Dr. Duke's Blog
Do you know any trading coaches who discuss the market candidly without any marketing hype? Dr. Duke publishes a weekly newsletter and shares the track records of his trading services. If you have questions about any of his services, Ask Dr. Duke.
How High Can It Go?
- Written by Dr. Duke
The Standard and Poors index (SPX) made three new all-time highs this week, closing Friday at 4468, up 7 points on the day and up 0.7% for the week. The trading volume of the S&P companies ran below the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, opened the week at 17.1% and closed Friday at 15.5%. Historically, this doesn’t correspond to an “all clear” signal but it has not moved much lower this year.
I follow 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 closed Friday at 221.13, down 0.9% on the day and down 0.8% on the week. IWM has yet to recover its 50 dma at 224.54.
The NASDAQ Composite index traded sideways this week and closed Friday at 14823, up seven points or +0.04% on the day, but down 0.2% for the week. It gave some of that back on Friday, closing at 14836, down 0.4% on the day but remained up 0.5% for the week. NASDAQ’s trading volume traded almost perfectly sideways and ran below its 50 dma all week.
The S&P 500 and NASDAQ continue to trade higher this year, but with frequent and sudden pullbacks. As a consequence, it has been a frustrating market to trade. The bulls are banking on the economy recovering strongly from the economic lockdowns and the fear of inflation has been the principal concern for traders. The bearish behavior of the Russell 2000 is my principal concern with this market. I continue to trade cautiously but I am venturing out with a few more positions.
I started the week 74% in cash and ended the week at 58%.
- Written by Dr. Duke
The Standard and Poors index (SPX) made two new all-time highs this week, closing Friday at 4437, up 7 points on the day and up 0.7% for the week. The trading volume of the S&P companies ran above and below the 50-day moving average (dma) this week but fell below the 50 dma as the index made new
all-time closing highs on Thursday and Friday.
VIX, the volatility index for the S&P 500 options, declined steadily this week, hitting an intraday high on Monday at 19.9% and closing Friday at 16.2%. This isn’t an “all clear” signal but it is a big improvement over the past couple of weeks.
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 magnified the moves of the large blue chips this week, declining the first three days and then spurting higher Thursday and Friday. However, IWM could not break above its 50 dma on Friday at 224.93 and pulled back to close at 223.38.
The NASDAQ Composite index traded steadily higher all week and set a new all-time high on Thursday at 14895. But it gave some of that back on Friday, closing down at 14836, down 0.4% on the day but remained up 0.5% for the week. NASDAQ’s trading volume continued run below its 50 dma all week.
This year has been frustrating for traders, spurting higher and then falling sharply, only to recover the previous highs in short order. This week continued the move higher. The bulls are banking on the economy recovering strongly from the economic lockdowns, and the data appear to be supporting that thesis. The pullbacks are the effects of the lingering doubts. This is unknown territory. We have never experienced a lockdown anything like this since World War II.
I started the week 74% in cash and ended the week at 75%. I had hip replacement surgery on Monday, so I didn’t look to increasing my positions this week. They tell me I am doing well, wandering around the house, and even walking around the block yesterday with the assistance of a cane. I focused on trade management of open trades this week. We closed a nice one with Apple on Thursday with a 60% gain and closed profitable earnings trades on TSLA, MSFT and GOOGL.
- Written by Dr. Duke
The Standard and Poors index (SPX) essentially traded sideways this week, closing Friday at 4395, down 24 points on the day and down 0.3% for the week. The trading volume of the S&P companies ran at or below the 50 day moving average (dma) all week with the exception of Friday when it came in at 2.27 billion shares with the 50 dma at 2.06 billion shares.
VIX, the volatility index for the S&P 500 options, wandered sideways with the market this week, hitting intraday lows at 17.2% and intraday highs at 20.4%, before closing Friday at 18.2%. Traders remain on guard and are buying protection.
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 closed Friday at 221.05, down 1.47 or 0.7% on the day, but managed to close up 0.3% for the week. I don’t want to read too much into this, but it is at least worth noting that IWM booked a positive gain for the week while the S&P 500 blue chips lost 0.3%.
The NASDAQ Composite index didn’t fare as well as the S&P 500 or the Russell 2000, closing Friday at 14,673, down 106 points on the day or -0.7% and down 1.0% for the week. NASDAQ’s trading volume continued to come in below its 50 dma and decreased steadily all week.
