Dr. Duke's Blog

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Written by Dr. Duke

Created: 19 August 2015

The so-called Beige Book, the minutes from the last FOMC meeting, were issued this afternoon, and it seemed as though that helped the market for a few minutes, but it didn't last. SPX closed down $17 at $2080, just above the 200 dma. RUT lost $13 to close at $1203. Volatility rose with the VIX closing up about a point and a half at 15.3%. SPX opened and sliced down through the 200 dma this morning, hitting its low for the day at $2071. SPX hit its high for the day a few minutes after the Fed minutes were released, but then SPX weakened and closed lower.

Trading volume spiked upward today with 2.2 billion shares of the S&P 500 trading. Volume on the NYSE rose 22% and trading on NASDAQ rose 21%. So we had a weak market day on increased volume - not good.

Both the minutes and various quotes from FOMC members suggest there are strong camps on both sides of the decision to raise interest rates at the September meeting or to wait until December. In the meantime, we are stuck in this trading range. I am watching this market closely. It seems precariously balanced right now and I am unsure what might tip it one way or the other. When a market trades sideways this long, the resulting move higher or lower is usually very strong.

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Written by Dr. Duke

Created: 18 August 2015

The markets continue to just ebb back and forth, as though waiting on something to happen. The minutes from the last FOMC meeting will be released tomorrow. Perhaps that will push the market one way or the other, but I doubt it. The Fed rarely gives a definitive peek of the future; they have to keep their cards close to the chest. SPX closed at $2097, down $6, and RUT lost $10 to close at $2115. Volatility increased a bit with the VIX closing at 13.8%, up almost one point. Trading volume remains pretty flat with 1.7 billion shares of the S&P 500 companies trading, but this is well below the 50 dma at 2.1B. Trading on the NYSE increased 3% but trading was down 1% on NASDAQ.

Housing starts came in at an annualized rate of 1.206 million for July, the highest since 2009. Building permits followed suit at 1.119 million.

I took a look at the price/earnings ratio of the S&P 500 companies today; it is running around 21, which is on the high side, but well below the highs around 30 from the dot com bubble. When one adjusts the data based on relative yields, the low interest rates make stocks look more attractive, so maybe the P/E ratio isn't too high after all.

I am inclined to believe the overall market is treading water in advance of news from the Fed about interest rates. In any case, the longer we trade sideways, the more likely we remain in a long term bull market that is just taking a breather. The bulls continue to repel any moves to push this market lower.

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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%.