Dr. Duke's Blog

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Written by Dr. Duke

Created: 13 February 2015

SPX continued its ride higher, closing at $2095, up $6. RUT closed up $7 at $1223. And NASDAQ and all of the other indexes followed suit. In fact, if you looked at the small cap indexes and compared them to their big brothers, there was a pretty clear "risk on" trend. The bullish break-out is alive and well, and traders are excited. As you might expect, volatility dropped to its lowest level this year, closing down seven tenths of a point at 14.7%. The only negative sign was declining trading volume. 2.1 billion shares of the S&P 500 stocks traded and trading volume declined 5% on the NYSE. Trading on NASDAQ was down 6%.

On the other hand, we are looking at a three day weekend of the type where our markets are the only ones closed on Monday. So you can have huge pent up demand to push stocks one way or the other Tuesday morning, depending on what happened over the weekend and on Monday. Now add Greece and their negotiations with the Euro Zone. I can think of many possible scenarios that could result in a big move Tuesday morning.

Now you can see why I closed the call spreads on my February iron condor on RUT today; they were 2.8 standard deviations OTM, but I decided that saving the five cents it took to close them wasn't worth the risk of giving up more on Tuesday. I left the put spreads open; they are almost five standard deviations OTM. Assuming the put spreads expire worthless next weekend, the February position closes for a gain of 18%.

I also hedged my risk on the March position by closing the RUT 1270/1280 call spreads; this brings my position to break-even. It will return to a potential profit after I sell new call spreads next week. But, in the meantime, I will sleep better.

Have a great weekend.

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Written by Dr. Duke

Created: 12 February 2015

If you detected some cynicism in my blog title, you know me well. I feel like this market has jerked me around so much of late with these so-called "V-bottom" corrections, I am skeptical of every market move. It is true that a basic underlying bullish bias has been present in the market over the past two months as it chopped sideways. There were several opportunities for the bears to make their case, but they couldn't do it.

SPX closed up 20 points today, closing within striking distance of all-time highs. RUT gained $15 to close at $1216, again nearing its all-time high. Volatility pulled back significantly, with the VIX losing 1.6 points to close at 15.3%. Consistent with all of this bullishness, trading volume was higher with 2.3 billion shares of the S&P stocks trading (but that isn't much above the 50 dma at 2.2B). Trading increased 4% on the NYSE and increased 16% on NASDAQ.

IBD returned their indicator to "Confirmed Uptrend" yesterday, so today's market fell right in line.

The weekly unemployment claims numbers came in at 304k, up a bit from last week's 279k. However, continuing unemployment claims decreased by 51k to 2.354 million. The University of Michigan's consumer sentiment number comes out tomorrow, and that is likely to stay pretty optimistic, given the lower gas prices. The only thing that may derail this bullish run is Greece, even though I consider that to be more of a tempest in a teapot. But the market has been nervous about those debt negotiations and the prospect of Greece leaving the EU. We'll see.

The exchanges will be closed Monday, so sell those credit spreads in the morning if you didn't think to do it today.

Have you prepared for Valentine's Day?

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Written by Dr. Duke

Created: 11 February 2015

Today's market wanderings were blamed on Greece (again). The markets were flat with SPX unchanged at $2069. RUT lost $2 to close at $1202. Trading volume was also flat with 2.1 billion shares of the S&P 500 trading. Trading volume declined 2% on the NYSE but was flat on NASDAQ. Volatility came in a bit with the VIX closing at 17.0%, down about three tenths of a point.

There wasn't much in the way of economic data today. Tomorrow brings the unemployment claims and retail sales reports.

If you look at the SPX chart, you will note that the market tried to jump back on the bull bandwagon twice in January and was pushed back at $2065. Yesterday, SPX finally closed above that level, but today SPX dipped as low as $2058 before recovering to close at $2069. Technically, it remains above that resistance level, but I remain to be convinced. The battle between the bulls and bears remains very balanced at this point. It could go either way - or maybe we will just continue to wander sideways as we have for the past two months. It remains a stock picker's market.

My February iron condor on RUT stands at +18%, close to its maximum gains at 19%. I will close this position this week and take the risk off the table. The March condor is down to 36 days to expiration and is up 3% as of today's close.

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Written by Dr. Duke

Created: 10 February 2015

Stocks opened today strongly, and the rally never faltered, with SPX closing at $2069, up $22 and near its high for the day. RUT ran up $7 to close at $1203.  Volatility contracted a bit with the VIX closing at 17.2%, down 1.4 points. Trading volume was up modestly with 2.2 billion shares of the S&P 500 stocks trading today, but this is just at the 50 dma. Trading was up 1% on the NYSE and was up 8% on NASDAQ.