Roughly speaking, we have endured a week of severe declines, followed by a strong recovery week and now we have just traded sideways all week. Maybe the market is trying to digest the cost data and fears of inflation. The FOMC met this week and continues to assure the market that they aren’t preparing to raise the federal discount rate and are continuing to pump money into the economy by buying bonds each week. Market gurus are split on whether inflation will be good or bad for the stock market. I think both groups are probably correct at the extremes. I still remember moving to Chicago in 1980 and trying to buy a house at 13% interest rates. That puts a damper on the market.
I watched a presentation from Merrill Lynch this week (I know, but they remain Merrill Lynch to me). An interesting tidbit: they predict corporate earnings will grow by over thirty percent during the remainder of this year. They base that prediction on a continuing recovery from the economic shutdown. If they are correct, that will definitely fuel the market’s climb higher.
I started the week 54% in cash and ended the week at 74%. This result surprised me as I computed it just now. As I analyze my cash basis, I realize I entered several new positions this week, but scaled back the size from what would be normal for me. I have also allowed several naked puts to expire worthless this week without rolling them out. I am reminded of the day traders who always go to cash at the end of each trading session to avoid overnight risk. I am wary of weekends. My rational mind sees pretty solid economic numbers but the whipsawing of this year’s market has left me a little gun shy (I don’t hunt but it is a very appropriate expression).
This Market Needs a Shrink
- Written by Dr. Duke
The Standard and Poors index (SPX) posted a very bearish day last Friday and followed with even more losses on Monday. Similar to the past several pullbacks this year, SPX bounced off its 50-day moving average (dma) on Monday and began its dramatic recovery, closing today at 4411, up 1% on the day and 2.7% for the week. Monday morning’s gap opening lower after a large downturn on Friday was very disheartening. I closed several positions and hedged others. The S&P 500 index motored higher the rest of the week, as though nothing had happened. The trading volume of the S&P companies declined all week from its high on Monday.
VIX, the volatility index for the S&P 500 options, spiked upward to 25% on Monday but declined all week to close today’s market at 17%. Don’t become complacent. First of all, 17% isn’t very low, and secondly, VIX dipped to 16% today but could not hold it. Traders remain on guard and are buying protection.
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. A single glance at the chart below stands in dramatic contrast to the large cap stocks that dominate the S&P 500 and the NASDAQ Composite. IWM recovered some of the earlier losses today, closing at 219.50, up 0.4% on the day and up 4.2% for the week. SPX and NASDAQ are both well above their 50 dma, but IWM remains 2.4% below its 50 dma. The caution flags are out.
The NASDAQ Composite index mirrored the recovery of the S&P 500, closing today at 14,837, up 152 points on the day or +1% and up +4.2% for the week. NASDAQ’s trading volume continued its below average track record and decreased significantly today.
As I observed last week, this year’s market has been a series of fits and starts with traders being whipsawed in and out of the markets. After Monday’s large gap opening lower, many traders were spooked, and I was among them. The S&P 500 index has consistently pulled back this year only to find support at its 50 dma. That happened again on Monday and the rest of the week was a dramatic run higher with four gap openings higher. You don’t see that very often.
The crucial question remains. When will buying the dip be a costly mistake? It has worked seven out of seven times this year…
I started the week 58% in cash and ended the week at 54%. I opened some new trades this week, but I remain cautious. This market remains nervous and twitchy. Be careful to maintain a moderate risk exposure.
The Inflation Hobgloblin Returns
- Written by Dr. Duke
The Standard and Poors index (SPX) posted a very bearish day today, closing at 4327, down 33 points or -0.8%. SPX opened the week at 4372 for a weekly loss of 1%, with most of that loss occurring today. SPX set a new all-time high on Monday, but weak trading followed the rest of the week. The trading volume of the S&P companies continued to run below the 50-day moving average (dma).
VIX, the volatility index for the S&P 500 options, teased with a relatively low level of volatility around 16% all week, but spiked up to 18.5% today. That gives us something to think about over the weekend.
The Russell 2000 index has been trading much more weakly over the past four months when compared to the large cap stocks that dominate the S&P 500 and the NASDAQ Composite. The ETF for the Russell 2000, IWM, posted a particularly bearish week, closing today at 214.95, down 1.2% on the day and posted a 4.7% loss for the week. Look out below!
