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.
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4543, up 23 points or 0.5%. SPX closed the week with a 1.8% gain. After last week’s very strong gains, a bit of sideways choppiness was to be expected. Trading volume was not only below average all week but steadily declined each day this week. It may be difficult for SPX to break through resistance at the highs of early February.
VIX, the volatility index for the S&P 500 options, declined steadily this week, opening Monday at 25.1% and closing today at 20.8%. That decline is seductive but recall that VIX is now where it was in early February before the market took another run to establish a lower correction.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 206.12, up less than a half a point, or 0.1%. IWM recovered its 50 dma last week but stalled and traded sideways this week. The Russell 2000 is not leading this bull market.
Similar to the Russell 2000, the NASDAQ Composite index recovered its 50 dma last week, but NASDAQ continued its gains, closing at 14169 today for a 2.2% increase this week. Trading volume was modest, running around the 50 dma.
Last week’s market was strong with SPX, NASDAQ and the Russell 2000 all recovering their 50-day moving averages. But the market proceeded more cautiously this week, making only modest gains. It appears that the resistance set by the highs in early February may be starting to slow this market. I would feel more positive if the Russell 2000 began to lead this market higher, but we may have too many headwinds for that degree of bullish strength.
The Fed Moved the Market
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed today at 4463, up 51 points or 1.2%. SPX opened the week at 4203 and ended the week with an impressive 6.2% increase. Trading began to strengthen on Tuesday and took off the rest of the week. Trading volume was below average most of the week but spiked strongly higher today. Usually, I would interpret that volume spike as an endorsement of the market’s move higher, but today is quadruple witching which always causes a large volume spike as four major derivatives are settled each quarter.
VIX, the volatility index for the S&P 500 options, declined steadily this week, opening Monday at 31.0% and closing today at 22.9%. That is a large decline. Is the market recovery really here?
The NASDAQ Composite index also turned in a positive week of trading with an 8.6% gain, outperforming all of the broad market indices. NASDAQ closed today at 13893 with a gain of 279 points. Of course, NASDAQ took significant losses in this correction, so one would expect it to run faster when the skies cleared. NASDAQ trading volume ran above the 50 dma all week and spiked higher on quadruple witching today.
Jerome Powell and the FOMC said all of the right things this week and really encouraged the market. It isn’t common to see four days of advances like we saw this week. Now the question becomes whether we continue to see strong advances or perhaps we will see the classic stair step advance with occasional “breathers” starting next week.
I am beginning to put additional capital to work in this market, but I am proceeding cautiously.
Waiting On the Fed
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) closed yesterday at 4204, down 55 points or 1.3%. SPX opened the week at 4327 and ended the week down by 2.8%. Trading began very weakly on Monday and declined 3.6% by the close on Tuesday. Trading the balance of the week kept SPX largely on a sideways track. Trading volume of the S&P 500 companies spiked early in the week but declined the rest of the week, moving below the 50-day moving average (dma) Thursday and Friday.
VIX is the volatility index for the S&P 500 options, and it declined steadily this week, opening Monday at 35.9% and closing yesterday at 30.8%. Volatility remains elevated; don’t let your guard down.
The NASDAQ Composite index followed all of the broad market indices yesterday and closed down 2.2% at 12844. NASDAQ opened the week at 13328, so NASDAQ remains the weakest index this week with a decline of 3.6%. NASDAQ trading volume ran above the 50 dma all week.
The broad market indices traded largely down and then sideways this week. On 2/24, the S&P 500 index traded down to 4115 before recovering a bit to close at 4156. This is the latest area of support during this correction. Tuesday’s low this week at 4158 bounced off that support level and yesterday’s close was well above those levels.
Thus far, the news from Ukraine has not done any more damage to the stock market. I believe the bullish foundation that seems to support this market is largely due to the relaxing of the Covid restrictions and the expected strengthening of the economy. The primary hobgoblins worrying the market are record-setting levels of inflation coupled with the Fed’s expected increase of the discount rate next week. A quarter point rate increase is probably priced into this market, but a half point increase might push traders to sell.
The broad market indices are largely trading sideways as the FOMC meeting approaches, albeit a very choppy sideways movement.
