on the NYSE and was unchanged on NASDAQ.

There is no question that the bulls are firmly in charge of this market. The question in my mind is this: Are we returning to a strong bull market as we saw in 2013? Or is this more like earlier this year where the bulls aggressively bought every dip, but couldn't achieve a string of higher highs?

Evidence for a more constrained market posture comes from the Russell 2000 Index, made up of classic small cap stocks. These stocks lead bull markets higher and also are the first to be sold as the markets turn downward. RUT's chart is much weaker than SPX. When the markets bounced from the August 25 lows, they hit a high in mid-September before turning lower to retest support. SPX blew past those levels on October 7th, but RUT has yet to get back to those mid-September highs. Hmm...

Enjoy your weekend.

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Written by Dr. Duke

Created: 21 October 2015

The markets opened this morning in positive territory, but slowly weakened as the day wore on. SPX closed down $12 at $2019 and RUT lost $18 to close at $1145. Trading volume increased a bit with 2.4 billion shares of the S&P 500 trading, but this is still below the 50 dma at 2.5B. Trading increased 12% on the NYSE and increased 13% on NASDAQ. The VIX volatility index increased about 0.7 points to close at 16.5%.

No significant economic data was reported today.

All in all, it was a slow day in the markets, but the weakening as the day progressed is a little worrisome. Could we possibly retest the correction lows once again? I will be watching $1997 on SPX as the "line in the sand". A break down through that price would be a concern.

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Written by Dr. Duke

Created: 20 October 2015

The markets seem to be slogging through molasses with small price moves, low trading volume, and declining implied volatility. SPX closed down $3 to $2031 while RUT lost one dollar to close at $1163. Volatility remains relatively low at 15.8%. Trading volume is sluggish with 2.1 billion shares of the S&P 500 trading today (flat with yesterday and below the 50 dma). Trading volume declined 1% on the NYSE and rose 6% on NASDAQ.

Housing starts for September came in at 1206 thousand, up from August's 1132 thousand. Building permits were on the opposite side with August's 1161 thousand declining to September's 1103 thousand. But the good news is that these data remain fairly positive for the real estate market with new housing construction running around a million units for 2015.

Earnings announcements continue to elicit strong responses with CMG down about $50 and ISRG up $35 in after hours trading. Playing these announcements is not for the faint of heart. For those of you who love the thrill ride, AMZN announces Thursday after the close.

The bulls appear to be in control of this market now; we are seeing the classic higher highs and higher lows. But trading volume is low and the price moves are limited in either direction. Are we returning to the sideways trend we saw earlier this year? Many of the large institutions have predicted a strong rally for the balance of this year, but we are starting to run out of time.

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Written by Dr. Duke

Created: 19 October 2015

IBM reported disappointing earnings after the close and is down about 5% in after hours trading. Will that affect the overall market? Possibly. This earnings season has been a bit of a mixed bag thus far. At the least, IBM's performance may worry analysts about the state of the overall economy. I doubt that it will force the market lower, but it could hold it down a bit, maybe to more of a sideways trend. SPX traded down about ten points from the open, but recovered to close up one dollar at $2034. I would term that as weakly bullish. RUT traded in a similar fashion, closing up two dollars at $1164. RUT traded down as low as $1155, the 50 dma, but bounced off that support and closed quite a bit higher at $1164. Trading volume was down across the board with 2.1 billion shares of the S&P 500 trading (the 50 dma = 2.5B). Trading was down 15% on the NYSE and down 7% on NASDAQ. Volatility was essentially unchanged with the VIX at 15%.

This is a weak week for economic news; the principal market moving events will be the earnings announcements.

I closed the November iron condor position in the Flying With The Condor™ service on Friday for a gain of 13.4%; this brings our year to date performance to 43%. Why aren't you with us?

