Dr. Duke's Blog

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Written by Dr. Duke

Created: 06 January 2024

The Standard and Poors 500 index (SPX) closed Friday at 4697, up nine points or 0.2%, but down one percent for the first week of the new year. Trading volume ran at or just below the 50-day moving average (dma) all week. The bullish run from early November hit its high on 12/28 at 4793 and has now declined two percent from that high.

VIX, the volatility index for the S&P 500 options, opened the new year at 13.2% and closed at 13.4% Friday after spiking as high as 14.6% earlier on Friday.
 
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 193, down less than one point on Friday, but down 3.1% for the first week of the new year. IWM hit its high in the most recent bullish move at 205 on 12/27 and is now down nearly six percent from that high. IWM broke support at 196 and closed just above the next support level around 192.

The NASDAQ Composite index closed Friday at 14,524, up 14 points or 0.09%. NASDAQ opened the week at 14,874, setting up a weekly loss of 2.4%. Trading volume ran slightly above the 50 dma all week. NASDAQ closed near support on Friday and the next support level is near the 50 dma at 14,162.

The strong bull market since early November was primarily based on traders’ expectations for the FOMC to lower interest rates in 2024. The so-called dot plots of the committee members that accompanied the Fed announcement in December were forecasting two to three rate cuts in 2024. Since then, the enthusiasm has faded steadily. The release of the minutes from the last FOMC meeting this week threw cold water on any rate cuts early in 2024. Committee discussion was hopeful that further hikes would not be necessary, but several committee members were concerned that the inflation rate may not be fully constrained. That took the steam out of the bulls’ sails and contributed to the bearish trading to start the new year.

The Santa Claus rally, coined by Yale Hirsch in 1972 (founder of the Stock Trader’s Almanac), describes a common bullish trend for the last five trading days in December and the first two trading days in January. The Santa Claus rally took a pass this year, declining 1.1%.

The Stock Trader’s Almanac also follows the First Five Days of January and the January Barometer for the full month of January. All three measures comprise the January Trifecta; when all three are positive, the S&P 500 has been positive for the year over 90% of the time. The Santa Claus rally failed, and the First Five Days is looking like a second failure, with four days done and the market down one percent. The track record of the January Barometer by itself boasts an accuracy of 84%.

Friday’s intraday trading was generally more bearish with highs set early and most of the subsequent trading trending lower. But the market managed a positive finish for the day. I am left with a mixed review for the 2024 market.

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Written by Dr. Duke

Created: 16 December 2023

The Standard and Poors 500 index (SPX) posted a record-breaking day on Wednesday after the FOMC announcement, but settled a bit on Thursday and Friday, closing yesterday at 4719, essentially unchanged. SPX opened the week at 4593, setting up a 2.7% gain for the week. Trading volume spiked up to 5.6 billion shares yesterday, partly due to quadruple witching, but trading volume was up to 3.8 billon shares on Thursday, with the 50-day moving average (dma) at 2.5 billion shares. Many large traders were taking profits.

VIX, the volatility index for the S&P 500 options, opened the week at 13.1% and declined to close at 12.3% yesterday, although VIX did move as high as 12.7% on Thursday. VIX has not been this low since the beginning of 2020.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 197, down almost two points, just under one percent. IWM opened the week at 187, setting up a strong weekly gain of 5.3%. IWM gapped open over three percent on Thursday morning.

The NASDAQ Composite index was slightly more bullish than the S&P 500 this week, closing up Friday at 14,814, up 52 points or 0.4%. NASDAQ opened the week at 14,340, setting up a weekly gain of 3.3%. Trading volume ran above the 50 dma all week and was pushed higher today by quadruple witching, but trading volume on NASDAQ was over eight billion shares both Thursday and Friday.

The market has been on a strong run since October 30th, nearly straight up with several gap openings. Traders were apprehensive as the FOMC announcement neared but traded strongly higher on the announcement. The pause in rate hikes was widely anticipated, but the key data were the so-called dot plots of the committee members, which were forecasting two to three rate cuts in 2024. The end result was a huge day in the markets on Wednesday, but that was followed by profit taking on Thursday and Friday as the excitement faded.

It is helpful to step back and study the big picture for a moment. I may be alone, but I have been beaten up by this market over the past two years. It wears on you and can lead to a pessimistic outlook.