I have had good results with small positions in oil and gold stocks, e.g., the GLD spread I sent to newsletter subscribers on 2/22. But I remain largely in cash and will wait on the FOMC announcement and the market’s reaction before changing that position.
It's All About Ukraine
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) corrected 12% on January 24th and then the market moved to retest that correction on February 24th and broke through to a new low of -14% (It makes you wonder what will happen on March 24th). SPX closed today at 4329, down 35 points. SPX opened the week at 4354 and ended the week down by about half of one percent. Trading volume of the S&P 500 companies ran above the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, was very choppy this week but largely unchanged, closing today at 32.0% after beginning the week at 32.4%. Volatility remains elevated; don’t let your guard down.
The NASDAQ Composite index gapped open lower today and closed at 13,313, down 225 points on the day and down 1.9% for the week. NASDAQ trading volume ran above the 50 dma all week but fell below the average today.
The broad market indices traded sideways this week, with the Russell 2000 and NASDAQ trading lower. SPX pulled back this morning but recovered much of that loss going into the early afternoon. The intraday low for SPX bounced off the support level formed by trading last Friday and on Tuesday this week. That shows the bullish sentiment that is holding this market up after these bearish twitches.
News and rumors from Ukraine may spook this market at any time. Relaxing the Covid restrictions here in the states will strengthen the economic recovery but concerns about inflation will intensify as cost data increase, fueled in part by higher oil prices. Uncertainties over the Fed’s expected increase of the discount rate as the March FOMC meeting approaches (March 15-16) will likely result in a choppy, sideways market.
Considerable damage has been done to our markets since late January. SPX remains below its 200 dma. The 50 dma of the Russell 2000 and NASDAQ have crossed the 200 dma, heading lower. All of these markets have a long ways to go for a full recovery. All in all, remaining largely in cash and being very conservative with your investments remain sound advice.
Testing the Correction Low
- Written by Dr. Duke
We were treated to a classic retest of the previous correction low this week, with the Standard and Poors 500 index (SPX) reaching a intraday low yesterday of 4115, for a correction of 14% since the open on January 4th. SPX came off that low yesterday very strongly and that performance was followed by a gap opening higher this morning and a gain of 96 points or +2.2% to close at 4385. Of course, that leaves us with the question of whether this is the last retest or, worse yet, will we break through at some point and try for 20% down? Trading volume of the S&P 500 companies was above average most of the week with a spike yesterday.
VIX, the volatility index for the S&P 500 options, spiked up to an intraday high of 38% on Thursday, but ended the day just above 30%. VIX opened this morning at 32% and closed down at 27.6%.
I track the Russell 2000 index with the IWM ETF. IWM closed today at 202.50, up 4.46 points, up 2.3% on the day. The gains of the past two days were sufficient to leave IWM in the black by +0.7% for the week.
The NASDAQ Composite index closed today at 13,695, up 201 points or 0.7%. NASDAQ opened the week at 13,735, so even the strong gains over the past two days could not quite make up for the losses earlier in the week.
Trading in the last week of January seemed to be concluding that a correction of 11% was about right. This week’s trading seems to suggest 14% is a better estimate. Traders have many worries on their minds: the Ukraine crisis, the economic effects of relaxing Covid restrictions, very high inflation rates and higher interest rates resulting from the FOMC meeting in March.
All in all, remaining largely in cash and being very conservative with your investments remain sound advice.
Will the Market Find Support?
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) had another rough day, closing down 31 points to 4349, down 0.7% on the day and 1.5% on the week. The approximate low of the correction during the last week of January was 4300, so today’s closing price is getting close – will SPX find support and bounce? Or will the index break through and perhaps begin a severe market crash of 30%, 40%, or even more? Trading volume of the S&P 500 companies was below average all week, rising slightly above the 50 dma today.
VIX, the volatility index for the S&P 500 options, opened this morning at 27%, moved as high as 30% and then pulled back somewhat to close at 28%. One might say the smaller increase in volatility didn’t match the severe sell off of the past two days. Is that a sign of the negativity lessening? Maybe.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM closed today at 199.47, down 1.73 points, down -0.9% on the day and down 1.1% for the week.
