Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 27 January 2015

Weak guidance comments in the earnings announcements of CAT and MSFT, plus a larger decline in durable goods orders spooked traders this morning. SPX opened down about $10 and within an hour or so, the losses had widened to about $35. SPX traded as low as $2020 before beginning to recover, closing at $2030, down $28. RUT closed at $1195, down $6. Volatility bounced up a bit, but not as much as I would have predicted, with the VIX closing up two points at $17.9%. Suddenly everyone is a bear.

The durable goods orders report for December dropped 3.4%, worse than the 2.1% decline in November. But other reports today were more positive. The Case Schiller housing price survey came in at +4.3% for November, down a bit from the previous reading of +4.5%. Similar to the University of Michigan numbers, the Conference Board's consumer sentiment survey hit a high note of 102.9 for January, the highest report since August of 2007. The annualized rates of new home sales for December came in at 481 thousand, up from the previous 431k.

AAPL and YHOO were both trading higher in after hours markets after their earnings announcements; maybe that will improve the moods on the street tomorrow.

My Feb iron condor on RUT continues in the black with a net P/L of +13%. We sold the AAPL 97/102 and 120/125 iron condor on AAPL in our trading group today as a play on the earnings announcement. So far, so good...

Details

Written by Dr. Duke

Created: 23 January 2015

The markets calmed a bit after yesterday's exuberance. SPX pulled back $11 to close at $2052, while RUT stayed pretty flat, losing one dollar to close at $1189. Volatility was up just a tad at 16.7%. Trading volume fell off from yesterday with 2.2 billion shares of the S&P stocks trading; this is right at the 50 dma. Trading declined 8% on the NYSE and declined 16% on NASDAQ.

The last pull back began as SPX opened at $2063 on January 9th and then proceeded to drop to $1993 on January 15th. SPX closed yesterday right at that opening on January 9th as the pull back began, so I was interested to see if we could break out above that level, but it wasn't to be... At least it didn't happen today. Perhaps the bull trend is on hold for a bit as the market consolidates and chops sideways.

Existing home sales came in at 4.93 million for 2014, representing a 3.1% decline year over year. This was the first annual decline in four years.

Our February condor position on RUT closed at a net gain of 11% today. Delta for this position is less than a dollar per contract, so we are very well positioned at 27 days from expiration. Next week brings some closely watched earnings announcements with AAPL, AMZN, GOOGL, and FB.

Have a great weekend.

Details

Written by Dr. Duke

Created: 21 January 2015

The markets appear to be calming a bit today - no extreme moves and volatility is beginning to contract. SPX gained $10 to close at $2032. But RUT was weaker, closing at $1166, down $4. The VIX closed the day at 18.9%, down over a full percentage point. Trading volume fell off with 2.2 billion shares of the S&P 500 trading today. Trading volume declined 8% on the NYSE and declined 5% on NASDAQ.

The SPX chart now looks like a choppy sideways pattern is shaping up. A key question is whether SPX can break out above the 50 dma at $2045 or be pulled back closer to the low set by the last two pull backs around $1900. It is remarkable that we have seen three corrections or pull backs just since the beginning of December. One has to conclude that the bulls have sufficient strength to hold this market up, even if they appear to have lost the strength to drive it higher. And this also shows that the bears cannot really make a case for reversing the trend. Perhaps this balancing of power between the bears and the bulls is shaping up for a classic sideways market with higher than average choppiness.

The Stock Traders Almanac has developed two January indicators with good historic accuracy. One is the First Five Days indicator and the other is the January Barometer. The First Five Days indicator simply tells us that the full year will be bullish if the first five days are bullish; this indicator has proven prophetic 85% of the time and the January Barometer has a 77% batting average. The First Five Days "sorta" came out bullish with the first five days being up by less than a tenth of a percent. We have to wait until month end for the January Barometer. The Stock Traders Almanac also makes an interesting observation: there has not been a down market in the pre-presidential election year since 1939.

My February condor continues to plod along with a 4% gain thus far; we are now under thirty days to expiration, so this sideways market is working well for this position. The maximum gain is 19%, but we will likely close it early for less than that gain. We are well into earnings season, so we may see some market choppiness as traders attempt to translate individual company performance into overall market prospects.

Details

Written by Dr. Duke

Created: 16 January 2015

The markets appeared to bounce off support established just after the first of the new year. But it is a tenuous conclusion, especially since the economic data to support this recent market weakness appear absent.

SPX closed up $27 at $2019 and RUT gained an even larger percentage, closing at $1177, up $22. The VIX pulled back over a point to close at 21.1%. Trading volume was up modestly with 2.6 billion shares of the S&P 500 stocks trading. Trading on the NYSE was up 9%, but trading volume was flat on NASDAQ.

