Dr. Duke's Blog

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Written by Dr. Duke

Created: 09 June 2015

The markets opened weakly again today, but then surprised traders by rebounding. Are we nearing the bottom of this most recent pull back? SPX traded as low as $2072 before bouncing back to close a dollar higher at $2080. RUT traded down to $1242 but couldn't erase all of its losses, closing at $1250 for a loss of $4. But RUT has not traded as weakly as SPX during this pull back; RUT is trading very close to its 50 dma at $1251, whereas SPX is well below its 50 dma at $2101. In line with the rebounds, volatility contracted a bit with the VIX closing at 14.7%, down six tenths of a point. Trading volume was modestly higher with 1.9 billion shares of the S&P 500 trading. Volume was up 3% on the NYSE and also up 3% on NASDAQ.

Each day it appears more and more likely that the Greece debt crisis is destined to self-destruct. Greece's political leaders are behaving like children who assume the Euro Zone owes them something. The question for us is whether Greece's flame out will impact U.S. markets. Greece serves as a warning of what happens when the entitlement mentality spreads in a country.

The only significant economic data reported today was the JOLTS job openings of 5.367 million for April as compared to March's 5.109 million.

I have positioned the put spreads for my condors well OTM to be safe, and both positions are doing well. The July iron condor on RUT stands at a net gain of 14% and the August position is up 8%. Our Flying With The Condor™ service is up 28% year to date.

Was the "Sell in May" crowd correct?

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Written by Dr. Duke

Created: 08 June 2015

Markets opened weakly this morning and it didn't get any better as the day wore on. SPX lost $14 to close at $2079. RUT dropped $7 to $1254. And volatility moved up a point with the VIX at 15.3%. Trading volume fell off across the board with 1.8 billion shares of the S&P 500 companies trading. Trading volume dropped 10% on the NYSE and decreased 8% on NASDAQ.

So we have a lot of red ink, but with decreased trading volume. I would argue this is just evidence of a continued lack of enthusiasm. The bulls can't get a breakout going, but even the little pull backs don't show the volume one would expect if traders were really taking significant amounts of capital off the table. So it appears we remain stuck in the trading channel of the past two to three months. Conservative traders are watching for signs of support on the major indexes. If you are aggressive, this may be a buying opportunity for your favorite stocks.

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Written by Dr. Duke

Created: 05 June 2015

I am traveling this afternoon, so I am posting my blog before the markets volume data is available. The jobs report came in this morning moderately better. Of course, the analysis is always skewed by the eyes of the beholder. For example, one article on Yahoo Finance referred to the report as having an "unexpected surge in U.S. job gains in May" and enthusiastically wrote, "Payrolls increased by 280,000, the biggest gain this year". Technically that is true, but is the author ignorant of recent jobs data? What about December's 329k or February's 266k? When you look at a chart of the last 12 months of jobs reports, you would conclude the trend is sideways or trending lower. Initially, the futures traded lower and then the markets opened lower, but the major indexes recovered significantly as the day wore on. SPX closed at $2093, down $3, and RUT gained $10 to close at $1261. I think the market concluded that an accelerated schedule for the Fed to raise interest rates isn't obvious from the jobs data - not too hot and not too cold.

Have a great weekend.

 

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Written by Dr. Duke

Created: 02 June 2015

It seems like we have been describing a sideways, consolidating market trend for too long; it's getting old. SPX dipped down to test the 50 dma, but bounced back to close nearly unchanged at $2110, down $2 on the day. RUT gained a couple of dollars to close at $1252. Volatility rose slightly with the VIX increasing three tenths of a point to 14.3%. Trading volume fell off with 1.9 billion shares of the S&P 500 stocks trading. Trading volume rose 4% on the NYSE but dropped 10% on NASDAQ.