The NASDAQ Composite index posted a very bearish week, similar to the Russell 2000 index. NASDAQ closed at 14427, down 116 points or -0.9% and down 2.2% for the week. Similar to the S&P 500, NASDAQ’s trading volume continued its below average track record and decreased significantly today.
This year has been a story of fits and starts with traders being whipsawed in and out of the markets. The bears took a firm hold on the markets this week and very few stocks could resist the pull. AAPL posted positive gains earlier in the week, including a strong gap opening higher on Wednesday, but finally succumbed today.
I started the week 50% in cash and ended the week at 58%. With a week like this one, I was closing more trades than opening them. This market remains nervous and twitchy. Be very cautious.
A Round Trip
- Written by Dr. Duke
The Standard and Poors index (SPX) posted a very strong day today, closing at 4370, up 49 points or +1.1%. But today’s gains barely pushed SPX back into the positive column since SPX opened the week at 4356. SPX did set a new all-time closing high today, but that followed an extremely weak day yesterday. The markets essentially made a round trip this week and the trend of consistent below average trading volume continued.
VIX, the volatility index for the S&P 500 options, spiked up over 21% yesterday and pulled back a bit to close at 19%. VIX opened today at 18% and closed at 16.2%, a little more reasonable level of volatility.
I was concerned about the Russell 2000 index earlier this week as it sold off much more strongly than its big brothers, SPX and NASDAQ. The ETF for the Russell 2000, IWM, gapped down on Thursday but recovered most of that loss by the close. IWM opened today with a gap opening higher and continued its climb all day, closing at its high for the day. IWM also recovered its 50 dma today for a dramatic two day recovery of a substantial portion of its earlier losses this week.
The NASDAQ Composite index posted a strong two-day run, closing at 14702 today, up 142 or 1%. However, that barely put NASDAQ in the black for the week, up only 0.3%. Today’s close posted a new closing high for NASDAQ (Wednesday’s open was higher, but it couldn't hold it). Similar to the S&P 500, NASDAQ’s trading volume continued its below average track.
What a difference a week makes! Last week it seemed the market was just continuing a steady climb higher. Thursday’s significant gap opening lower certainly got my attention. But today’s strong performance across the board essentially returned us to the starting gate. The whipsawing of traders in and out of this market continues.
This is a nervous market. It doesn’t take much for the large institutional traders to hit the sell button. That makes it extremely difficult for you and me. It is easy to be crushed when that herd stampedes. We have to stay alert and remain focused on the risk.
Focus on Risk Management
- Written by Dr. Duke
Last week’s strong bullish run higher continued with The Standard and Poors index (SPX) closing the week at 4362, up 77 points or +1.8%. The pace accelerated Thursday and Friday with two gap openings higher each morning. SPX did not post a neutral or negative day all week. In addition, new all-time highs were set every day this week. That must be a record. However, this week’s steady march higher occurred on below average and steadily declining trading volume.
VIX, the volatility index for the S&P 500 options, opened the week at 16.1% and steadily declined to close today at 15.1%, a new low for 2020. Intraday trading took VIX down as far as 14%.
The IWM ETF, based upon the Russell 2000 index, was the black sheep among the broad market indices this week, closing the week at 229.19, down 1.3% for the week. We watched IWM lead the markets higher, but it appears to be sending a different signal this week. Maybe some players are taking profits by selling their high beta stocks.
The NASDAQ Composite index posted a strong bullish week, although not as steady and consistent as the S&P 500. NASDAQ opened the week at 14417 and closed at 14639, for a 1.5% increase on the week. NASDAQ also posted two all-time highs this week with a gap opening higher this morning. Similar to the S&P 500, NASDAQ’s trading volume steadily declined this week after trying to reach above average values on Wednesday.
The market made strong gains this past week and a review of the first six months of 2021 illustrates a remarkable period of time in the markets. The S&P 500 index of companies has gained 15.6% this year. Even more remarkable is the 4.3% gain since June 21st. That period comprises ten trading sessions, but only one down day occurred within those sessions.
When I review that performance, I find the results testing my credulity. Why does it seem like the market has not performed as well as those numbers suggest? The answer is that traders have been whipsawed in and out of this market. We have experienced five pull backs during this six-month period. That probably sets a record.
Don’t be misled into thinking you just aren’t sufficiently savvy to navigate this market. The editors and staff at Investors Business Daily (IBD) have been studying the markets and advising traders for many years. They publish a daily market commentary, The Big Picture, that includes a discussion of that day’s markets and ends with a market assessment, such as Confirmed Uptrend or Market In Correction. Normally those assessments don’t change quickly. IBD has shifted its assessment seven times this year. I don’t know if that is a record, but I am confident it is close.