The markets have been caught in a sideways consolidation trading range since the markets rallied out of the October correction and hit highs around the beginning of December. But this has been a choppy, volatile trading range. SPX rallied to highs around $2064 on January 9th and then again on January 22nd. SPX closed right at that level last Thursday, but couldn't hold it, dropping Friday and Monday. The bulls took charge and drove into that area again today, closing at $2069. Can they hold it this time? The levels to watch on the top side of this consolidation range are $2075, the high from December 5th and $2091, the high from December 29th. Breaking through those levels will confirm the bulls' command of the market.

The only significant economic data released today was the JOLTS job openings for December at 5.028 million, up from November's 4.847 million. Some news outlets attributed today's bullish market to positive hopes for Greece to renegotiate their debt. I'm not sure where that hope is based. All the news I see has the Euro Zone holding firm to the previous agreements. But even the so-called worst case of Greece leaving the Euro Zone isn't a danger to the Euro Zone or our markets. A consolidation range of trading following such strong advances in 2013 and 2014 shouldn't be too surprising. The difference from previous markets is the extreme price volatility. At least part of the root cause for the volatility is the unprecedented Fed QE; we are in uncharted economic territory and traders are hitting the sell button at the least sign of trouble - and Greece qualifies.

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Written by Dr. Duke

Created: 06 February 2015

A few years ago (was it 2012?), our markets wobbled a bit as the Greek debt issue was in the forefront of the news. But a deal was reached and life went on. Now new leaders are elected in Greece by promising a return to good times, defined as spend whatever you want and don't worry about paying it back. It makes me wonder if anyone in D.C. is watching this and seeing the writing on the wall? Greece's finance minister is returning from Europe empty handed and the probability of bankruptcy appear to be increasing. Today, Standard and Poors downgraded Greek debt from B to B- (Junk bonds to even riskier Junk bonds). Today's market wasn't ripping higher, but this news from S&P did seem to give traders pause. SPX lost $7 to close at $2055 and RUT lost $3 , closing at $1205. Volatility increased a bit with the VIX gaining nearly a half point to 17.3%.

Trading volume rose to 2.5 billion shares of the S&P 500 companies trading. Trading volume on the NYSE rose 10% and trading rose a whole 1% on NASDAQ.

The jobs report came in at a respectable +257k, but well off the larger numbers from November and December (329k). Unemployment ticked up to 5.7%. But financial reporters appear to be largely of the glass half full perception these days and glowed over the report.

The bottom line is that we continue to trade sideways. Have a great weekend.

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Written by Dr. Duke

Created: 04 February 2015

SPX gapped open yesterday morning, ran up over 1% and broke through the 50 dma like a champ. Today it gave about half of that back, dropping $9 to close at $2042, and closing below the 50 dma at $2044.  RUT lost $6 to close at $1191, but RUT remains well above its 50 dma at $1182. Both SPX and RUT remain solidly in a sideways trading range since the market peaks in mid-December. The volatility index, VIX, declined markedly yesterday, but tacked on a point to close up at 18.3% today, probably affected by the nearly one percent decline in SPX that occurred in less than ten minutes just before the close today. That was enough to get everyone's attention. That market move was apparently in reaction to the latest posturing in the Euro Zone/Greece debt negotiations. It will be interesting to see if markets continue to be weak tomorrow morning or if this was a bit of overreaction.

Trading volume remains above average with 2.7 billion shares of the S&P 500 trading (the 50 dma is at 2.2B). Volume rose 6% on the NYSE and rose 2% on NASDAQ.

The ADP private employment report came in at 213 thousand new jobs, down from last month's +253k. This has traders worrying about Friday's jobs report. The ISM services index reported out at 56.7 for January, slightly higher than December's 56.5.

My February iron condor on RUT stands at a net gain of 15% and is almost perfectly delta neutral. As long as the markets churn sideways, delta neutral traders will be happy. But this market remains nervous, as we were reminded late this afternoon as SPX fell out of bed. Don't take your eye off the ball.

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Written by Dr. Duke

Created: 02 February 2015

The S&P futures were positive early this morning, and the markets opened higher, but then immediately reversed. It was looking as though we were breaking down to new lows. But then it recovered, and by the end of the day, SPX had tacked on $26 to close at $2021, near its intraday high. RUT followed suit, closing up $10 at $1176. Volatility pulled back by a point and a half, with VIX closing the day at 19.4%. Trading volume was down a bit with 2.5 billion shares of the S&P 500 trading, but that remains well above the 50 dma at 2.2B. Trading volume decreased 13% on the NYSE and declined 11% on NASDAQ.

The ISM manufacturing index came in at 55.0 for January, flat with December (55.1). Construction spending gained 0.4% in December after a decline of 0.2% in November.

