Dr. Duke's Blog

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Written by Dr. Duke

Created: 17 August 2015

SPX opened down this morning and hit a low at $2079. But from about 10 am ET on, SPX steadily climbed higher, closing up $11 at $2102. RUT gained $12 to close at $1225. But trading volume continues to be rather weak with 1.6 billion shares of the S&P 500 trading. Trading volume rose 2% on the NYSE and increased 1% on NASDAQ. We remain solidly trapped in the trading range of the past several months. Volatility remains sorta "luke warm" with the VIX at 13.0%, up two tenths of a point today. This isn't much of a rise in volatility, but it is unusual to see VIX up on a positive day in the markets. Hmmm...

The Empire manufacturing survey (from the New York Fed) surprised analysts, plunging in August to -14.9 from July's +3.9 reading. Several signs of a softening economy are starting to pop up - nothing too severe, but enough to raise my concerns.

My Oct iron condor on RUT still only consists of the put spreads at 1060/1070. My plan was to sell the call spreads when the market cycled back higher, but so far, the market hasn't cooperated. This is an excellent example of the downside of legging into a condor position.

I will now return to treading water.

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Written by Dr. Duke

Created: 14 August 2015

Trading volume fell off dramatically today after dropping significantly yesterday as well. Trading in the S&P 500 stocks dropped to 1.7 billion shares today (well below the 50 dma = 2.14B). SPX finished eight dollars higher at $2092 and RUT also tacked on eight dollars to close at $1213. Volatility continued to come in with the VIX shedding six tenths of a point to close at 12.9%.

Today's move positions SPX right in the middle of the trading range of the past six months, but RUT is sitting at the bottom edge of that trading range. That may be a warning sign.

The Producer Price Index (PPI) increased 0.2% in July, down from June's +0.4%. Industrial production increased 0.6% , a nice increase from June's +0.1%. Capacity utilization remains flat at 78%. The University of Michigan's consumer sentiment survey came in at 92.9 for August, about the same as last month's 93.1.

I filled my RUT put spreads for October about three weeks ago, thinking I would sell the call spreads when the market cycled back toward the top end of the trading range. But instead, RUT has been hanging around the bottom edge of the trading range. That illustrates the risk taken when one legs into an iron condor position. My October put spreads are up about 3%, but I will feel better when this market makes a run higher so I can balance the position with the call spreads.

The price movement and the trading volume data seem like the market has gone into suspended animation until the Fed meeting in September. But that's a long time to wander sideways.

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Written by Super User

Created: 13 August 2015

The markets opened slightly down this morning and then traded higher and looked like we might post small gains for the day. But in the last hour of trading, we gave it all back to close lower on the day. SPX lost $3 to close at $2083 and RUT lost $4 to close at $1205.Volatility was essentially flay with the VIX dropping a tenth of a point to 13.5%. Trading volume fell sharply with 1.9 billion shares of the S&P 500 trading. Trading on the NYSE dropped 20% and declined 21% on NASDAQ.

Initial unemployment claims increased slightly to 274k from 269k and continuing unemployment claims increased to 2.273 million from 2.258M. Retail sales increased 0.6% in July, an improvement over June's fat zero.

Are we stuck in this trading range until the Fed meeting? That's over a month away...

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Written by Super User

Created: 12 August 2015

 I am tempted to use terms like roller coaster and wild swings, but I feel like I have been using terms like those for at least the past year! SPX closed today up $2 at $2086 and RUT closed down $2 at $1209. That sounds calm enough, but today's market was anything but calm. SPX plunged to $2052 shortly after the market opened, down $32 at the worst of it. Then SPX bounced all the way back to turn in a small gain on the day. What can I say? This market is not for the timid. I bought a few of this week's SPX 2060 puts yesterday and closed them this morning for a gain of about 220%. I didn't close them because I saw this bounce. I closed them to lock in an extraordinary gain. But imagine if I had held on for an even larger gain...

Trading volume bounced higher with 2.6 billion shares of the S&P 500 stocks trading. Trading volume increased 12% on the NYSE and increased 10% on NASDAQ.

The news I referred to yesterday for China, retail sales and industrial production, did come in slightly lower for July than in June, but apparently market analysts started to realize their panic was a bit over done as the day wore on. China's retail sales came in at +10.5% in July, down from June's +10.6%. Industrial production increased +6.0% in July, down from June's +6.8%.

The price volatility continues.

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Written by Super User

Created: 11 August 2015

Yesterday looked like the start of another run to the top of the trading range, but the market threw a surprise at traders today. Maybe more correctly, China threw traders a curve ball when they devalued the yuan. That has caused some analysts to think there may be more weakness in China's economy than previously thought. Industrial production and retail sales data come out for China tonight, so tomorrow's market could get hit again. SPX closed down $20 at $2084. RUT gave back $12, closing at $1211. The VIX tacked on one and a half points to close at 13.7%. Trading volume was up from yesterday with 2.2 billion shares of the S&P 500 stocks trading. But that only takes S&P volume back to the 50 dma. Trading on the NYSE increased 2% and trading volume on NASDAQ was up 8%.

Some analysts are convinced that this market is on the verge of tipping over into a severe correction, but their rationale isn't convincing. The argument basically boils down to "it's been too high for too long". I am more inclined to think we are stuck in the trading range until the Fed announces the first interest rate hike.

However, it is prudent to be cautious in the meantime. I nibbled at some SPX puts today, but I'm not risking much. This market is just too fickle and unpredictable.