The S&P 500 and the NASDAQ Composite both hit their all-time highs in late 2021 and remain about 2% and 9%, respectively, below those highs. The Russell 2000 is about 20% below its high in November 2021. It may have been choppy, but a large amount of market repair has occurred this year. The slowdown for the bulls over the last two trading sessions may reflect a sobering effect after the Fed excitement upon reflection on some of the strong headwinds facing the market. We have now had two warnings of possible downgrades to our treasury bond debt. We are in a very similar situation to what Greece faced about eight years ago with our debt levels being much higher than our GDP. Congress appears to be completely unaware of this situation. In view of the upcoming election, I don’t expect anyone to touch this third rail and we may reasonably expect a continuation of the bull market into 2024. But I am watching my financial assets carefully.

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Written by Dr. Duke

Created: 01 December 2023

The Standard and Poors 500 index (SPX) took a breather for most of the week, showed some life on Thursday and then powered upward today, closing at 4555, up 27 points or +0.6%. Trading volume spiked up to 3.5 billion shares yesterday but settled down to just above the 50-day moving average (dma) at 2.4 billion shares today.

VIX, the volatility index for the S&P 500 options, opened the week at 13.1% and traded mostly sideways and slightly lower to close at 12.6% today. It appears that the traders are becoming more comfortable in treating this as bull market.

I track the Russell 2000 index with the IWM ETF, which closed today at 184.9, up over five points, just under 3%. IWM opened the week at 178.5, setting up a very strong weekly gain of 3.6%. IWM has been very weak during this bullish surge since the first of November, but it came to life today, finally breaking above its 200 dma today. The 50 dma is at 173, over 6% below the 200 dma.

The NASDAQ Composite index was much more tentative than the S&P 500, closing at 14,305, up 79 points or 0.6%. NASDAQ opened the week at 14,239 and closed today at 14,125 , setting up a weekly gain of only a half percent. Trading volume ran above the 50 dma for the last three days and peaked at about 5.5 billion shares for the past two days; the 50 dma is 4.5 billion shares.

The market has been on a strong run since October 30th, nearly straight up with several gap openings. Everything slowed this week and culminated in a very strong bullish day for the markets. The most bullish signal today was the recovery of the Russell 2000. Russell has been trading very weakly all through this bullish run – until today, when it ran up three percent and tallied a four percent gain for the week.

Bond yields and comments from any member of the FOMC have contributed to recent price volatility. The slowing of the PCE price index probably contributed to the bullish run today. Traders are looking for signs that might cause the Feds to at least not raise rates further, but hopefully signal a rate decrease early next year. That may be wishful thinking.

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Written by Dr. Duke

Created: 17 November 2023

The Standard and Poors 500 index (SPX) wandered sideways to a large degree today, closing at 4514, up 6 points or 0.1%. SPX opened the week at 4407, setting up a strong weekly gain of 2.4%. Trading volume peaked above the 
50-day moving average (dma) on Tuesday and then declined all week.

VIX, the volatility index for the S&P 500 options, closed today at 13.8%, down about 9% from the open at 15.2% on Monday.

I track the Russell 2000 index with the IWM ETF, which closed today at 178.3, up over two points or 1.4%. IWM opened the week at 168.2, setting up a very strong weekly gain of 6%. IWM broke out above its 50 dma on Monday but remains about one percent below its 200 dma.

The NASDAQ Composite index closed today at 14,125 , up 12 points or 0.08%. NASDAQ opened the week at 13,746 for a weekly gain of 2.8%. Trading volume peaked above the 50 dma on Tuesday but declined the rest of the week. Friday’s trading volume was over 25% below the 50 dma.

This recent bull market has been quite strong, rising over nine percent since October 30th. The market has opened and gapped higher seven times and we have only experienced one bearish trading session over this period of time. Pullbacks in this market have occurred with higher bond yields or remarks from Powell or any member of the FOMC that suggested more discount rate hikes are coming. Market analysts interpret each economic news or data in light of whether it might lead to the end of rate hikes, and thus a stronger market, or additional rate hikes that may lead to a hard landing. This makes it difficult to predict market trends. On one day positive economic news may lead to a market increase, but at another time, it may lead to a pullback.

It seems we are all whistling in the dark, hoping that huge government debt doesn’t eventually crush us. Paying the interest on the debt continues to take a larger share of the government’s budget.

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Written by Dr. Duke

Created: 10 November 2023

The Standard and Poors 500 index (SPX) put on a show today, closing at 4415, up 68 points or 1.6%. SPX opened the week at 4364, setting up a weekly gain of 1.2% (yesterday’s large decline resulted in the inconsistency). Yesterday’s loss found support at the 50-day moving average (dma). Trading volume ran below the 50 dma all week.