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Written by Dr. Duke

Created: 16 October 2015

The markets continued higher today with SPX closing up $9 at $2033; RUT wasn't quite so bullish, losing about fifty cents on the day. Volatility continues to contract, with VIX dropping nearly a full point today. VIX has been steadily dropping since its recent high of 28% on September 28th. Trading volume wasn't particularly high on this expiration Friday with 2.3 billion shares of the S&P 500 stocks trading today. Trading volume was up only 1% on the NYSE and moved down 11% on NASDAQ. Many analysts were looking for SPX to definitively break the recent mid-September highs around $2000, and we had our doubts earlier this week, but today's move higher was encouraging. Perhaps we can finally stop worrying about a retest of the flash Monday lows from late August.

Industrial production for September decreased 0.2%, slightly worse than August's -0.1%. Capacity utilization was essentially flat in September at 77.5% (August was 77.8%). The JOLTS job openings data came in at 5.370 million for August down from July's 5.668M. The University of Michigan's consumer sentiment survey reported 92.1 for October, up from September's 87.2.

I closed my November iron condor position on RUT today for a gain of $115 per contract or +13.4%. Even though this is an early close (34 days left), we were able to lock in 82% of the maximum potential gains. Why continue to be exposed to the market if you can lock in over 80% of the potential gains? This brings our year to date returns in the Flying With The Condor™ to +43%.

Enjoy your weekend.

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Written by Dr. Duke

Created: 14 October 2015

Just a couple of days ago, I was complimenting SPX for closing for three consecutive days above $2000, or roughly the mid-September high. But SPX couldn't stand the heat and has now retreated, closing down $9 at $1994. RUT has traded even weaker, never reaching the mid-September highs. RUT closed at $1137, down $11. Trading volume remains below the 50 dma on the S&P 500 with 2.4 billion shares, but it was up from yesterday. Trading volume rose 9% on the NYSE and increased 23% on NASDAQ. Volatility remained calm, with the VIX rising only four tenths of a point to 18.0%. My previous thesis appears to be holding, viz., not strong enough to mount a bull run for new all time highs, but not really weak enough to start a bearish trend lower.

Perhaps the Fed's Beige Book threw cold water on the markets. A them running through the minutes was the weakness of our economy and whether it could withstand a interest rate hike. The PPI for September came in at -0.5%, lower than last month's 0% change. Retail sales for September didn't inspire anyone, up 0.1% over August.

I'm out here in Las Vegas for the Traders Expo. I am looking forward to seeing many of you here. It is always nice to put faces to the email exchanges.

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Written by Dr. Duke

Created: 12 October 2015

SPX closed up $3 at $2017 on reduced trading volume, and RUT lost one dollar to close at $1164. Today was the third consecutive close above $2000, which was where the last bounce higher stalled in mid-September. Just as important, each close has been moving steadily higher, but the markets are slowing. Trading in the S&P 500 stocks slowed dramatically today to 1.8 billion shares. Trading volume on the NYSE dropped off 21% and volume declined 26% on NASDAQ. Volatility continues to contract, with the VIX dropping off almost a full point to 16.2%.

So the market is slowing. Trading volume is declining and implied volatility is contracting. Good news or bad news? The beauty of options trading is that you don't really care; you have tools in your trading toolbox for any occasion. But let's consider the underlying economic drivers.

The panic about China pushing the whole globe into recession appears to have passed. Yes, China's economy is slowing, and that does affect the global economy, but we aren't heading into recession. After all, the last quarterly GDP number here in the states was +3.9%. But we are not in the booming economic spurt that has historically been typical of recoveries from past recessions. Despite all of the pronouncements from the politicians, this remains a weak economy. That is why the FOMC has been so hesitant to raise interest rates. They don't want to squash what meager progress we are seeing.

Our November iron condor position on RUT at 960/970 and 1280/1290 continues to build gains with $121 per contract or +14% as of today's close. I will probably close this position soon since we now stand at about 85% of the maximum gain for this position. If we were to close the November trade today, we would be up 43% in the Flying With The Condor™ service for 2015.