The CPI declined 0.4% in December, while the PPI declined 0.3%, so inflation seems largely absent, at least according to the official data. Industrial production for December dropped 0.1%, in contrast to the 1.3% increase in November. Capacity utilization was flat at 79.7% for December (80% in November). The University of Michigan's consumer sentiment survey peaked at 98.2 for January, up from last month's 93.6, which we thought was high. This is an eleven year high for this survey with consumers probably buoyed by the large decrease in gas prices.

SPX settled at $1989.68, so both spreads in my January condor expired worthless, but the market required two adjustments to this position and both adjustments were expensive due to the extreme market whipsaws, overwhelming our potential profits. This position lost 6%, but our February position is already up 4%. For those of you trading Russell (RUT), it settled at $1150.75.

The markets will be closed on Monday, so enjoy your long weekend.

Details

Written by Dr. Duke

Created: 14 January 2015

 The weakness in the markets continued today. Lower commodity prices in general, not just oil, have analysts worried that a global recession is in the making. Copper spot prices hit a six year low. The retail sales numbers for December were released today and were down 0.9%. Lower oil prices contributed to that, but after pulling out autos and gas, the number is still negative at -0.3%. Adding fuel to the fire, J.P. Morgan missed their earnings target; the combination of all of these effects weighed on the market.

SPX lost $12, closing at $2011. RUT gapped down at the open, but actually traded higher during the session. But due to the gap down, RUT closed down $4 at $1177. Volatility rose again with the VIX hitting 21.5%, up one point. SPX traded as low as $1988 today, dipping below the low from January 6th of $1992; the pull back in December marked a low of $1973. If we break $1970, we could start to see real damage, more like the October correction.

Trading volume was up again today with 2.7 billion shares of the S&P 500 stocks trading. Trading on the NYSE was up 2%, but trading volume on NASDAQ declined 4%.

My February condor on RUT remains about 3% in the black. The short puts at $1080 appear to be safe at this point, but with everyone crying that the sky is falling, who knows?

Details

Written by Dr. Duke

Created: 13 January 2015

I enjoy roller coasters, but not with my money! Early this morning, I checked Asian and European markets and they were mostly in positive territory. Then I saw that the S&P futures were up nearly ten points, so that was reassuring after the market weakness of the past two days. When you add in my general skepticism about lower oil prices causing market weakness, you may imagine that I was feeling smug this morning as SPX opened and traded up to $2057. But then the bottom fell out of the market about 11 am ET and fell to the intraday low of $2008 by 2:15 pm ET. That was a 2% swing! We normally think we have seen a strong market move when we see a one percent move one way or the other over a day's trading. Today we witnessed a 2% move within about three hours. That puts a new definition on a volatile market.

SPX closed down $5 at $2023, but RUT managed to hang onto a fifty cent gain, closing at $1181. Volatility spiked up almost a full point to 21.1%, close to the closing price of VIX at 21.1% one week ago. I thought that was the volatility peak, and therefore the market low, but maybe not.

Trading volume popped up today with 2.5 billion shares of the S&P 500 stocks trading. Likewise, trading was up 22% on the NYSE and 16% on NASDAQ. That was probably due to traders scrambling as the market whipsawed up and then back down.

The JOLTS job opening report came in at 4.97 million job openings for November, up almost 3% from October.

So where does this leave us? Good question. I take some reassurance from RUT's relative strength, but this market's volatility is unnerving. Perhaps we are seeing a choppy sideways market, but one where the chop is higher than normal, or at least what we thought was normal. In times like these, I prefer non-directional trading, although the adjustments are more difficult. The spreads of my Jan SPX iron condor at 1940/1950 and 2160/2170 will expire worthless, but the adjustments as the market whipsawed me back and forth chewed up my potential gains; this position will post a 6% loss. My RUT Feb iron condor at 1070/1080 and 1300/1310 stands at a net 4% gain.

Details

Written by Dr. Duke

Created: 12 January 2015

Oil continued to trade lower today, driving energy stocks lower (makes sense) and carrying the broad market indexes lower as well (makes no sense). I have never seen so much hand wringing on behalf of lower oil prices. All the years I worked for a large oil company, all I heard were complaints when we made money and cheers when oil prices dropped and we posted losses.

SPX lost $17 to close at $2028, but RUT only dropped $6, closing at $1180. RUT bounced off its 50 dma at $1178, while SPX opened at its 50 dma and continued lower. Trading volume popped up a bit with 2.1 billion shares of the S&P 500 stocks trading today, slightly above the 50 dma at 2.05 billion shares. Trading volume on the NYSE rose 3% and volume increased 10% on NASDAQ.

Alcoa (AA) kicked off earnings season positively, beating estimates and resulting in analyst upgrades. Perhaps a few good earnings announcements will distract all of this negativity around lower oil prices - did we like $4 gasoline?

We are looking at a week full of economic reports as well as continued earnings announcements. The Fed's Beige Book and retail sales are released Wednesday. Unemployment claims, the New York and Philadelphia Fed surveys, and the PPI all report on Thursday. Friday brings the CPI,industrial production, capacity utilization, and the University of Michigan's consumer sentiment survey.