The NASDAQ Composite index closed today at 13,548, down 169 points or 1.2%. NASDAQ opened the week at 13,769, resulting in a weekly loss of 1.6%. NASDAQ has been hit hard by this correction. NASDAQ’s 50 dma and its 200 dma are very close to 14700. NASDAQ is now trading 1152 points below those moving averages. Put another way, NASDAQ would have to gain 8.5% to regain those moving averages. NASDAQ trading volume was below average all week.
With the S&P 500 index solidly under its 200 dma, we are experiencing a serious correction. Some technical analysts call any decline less than 10% just a minor pull back. The low toward the end of January was down about 11%. This correction isn’t irrational. We are setting records with recent measures of inflation. A more serious fear for traders is the Fed’s cure for inflation: ending their bond purchases (pumping up the money supply) and increasing the federal discount rate, the interest rate charged banks by the Federal Reserve. Both will put a strong damper on economic growth and hence stock prices.
That brings us to the key question: How much damage will that cause for the markets? Down 11%? Down 25%? More? Market pricing always reflects traders looking forward, predicting the price trend, and placing their bets (trading). You could say the majority opinion in the last week of January was trimming 11% was about right. Will that hold, or are traders starting to worry that the economy might be harder hit by inflation and higher interest rates?
The market seems to be oscillating between mild bullishness and panic. If the covid restrictions continue to decline, that will tend to stimulate significant recovery and growth. But if the next round of CPI and PPI data move higher yet, all bets are off.
Be Careful Out There
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) certainly appeared to have found its footing this week, gaining just under 6% from last Friday through Wednesday of this week. But then it turned and bit us – ouch! SPX gapped open lower on Thursday and proceeded to lose over 2% in one day. SPX closed today at 4501, up 23 points or 0.5%. But Thursday’s loss took its toll on the week, resulting in a gain of 1.6% for the week. The only good thing I can say about today’s trading was that SPX appeared to find support at the 200 day moving average (dma).
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM closed today at 198.38, up 0.85 points or +0.4%. IWM was up 3.5% for the week, but that is where the good news ends. IWM remains over 15 points, or nearly 8% below the 50 dma. The Russell 2000 is not giving us a strong bullish signal. It was looking rather weak even before Thursday’s loss.
The NASDAQ Composite index closed today at 14,098 , up 219 points or 1.6%. NASDAQ opened this week at 13,437, completing a strong weekly gain of 5%. But NASDAQ remains 637 points below its 200 dma. NASDAQ would have to tack on another 5% just to recover its 200 dma. Trading volume declined steadily all week.
Watching the S&P 500 index put on such a bullish performance from last Friday through Wednesday was mesmerizing and probably convinced many of us to jump back on the bullish train. I sold a SPY put on Wednesday, only to close it the next day. I told my clients I was sticking my toe in the water, but something bit it off!
Today’s price action was not very reassuring. Yes, it was generally positive and SPX appeared to find support at its 200 dma. But that is weak praise. Only the perennial bulls could find confidence in this market. I think the results of the last FOMC meeting are still scaring traders. The levels of inflation we are seeing are indeed scary. The Fed’s proposed actions to control inflation may be required, but bitter, medicine. It is hard to find a bull market in the midst of inflation, continued lockdowns, the end of the Fed’s bond purchases, and prospects of one or more discount rate hikes on the horizon.
Still In Cash
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) opened and ended this week on positive notes, but the price action in between was unimpressive. SPX closed today at 4432, up 105 points or 2.4%. SPX opened the week at 4356, posting a weak 1.7% weekly gain. Monday’s price action was very bullish with SPX trading as low as 4223 before strongly recovering to close at 4410. Normally I would have jumped on that bullish signal, but I wasn’t tempted for two reasons: 1) it just looked too good to be true, and 2) the FOMC meeting was looming. Who trades ahead of that event? The next three days slowly trended lower. But SPX tried to put a good face on it and traded strongly enough today to post a positive week. However, SPX remains under the 200 day-moving-average (200 dma).
Trading volume of the S&P 500 companies ran above the 50-day moving average (dma) all week, Trading volume spiked quite high on Monday’s turnaround trading session.