Today was a light day for economic data. But the one report brought more bad news. Factory orders for April decreased 0.4%, down from the positive 2.2% growth in March. My unofficial, subjective assessment of the financial news and commentary is that it has been gradually but steadily growing more negative. I think that negative growth first quarter GDP number made an impression.

Tomorrow brings the ADP private payrolls number and the Fed's Beige Book. That will increase the chatter leading up to Friday's jobs report.

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Written by Dr. Duke

Created: 01 June 2015

The markets opened weakly this morning and traded lower, but then bounced back to close slightly higher. SPX closed up $4 at $2112, but traded in a wide range today with a low at $2103 and a high at $2119. RUT traded up $3, closing at $1250. RUT is still trading around its 50 dma at $1251. Volatility was largely unchanged with the VIX increasing a tenth of a point to 14%. Trading volume was down from Friday with 2.0 billion shares of the S&P 500 stocks trading. Trading on the NYSE decreased 20% and trading volume on NASDAQ decreased 1%.

The ISM manufacturing survey reported at 52.8 for May, up from April's 51.5. Wednesday brings the ADP private payrolls report, ISM services, and the FOMC Beige Book. Then we have the jobs report on Friday.

After seeing several mediocre economic data reports over the past several weeks, and then seeing the first quarter GDP growth reduced to a negative number, traders are beginning to get nervous. We may not see much action this week until we see the jobs report on Friday. It is always difficult or impossible to predict what will push a range bound market out of its trading channel. Stay tuned.

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Written by Dr. Duke

Created: 29 May 2015

It has been a volatile week - down, up and back down. SPX closed down $13 today at $2107. RUT closed at $1247, down $7. With the GDP news today, one would have thought the markets would be down even more, but that seems to be the nature of this market. Nothing quite moves it in a sustained direction (either way). Trading volume did pop up today with 2.5 billion shares of the S&P 500 trading. Trading volume rose 29% on the NYSE and increased 12% on NASDAQ. Volatility rose with the VIX closing at 13.8%, up about half a point. But that remains a relatively low level of volatility. The institutional traders aren't spooked; they are just uninspired.

The big economic news of the day was the revision to first quarter GDP to a negative 0.7%.  Economists call it a recession when we have two negative quarters of GDP in succession. We have been seeing several weak economic data points, but no one dares use the R word. The Chicago PMI for May didn't help; it dropped from 52.3 to 46.2. The University of Michigan consumer sentiment survey increased a bit in May, from 88.6 to 90.7.

My July iron condor on RUT at 1120/1130 and 1360/1370 stands at a net gain of 13%. The August RUT condor at 1100/1110 and 1350/1360 stands at a net gain of 8%.

Have a great weekend.

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Written by Dr. Duke

Created: 27 May 2015

After a significant drop yesterday, the markets recovered all of those losses today. That brings us to the big question: is the bullish break-out real or is this just one more case of the price volatility that we have been observing repeatedly for the past year or so? SPX closed upward $19 at $2123 and RUT tacked on $16 to close at $1254. Volatility pulled in a bit at 13.3% on the VIX, but it didn't give back all of yesterday's spike upward. Trading volume also doesn't support the idea of  a strong break-out leading to another bullish leg higher. Trading in the S&P 500 was flat at two billion shares - no change from yesterday's sell-off. Trading volume declined 6.5% on the NYSE and rose 5% on NASDAQ.

The NASDAQ composite index made a new all-time high today and all of the financial news folks were touting that achievement.  But it was barely a new high and it is hard to put much credence in an up market trading on lower volume. So I wouldn't be betting the farm on a "super bull" or whatever the next leg upward is being called. I am making bullish trades, but they are carefully hedged positions.

My July iron condor on RUT is up 13% and the August position is up 6%. All this thrashing about in the markets is helpful for these delta neutral positions; we don't even have to worry about adjustments and hedges. But who knows what is coming? This down $22 one day and up $19 the next day is a little unnerving.