In the meantime, I will be watching support on SPX in the neighborhood of $2000 to see if the market stabilizes.

Details

Written by Dr. Duke

Created: 09 January 2015

The jobs report came out this morning and may have disappointed a few people. And oil prices continue to drop, although that should be a boon to consumers, but market analysts continue to tell us the market is weak because oil prices are low. That doesn't make any sense to me. When oil was below $10 in the nineties, no one noticed, unless you worked for an oil company. In any case, SPX lopped off $17 to close at $2045. RUT also lost ground, closing down $10 at $1186. Volatility rose a bit with the VIX gaining a half point to close the session at 17.6%. That was a small increase in the VIX for a $17 drop in SPX. It doesn't seem as though the big boys are too concerned.

Trading volume dropped off with 1.9 billion shares of the S&P 500 trading. Volume on the NYSE decreased 7% and trading decreased 18% on NASDAQ. Did everyone took a long weekend?

The jobs report came in at +252 thousand, down significantly from last month's +353 thousand. The unemployment rate dropped again to 5.6%, but that number is basically useless due to the calculation protocols now being used. Most of you rememmber times when we had 5% unemployment; look around. This isn't that kind of booming economy. Many of my acquaintances remain unemployed; empty store fronts are on every block.

Another round of earnings announcements begin next week with Alcoa on Monday. Maybe traders are waiting on the sidelines until they see some of those numbers.

Have great weekend. And if you live around Chicago, try to stay warm. I was shoveling snow this morning and it was cold!

Details

Written by Dr. Duke

Created: 06 January 2015

Hello everyone! Vacations are nice, but it's time to get back to work. The markets appeared to be rebounding at the open this morning, but then things turned dark. SPX hit its low for the day around 1:30 pm ET, but then traded up to about $2016 and gave us hope before turning downward to close at $2003, down $18 on the day. RUT followed suit, dropping $20 to close at $1161. Volatility increased to 21.3% on the VIX, up 1.4 points. The VIX ranged as high as 23% today before pulling back a bit. Both SPX and RUT ended the day with moderately long lower shadows on their candlesticks. This is hinting that we are closer to a bottom, but that is always hard to predict. I took a pass through the price charts of several stocks I trade and many of those charts were showing signs of either finding support or bouncing higher. Long lower candlestick shadows were common.

But that brings me back to wondering why the market is pulling back. Aren't lower oil prices good for almost everyone? The other scary goblin trotted out for us by the bears is Greece and their coming election. The only thing that worries me about Greece is that it may be a hint of coming attractions for us in this country: crushing debt, a preponderance of government bureaucrats, and a population that believes it is entitled to continued handouts.

Certainly, the core economic and employment data aren't strong and robust. But they aren't signaling recession either. The basic economy is strong, but we aren't seeing the strong creation of jobs to accelerate growth out of the recession. By most measures, the Standard and Poors 500 Index is modestly over-priced at worst. But these 5% and 10% pull backs in the market every few weeks are strange and don't seem to make much sense, at least not to me.

Trading volume continued to build today as people get back to work. 2.7 billion shares of the S&P 500 companies traded today, up significantly higher than the 50 dma at 2.0B. Trading on the NYSE increased 14% and trading volume increased 20% on NASDAQ. The ISM Services survey for December was released with a rating of 56.2, down from November's 59.3. Factory orders were unchanged in November with another decline of 0.7%. The FOMC minutes will be released tomorrow and the jobs report comes on Friday. Perhaps this data will stabilize the market.

Details

Written by Dr. Duke

Created: 22 December 2014

The next two weeks will likely be mostly sideways trading in lower volume. But, as I write that, I realize that much of what we know about market behavior based on history has been turned upside down this year. Just one example was the recent 5% correction in the midst of everyone expecting the Santa Claus rally that has a solid history behind it. The options legend, Larry McMillan, wrote in his newsletter this week, "In nearly 45 years of trading, I don't think I've ever seen a market as wild as the one has been this month." That makes me feel better. I am particularly pleased that our November and December iron condor positions in the Flying With The Condor™ service achieved positive returns in the midst of this craziness.

SPX closed up $8 at $2079 today and RUT gained $6 to close at $1202. Trading in the S&P 500 stocks was down a bit today at 2.0 billion shares; the 50 dma = 2.3B. Trading volumes on the NYSE and NASDAQ were both up by large percentages over Friday, but this is the usual post-expiration Friday drop-off. Volatility has almost returned to its pre-correction values, with the VIX closing at 15.3%, down 1.2 points today.

Existing home sales reported for November at an annualized rate of 4.93 million, down from last month's 5.25 million. Analysts were surprised; they had expected around 5.20 million.

The stock and option exchanges will be open for normal hours tomorrow and Friday. They will be open until 1:00 pm ET Wednesday and closed Thursday.

Is your shopping done?