VIX, the volatility index for the S&P 500 options, closed at 27.7% today, down almost three points. VIX opened the week at 28.2%, so volatility spiked in the middle of the week but ended the week nearly unchanged. No one is taking off those put options just yet.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM closed today at 195.25, up 3.73 points or +2%. The low point of IWM trading today was 188.09 which broke below the low for all of 2021. Note that IWM has yet to post a correction low – it broke Monday’s low today. If you are looking to the Russell 2000 for hope, you are looking in the wrong place.
The NASDAQ Composite index closed today at 13,771, up 418 points or 3.1%. NASDAQ opened this week at 13,482, completing a modest weekly gain of 2%. Trading volume spiked on Monday but remained flat the balance of the week, running along the 50 dma.
It has been excruciating to just sit on my hands for the past 2-3 weeks, but it beats losing money. All of my accounts are totally in cash. When you consider the summaries above of the S&P 500, IWM and NASDAQ, it doesn’t look like we are out of the woods. Only the perennial bulls could find confidence in this market.
When we add Fed actions to control inflation, the picture becomes even more bearish. The FOMC has previously discussed the discount rate cure for inflation as occurring sometime later this year or even in 2023. But we learned this week that the Fed plans to raise the discount rate at the March meeting and terminate all bond purchases at that time. Imagine what a series of two or three sequential discount rate increases will have on the markets. That means serious tightening on economic growth. Market prices are beginning to reflect that prospect.
Correction or Full Bear Market?
- Written by Dr. Duke
The Standard and Poors 500 index (SPX) continued its steady trek lower today, closing down 85 points to 4598, or 1.9% just today. But that is tame compared to the weekly decline at 5.1%. SPX is now down 8.5% since the January 4th open of 4805. Trading volume of the S&P 500 companies ran above the 50-day moving average (dma) all week and spiked higher today on the gap lower at the opening this morning and the break of the 200 dma.
VIX, the volatility index for the S&P 500 options, closed at 28.9% today, up a little over one point. VIX opened the week at 21.2%, so volatility is starting to really crank up. But given the severe market action, this level of volatility is surprisingly low.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM broke below both its 50 dma and its 200 dma in one trading session on January 5th and remains well below its 200 dma today. IWM closed today at 196.99, down 3.76 points or -1.9%. Since January 4th, IWM has declined 12.8%.
The NASDAQ Composite index closed today at 13,769, down 87 points or 2.7%. NASDAQ opened this short trading week at 14,682, completing a large weekly decline of 6.2%. Today’s trading broke the October 4th low from last year. The next support level is 5.5% lower at 13,013. Trading volume was reasonably flat this week, running along the 50 dma.
With this market, what can I say? I am totally in cash and watching for clues of a recovery – not seeing anything even close so far.
Record Inflation For 2021
- Written by Dr. Duke
December was a tough month for the markets, but this year’s market appears to be trying to challenge those December lows. The Standard and Poors 500 index (SPX) closed at 4663, up 4 points, but almost flat for the week (+0.2%). You probably recall the classic hammer candlestick with its long lower candlestick shadow on Monday this week. That is a fairly reliable signal of a recovery from the downtrend. I was hopeful when SPX traded higher Tuesday, but then the classic doji candlestick posted on Wednesday, a signal of indecision and a possible turning point in either direction. The bad news came yesterday with SPX breaking its 50-day moving average (dma). Today’s increase barely made it back to yesterday’s close. SPX trading volume essentially traded sideways this week around the 50 dma.
VIX, the volatility index for the S&P 500 options, closed at 19.2% today, down a little over one point. VIX opened the week at 19.6%, so volatility is fragile and moving rapidly back and forth. Said another way, the large institutional traders are nervous.
I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. The Russell 2000 index has been signaling a bearish market since November 8th. IWM broke below both its 50 dma and its 200 dma in one trading session on January 5th and remains well below its 200 dma today. Bullish traders are swimming upstream.
The NASDAQ Composite index closed today at 14,894, up 87 points, but NASDAQ only managed to gain 1% for the week. NASDAQ opened this morning below its 200 dma but it climbed back above the 200 dma before the close, so at least that support level held. NASDAQ has been hit much harder than the S&P 500 this year. It appears traders are cashing in the returns on the high-flying high-tech stocks. Trading volume declined all week.
I only had two trades open in my trading group last Friday and I closed those this week. With the exception of the February condor in the Flying With The Condor™ service, I am entirely in cash. It is time for a long winter’s nap.