Where does this market discussion leave us? Last week, I gave my own market assessment: schizophrenia. Traders have been spooked repeatedly. They are determined to avoid losing the gains that were achieved in 2020 (that was my best year ever). Consequently, it doesn’t take much to push the sell button. The state of the economy makes us even more cautious. It is as though we have emerged from our bomb shelter to find a devastated landscape. The economy is rebuilding, but none of us have seen anything like this in our lifetimes, so it is hard to get our footing and invest confidently.
I have often had a mental image of myself in the markets as a mouse scurrying about on the ground amid a herd of elephants. That image reminds me to stay alert and remain focused on the risk. It is easy to be crushed when that herd of elephants stampedes.
The bottom line? I remain cautious but I can’t just hide under the bed and avoid these opportunities. I am focused on risk management even as the market seems to be setting records daily. I started the week 60% in cash and ended the week at 48%. I am cautiously returning to the table while limiting any potential downside damage.
Are the Bulls In Charge?
- Written by Dr. Duke
It would be hard to find a stronger week for the market than the one we just completed. The Standard and Poors index (SPX) opened the week at 4173 and closed today at 4281, up 2.6% for the week. Wednesday was the only day of rest. Trading on Thursday and Friday set new all-time highs for SPX. However, this week’s steady march higher occurred on below average trading volume. Today’s trading of 2.6 billion shares was the lone outlier this week to exceed the 50-day moving average (dma) at 2.2 billion shares.
VIX, the volatility index for the S&P 500 options, opened the week at 21.7%, reflecting the lingering effects of last Friday’s severe decline. VIX declined four points in a single day on Monday and continued to soften the balance of the week, closing today at 15.6%. The low close for VIX this year occurred last week at 15.7% before the market melted down after the Fed meeting. Today’s close edged that out for this year’s lowest reading in volatility.
The IWM ETF, based upon the Russell 2000 index, took the record among broad market indices this week, posting gains each day, including two gap openings higher Thursday and Friday. IWM closed today at 232.28, up 3.7% for the week. I watch the Russell 2000 carefully because these are the high beta stocks that lead bull markets higher and also lead bear markets lower. This was the strongest bullish signal I observed this week.
The NASDAQ Composite index also posted a strong bullish week, closing at 14360, up 2.2% for the week. NASDAQ set three all-time highs this week and gapped open higher twice before taking a breather today and pulling back nine points. This week’s trading culminates a steady recovery since early May for this index, which suffered significant losses earlier this year.
This market continues to whipsaw traders in and out of the market. Last week, the Fed meeting spooked traders, although they apparently were imagining a monster in the closet. The bulls staged a coup over the weekend and the future is rosy again. I am being sarcastic; this week’s run was a remarkable turnaround that is difficult to explain rationally.
I have never seen the IBD's market assessment change signals so often. Last Friday, IBD shifted their assessment from Confirmed Uptrend to Uptrend Under Pressure after the market closed. They reversed themselves once again on Tuesday, returning to Confirmed Uptrend. That makes seven reversals this year. We aren’t alone in our being whipsawed in and out of this market.
I remain very cautious. I doubt the prospect of a severe correction, but this market is schizophrenic. I started the week 92% in cash and ended the week at 60%. I am cautiously returning to the table.
Trders Are Spooked
- Written by Dr. Duke
The Standard and Poors index (SPX) fell out of bed this week, with the largest loss occurring today with a loss of 1.3%. Today’s trading closed at 4166, down 1.9% for the week. SPX bounced off the 50-day moving average (dma) this morning and appeared to be stabilizing. You may recall that the 50 dma was the support level for the market’s earlier pull backs this year. But that proved to be wishful thinking as trading became more bearish this afternoon. Today’s close at 4166 was well below the 50 dma at 4182. Trading volume was below average Monday and Tuesday but accelerated the balance of the week, gaining steam each day.
VIX, the volatility index for the S&P 500 options, made the complete trip this week, opening Monday at 16%, near lows for the year, and closing today at 21%. We hit volatility lows for the year last week, but that is long gone.