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Written by Dr. Duke

Created: 26 May 2015

The primary thesis of my blogs and newsletter for the past couple of weeks has been whether the bulls would be able to create a strong break-out to new highs to push this bull market even higher. SPX set new all-time highs last week, but the price action remained lackluster and largely sideways, slightly above the previous trading range set by the low in early March around $2040 and the highs around $2120 set in late February and late April. SPX lost $22 today to close at $2104, right back in that trading range of the past couple of months. RUT gapped open lower this morning, sliced through its 50 dma and closed down $13 at $1239. Volatility popped up almost two points on VIX with a close at 14.1%.

Trading volume was markedly higher in supporting this large move downward on the major market indexes. Trading on the S&P 500 stocks came in at 2.0 billion shares, up from Friday's 1.3 billion shares, but still below the 50 dma at 2.1B. Trading volume rose 29% on the NYSE and rose 11% on NASDAQ.

Today brought a mixed bag of economic data, starting with a dismal durable goods orders number of -0.5% for April, down from March's +5.1%. The Case Schiller housing price survey was flat from last month, but remains positive at +5.0%. New home sales increased to an annualized rate of 517 thousand for April. The Conference Board's consumer confidence survey report 95.4 for May, up very slightly from April's 94.3. Perhaps the weak durable goods order number prompted the bears to start rolling the market downhill. Other analysts blamed increasing strength in the dollar. Economic data has been steadily weaker for the past couple of months, so anything could have spooked traders at this point. When your profits are large, it is easy to push the sell button quickly and ask questions later. Of course, all of the talking heads will talk about "Sell in May and go away".

Will the bears continue to press their case tomorrow?

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Written by Dr. Duke

Created: 20 May 2015

The FOMC released the minutes from the last meeting this afternoon. At first, the market rallied, but it didn't take long for that spike to dissipate and the markets closed roughly unchanged. SPX lost two dollars to close at $2126, while RUT gained two dollars to close at $1258. Volatility remained unchanged with the VIX at 12.9%. Trading volume contracted with 1.9 billion shares of the S&P 500 stocks trading. Volume declined 5% on the NYSE and was flat on NASDAQ.

The Fed's announcement continued the theme started by Yellen a few days ago with this phrase, "valuations remain stretched for some asset classes". Maybe that phrase poured cold water on the initial bullish response to the minutes.

SPX remains above the old resistance level of $2120, but it appears to be softening, unable to hold the new highs. Maybe we are in for a repeat of late February and late April, when the markets hit new all-time highs, but then pulled back into the trading range.

April's housing starts were announced yesterday with an annualized rate of 1135k, the highest number in seven years. Building permits followed alongside with 1143k, up from last month's 1038k. Tomorrow brings the unemployment claims data, but that isn't likely to move this market; those numbers appear to be stabilized and in a slow decline.

My July iron condor on RUT is now up 11% or about half of its maximum potential gain. This position is delta neutral with a delta of -$2 on twenty contracts and theta of +$45.

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Written by Dr. Duke

Created: 18 May 2015

SPX closed at $2129, up $6 and establishing a new all-time high for the S&P 500 Index. RUT is still lagging behind, but it did accelerate today, breaking through its 50 dma (finally), and closing at $1258, up $14. Volatility closed up a fraction of a point with the VIX closing at 12.7%. Trading volume fell off with 1.7 billion shares of the S&P 500 stocks trading. Decreased trading volume after option expiration this past weekend is normal, but 1.7B remains a low volume number. Trading volume contracted 15% on the NYSE and 3% on NASDAQ.

In short, we are still in this odd space of "sorta bullish".  The blue chips are trading higher, but on reduced volume. The small caps are trading higher but only broke out above their 50 dma today.

My July iron condor position on RUT at 1120/1130 and 1360/1370 is up $82 per contract or +10% on capital at risk. This brings our year to date performance in the Flying With The Condor™ service to +25%.

The market trend is bullish, but be sure to have stops in place for all of your bullish trades. It remains a nervous market.