Whether you are focused on the SPX chart as a sideways trading range with a floor at $1990 or a sideways wedge with a rising lower trend line around $1995, SPX dipped outside of that pattern this morning, but bounced nicely. I don't think we should do the happy dance just yet, but it is reassuring.

My Feb iron condor on RUT at 1070/1080 and 1300/1310 is now up 12% with 17 days remaining. Those put spreads are now 1.6 standard deviations OTM, which is reassuring given this market's weakness.

It seems as though I have been shoveling snow for the past 24 hours, but today was a beautiful day with blue skies and sun sparkling off the snow, and there is a low of snow. The official count was 17 inches. I can hear some of my friends down south now, but don't you miss the seasons? Hmm...

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Written by Dr. Duke

Created: 30 January 2015

SPX fell out of bed this afternoon and closed at $1995, down $26 and near its low for the day. RUT also dropped, closing at $1165, down $25. Volatility spiked upward with the VIX gaining two points to close at 21%. Trading volume was strong with 3.0 billion shares of the S&P 500 trading. Trading volume rose 10% on the NYSE and rose 6% on NASDAQ.

The first estimate of GDP growth for the 4th quarter issued today at +2.6%, down to almost half of third quarter growth. The Chicago PMI for January came in at 59.4, up from 58.8. The University of Michigan consumer sentiment survey for January reported 98.1, roughly flat with December. This data doesn't seem to explain the severe sell-off today.

SPX is still holding support, but is certainly looking weak. Based on the commentary from CNBC guests, it appears as though more and more analysts are throwing in the towel. If you draw the upper and lower trend lines on the SPX price chart, you get a classic wedge, and today's close is sitting on that lower trend line. This chart pattern can go either way, bullish or bearish, with a break-out through one of the trend lines. Monday's open will be interesting.

The January Barometer of the Stock Trader's Almanac is officially complete with a bearish prediction for 2015. SPX opened January at $2059 closed at $1995 today. It isn't a pretty picture. My Feb and Mar iron condors on RUT are both in the black, so that was a comfort as I watched this market tank today.

Forget this market ugliness and enjoy your weekend.

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Written by Dr. Duke

Created: 29 January 2015

The markets continue to wander aimlessly. SPX opened this morning and traded down to $1989 before bouncing around 1 pm ET and rising steadily into the close at $2021, up $19. RUT also rose $15 to close at $1190. Volatility backed off a bit with VIX closing down 1.4 points to 19.0%. Trading volume flattened out after yesterday's spurt higher, with 2.6 billion shares of the S&P 500 company stocks. Trading volumes both on the NYSE and NASDAQ declined 1% today.

Initial unemployment claims were reported this morning at 265k, down from 308k. Continuing unemployment claims also declined from 2.46 million to 2.39 million. One might have thought this was good news, but the markets didn't seem to be impressed, as the market opened and traded down all morning. I'm not sure what changed this afternoon, but this degree of intraday price volatility has become routine.

We are in the midst of earnings season, and thus far, about 70% of reporting companies have beat estimates. If that continues, perhaps the market will strengthen. The stronger dollar has many analysts expecting poor earnings results from multi-nationals due to currency exchange losses.

Today's price action on RUT broke out above the 50 dma, but SPX remains about 25 points below the 50 dma at $2046. Both my Feb and Mar condor positions on RUT remain in the black. It is looking like the January Barometer of the Stock Traders Almanac is going to turn in a bearish indicator unless something dramatic happens tomorrow.

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Written by Dr. Duke

Created: 28 January 2015

The markets were chopping sideways today, but the Fed announcement sent stocks lower. SPX traded off strongly in the last hour of trading today, losing $27 to close at $2002. RUT also traded off $20, closing at $1175. Volatility jumped in that last hour, with VIX closing the day at 20.4%, up over three points.

Trading volume spiked higher with 2.7 billion shares of the S&P 500 trading today. Trading volume rose 22% on the NYSE and rose 10% on NASDAQ.

Oil traded lower and the dollar continued to strengthen. This is fueling some concerns about currency effects on multi-nationals in coming weeks. But those effects didn't seem to hold back AAPL's performance. Did you see those iPhone sales numbers? It made me wonder what's wrong with me since I still have my iPhone 4s. Apparently everyone is trading up and I am two upgrade cycles behind.

It seemed as though the FOMC announcement spooked the markets, but it isn't obvious to me if that was really cause and effect. The Fed continues to emphasize that it will remain patient about raising interest rates, and the Fed's latest announcement appeared to strengthen their assessment of the economy. It seems that traders remain wary of a global slowdown and its effects on this economy. One thing's for sure - this is a dicey market to trade.