The IWM ETF, based upon the Russell 2000 index, declined steadily through Thursday, but kept recovering from intraday lows, suggesting the bulls were buying the lows. That all changed today with a gap opening lower this morning and breaking the 50 dma at the opening trade, closing the day at 222.13, down 2.3% today and down 4.4% for the week. The small to mid-cap stocks that make up the Russell 2000 are the high beta stocks that tend to lead bull markets higher and bear markets lower. This could be a significant turning point, although we thought that back in early May as IWM collapsed.
The NASDAQ Composite index is the outlier this week, closing today at 14030, down 131 or 0.9%. NASDAQ opened the week at 14038, resulting in a decline of only 0.4% for the week, the strongest broad market index this week by far. The 50 dma is nearly 2% below today’s close. NASDAQ’s trading volume ran along the 50 dma most of the week and actually declined today. NASDAQ was punished in earlier pull backs this year, but not today.
What a difference a week can make. Last week, I noted that we had seen steady price rises since May 19th, SPX had set a new all-time high and both NASDAQ and IWM were nearing their all-time highs. What changed?
Worries about impending inflation have been brewing for a couple or three weeks and one might think the calming remarks from Yellen and Powell would have put that to rest, but, if anything, the concerns deepened.
I was surprised to see analysts focusing on the FOMC’s dot map, committee members' predictions for a variety of key economic indicators for the next two years. A couple of committee members predicted rate hikes in 2023 or perhaps as early as November 2022. Powell assured the press that the committee has not even begun to discuss interest rate hikes or the ending of the bond purchase program. He also saw inflation prospects as moderate and even explained how higher inflation would be a normal expectation as the economy reopens and begins to grow strongly. The FOMC even predicted GDP growth this year of 7.1%. Why are we so panicked?
This discussion gives the reader a reasonable synopsis of my thinking. However, this also shows why I found myself closing several positions today and taking larger losses than I should have because I waited too long. I was trading and managing my positions based on my rationale for the market and what made sense to me. I should be trading what the market gives me and not trying to rationalize the market’s moves. I know that rule, but...
The market this year has been characterized by several pull backs, followed by bullish recoveries. The result has been whipsawing traders in and out of the market and I am no exception.
Over the past two days I closed many positions for losses and several more positions will expire worthless this weekend. The end result is that my cash basis went from 39% to 92%. I was tempted to think today was a buying opportunity, but I resisted that temptation and decided it would be best to re-evaluate the markets next week. For now, cash is king. And this posture will make it easier to relax this weekend.
When I saw that IBD had shifted their assessment from Confirmed Uptrend to Uptrend Under Pressure after the market closed today, that reinforced my decision to step aside.
Be extremely cautious next week. Remaining on the side lines may be the wisest course of action.
Slow and Steady
- Written by Dr. Duke
The Standard and Poors index (SPX) opened modestly higher yesterday, closing the day’s trading at 4247, up 9 points or 0.2% for the day. SPX opened Monday morning at 4229, so the index barely made it back to its starting point, up 0.4% for the week. Friday’s close was another all-time high and completes a slow and steady climb for the past three to four weeks. Trading volume declined all week.
VIX, the volatility index for the S&P 500 options, was up and down this week, but declined strongly Thursday and Friday, closing yesterday at 15.7%. This is the lowest volatility reading this year.
The IWM ETF, based upon the Russell 2000 index, declined significantly Wednesday and Thursday, but still closed Friday up 2.42 at 231.70. IWM closed the week with a gain of 1.8%, a much stronger gain than the larger, more conservative S&P stocks. That suggests that a more bullish attitude is taking hold.
The NASDAQ Composite index closed Friday at 14069, up 49 points or 0.4%. NASDAQ posted the strongest and steadiest gains this week of the large cap indices, with a 1.8% gain. NASDAQ’s trading volume came to life this week, spiking above the 50 dma on Wednesday but declining the balance of the week.
This week in the market was a bit choppy, and trended steadily but modestly higher.
The overall market has been trending higher since May 19th:
• The S&P 500 was up 1.2% and set a new all-time high.
• The Russell 2000 was up 7.4% and is now 0.8% below its all-time high.
• The NASDAQ Composite was up 7.6% and is now 0.5% below its all-time high.
The S&P 500 set a new all-time high on Friday, but the Russell 2000 and the NASDAQ Composite are not far behind. Volatility is the lowest of this year. This is the bull market we have been hoping for in the midst of all of this whipsawing back and forth. But it still pays to be cautious; I don’t want to be one of the fools rushing in too soon.