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Written by Super User

Created: 10 August 2015

Buying the dip worked once again! The markets opened up strongly today after posting a lot of red ink last week. SPX gained $27 to close at $2104 and RUT closed up $16 at $1223. Volatility contracted with the VIX dropping a full point to 12.2%. But don't confuse this with a strong bullish move. Trading volume declined with 2.0 billion shares of the S&P 500 stocks trading. Volume was flat on the NYSE and declined 12% on NASDAQ. So the low trading volume, sideways trading continues. One of these days, buying the dip will not work...

There wasn't any significant economic data reported today to account for the bounce higher. The main economic news expected this week is a continuation of earnings announcements, although most of the popular names that inspire speculation have already reported.

I closed my September iron condor position last week for a 20% gain. I only have the put spreads in play so far for the October position, but they stand at a net gain of 2.5% today. If the market can trade back closer to the upper edge of the trading range, I will sell the call spreads to complete the October iron condor position. The Flying With The Condor™ service stands at a net gain of 38% for the year.

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Written by Super User

Created: 05 August 2015

ADP's report on private payrolls disappointed analysts today with 185 thousand jobs for July, down from last month's 229k. There isn't a perfect correlation with the non-farm payrolls report that will be issued by the Labor Department Friday, but it often serves as an early warning. However, SPX seemed encouraged this morning, opening and running up to $2113 before pulling back to close at $2100, up $7. RUT traded in a similar pattern, and gained $3 to close at $1232. Both indexes effectively regained what they lost yesterday.

Trading volume picked up a bit with 2.4 billion shares of the S&P 500 trading. Trading volume was up 8% on the NYSE and up 15% on NASDAQ. Volatility contracted a bit with the VIX losing about half a point to close at 12.5%.

So are we feeling more bullish? Or is this just the same old ebb and flow we have been watching all year?

The ISM Services survey reported today at 60.3, up from 56.0. According to the ISM surveys, both manufacturing and services have continued to expand with manufacturing contracting a bit, but services surging forward.

With the market appearing rather undecided and fragile, I am concerned about being very exposed to the jobs report Friday. It is hard to predict how that data will impact this market. Perhaps the market will continue to tread water until we get the FOMC announcement on interest rates.

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Written by Super User

Created: 04 August 2015

This market keeps teasing us. Some days, it plunges and all of the "sky is falling" folks come out of the woodwork. Then it rallies and the bulls speculate about new all-time highs. Today started out more bullishly, but then weakened and the major indexes ended the day slightly underwater. SPX lost $5 to close at $2093. RUT closed at $1229, down $3. Volatility rose about three tenths of a point to 12.8%, remaining close to the lows for volatility this year.

Trading volume remains close to the 50 dma with 2.2 billion shares of the S&P 500 companies. Trading volume on the NYSE dropped 2% and volume declined 1% on NASDAQ.

The only economic data today were factory orders, up 1.8%, a nice improvement from the 1.1% decline last month. Tomorrow brings the ADP private jobs data, a warm up for Friday's jobs report.

A common discussion these days concerns what the market's reaction will be when the Fed finally decides to raise interest rates. Will all of this sideways trading avoid a big drop when interest rates rise? Probably not. If nothing else, we will see the high frequency algorithms drive a knee jerk reaction downward. In the meantime, we wander sideways and my condors are doing well; my September position is up 21% and October is up 5%.

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Written by Super User

Created: 30 July 2015

SPX took us on a wild ride today, trading down below its 50 dma to $2095 (yesterday's open), but then recovering to close unchanged at $2109, within pennies of yesterday's close. RUT tacked on $2 to close at $1232, but RUT remains well below its 50 dma. Volatility continued to contract with the VIX dropping about a half point to 12.1%.

Trading volume fell back down to the 50 dma with 2.1 billion shares of the S&P 500 companies trading. Trading volume dropped 10% on the NYSE, but increased 2% on NASDAQ.

Initial unemployment claims increased by 12k this week to 267k, and continuing claims grew by 46k to 2.26 million. The first estimate of second quarter GDP came in at +2.3%, while the first quarter number was revised upward to a positive 0.6%. All of these revisions don't inspire confidence.

Investor's Intelligence surveys investment advisers every week and reported that this is the fifth week in succession that bullish advisers number less than 50%. Bearish advisers have grown to 39%. If you are contrarian by nature, this should tempt you to sell the farm and buy stocks. Or do you think the advisers know something you don't? Maybe they just realize we are entering the worst two months of the year for stock market gains. According to the Stock Traders Almanac, August is the worst performing month of the year for the Dow and the S&P 500 for the years 1988 to 2014, and September is a close second.

My September iron condor on RUT is now up 22%.

The Chicago PMI and consumer sentiment reports tomorrow. Today's market action seems to reinforce the range bound nature of this market.

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Written by Super User

Created: 29 July 2015

All eyes were on the Fed statement this afternoon, but there wasn't much of anything new for analysts to digest. The FOMC noted an improved job market, but are looking for higher inflation numbers and also feel business investment remains too soft. SPX traded up on the FOMC statement, closing at $2109, up $15. RUT gained $5 to close at $1230. SPX is now solidly above its 50 dma, but RUT remains well below the 50 dma. SPX has returned to the middle of the trading range, but RUT is lagging behind.

Volatility continued its pull back with the VIX closing at 12.6%, down almost one point. Trading volume declined in the S&P 500 stocks with 2.3 billion shares trading today. Volume declined 4% on the NYSE and trading volume declined 7% on NASDAQ. So the market was up today, but the enthusiasm was subdued.

Pending home sales were released today with a decline of 1.8% for June, down from May's +0.6%.

The first estimate of GDP growth for the second quarter will be released in the morning. Hopefully, it won't be negative, following a negative first quarter GDP. That could be a problem for this fragile market.