VIX, the volatility index for the S&P 500 options, closed today at 14.2%, down over one point today and down nearly 8% for the week.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 169.1, up almost two points or 1.1%. IWM opened the week at 174.5, setting up a gain of over three percent for the week. IWM remains far below both its 50 dma and 200 dma.

The NASDAQ Composite index closed today at 13,798, up 277 points or 
2.1%. NASDAQ opened the week at 13514 for a weekly gain of 2.1%. The weekly gain was affected by Thursday’s large pullback. Trading volume ran near average all week, with the exception of yesterday. Curiously, trading volume was significantly lower on today’s strong run higher.

This strong bullish run higher began in late October and was characterized by several gap openings higher. But trading volume has not been particularly high as the market ran upward. The one exception was a volume spike on yesterday’s strong decline after Powell’s remarks.

The danger in recent markets is due to either bond auctions that result in higher yields or remarks from any member of the FOMC that may be interpreted as suggesting additional rate hikes. Case in point: consider yesterday’s severe market decline versus today’s strong bullish run higher. A weak bond auction started the decline yesterday and Powell's remarks accelerated the drop. Today, the market forgot all about it and roared higher. Note that the S&P 500 and NASDAQ closed at their highs today, characteristic of a strong bull market.

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Written by Dr. Duke

Created: 20 October 2023

The Standard and Poors 500 index (SPX) closed today at 4224, down 54 points or 1.3%. SPX opened the week at 4342, setting up a weekly loss of 2.7%. Today’s loss solidly broke down through the 200-day moving average (dma). Trading volume increased steadily all week, peaking today at 2.7 billion shares, well above the 50 dma at 2.2 billion shares. That increase in trading volume was an endorsement of the downtrend.

VIX, the volatility index for the S&P 500 options, closed today at 21.7%. VIX opened at 19.1% on Monday and declined to 17.2% at the close on Monday, but steadily rose all week.

I track the Russell 2000 index with the IWM ETF, which closed today at 166.4, down 2.2 points or 1.3%. IWM opened the week at 171.7, setting up a 3.1% weekly loss. On Monday, IWM’s 50 dma crossed down through the 200 dma.

The NASDAQ Composite index closed today at 12,984, down 202 points or 
1.5%. NASDAQ opened the week at 13,454 for a weekly loss of 3.5%. NASDAQ broke its 50 dma last Friday and is now approaching its 200 dma at 12,730. Trading volume was below average all week, with the exception of yesterday.

The weak state of this market may be summarized by noting that the S&P 500 and the Russell 2000 have now broken both of their 50 and 200 day moving averages. NASDAQ has broken its 50 dma but remains above its 200 dma.

Last week, I was skeptical of IBD’s move to Uptrend Under Pressure, because the market looked weaker to me. Monday and Tuesday’s relative strength fooled me. I should have started moving to cash. The marked decline of the Russell 2000 last week was the warning shot.

 I entered several new trades cautiously last week and remained in them this week. That was a mistake. Many of those trades could have been closed for gains on Monday and Tuesday. Mea culpa.

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Written by Dr. Duke

Created: 13 October 2023

The Standard and Poors 500 index (SPX) impressed us last Friday and that run continued this week, faltered yesterday and collapsed today with SPX losing 22 points or 0.5% to close at 4328. We opened the week at 4289 for a weekly gain of 0.9%. However, at Thursday’s open the S&P 500 was up 2.1%. Trading volume came in above the 50 day moving average (dma) yesterday 
and today.

VIX, the volatility index for the S&P 500 options, closed today at 19.3%, after spiking to 21% earlier in the day. This intraday spike matched last Wednesday’s VIX spike and makes me wonder if we are headed lower.

I track the Russell 2000 index with the IWM ETF, which closed today at 170.3, down 1.4 points or 0.8%. IWM’s low today was 169.7, essentially matching last Friday’s low of 169.5. IWM has lost everything it gained in this recent rally. Another day of losses may signal the beginning of another downturn.

The NASDAQ Composite index closed today at 13,407, down 167 points or 
1.2%. NASDAQ opened the week at 13,326 for a weekly gain of 0.6%. NASDAQ broke above the 50 dma on Wednesday, fell back below the 50 dma yesterday and extended that loss today. Trading volume on NASDAQ fell well below average today.

The S&P 500 roared higher last Friday and that large move convinced IBD to declare the correction to be over and moved to a market assessment of Confirmed Uptrend. Friday’s rally continued into this week, took a breather yesterday, and may have fallen out of bed today. IBD reassessed the market after the close today and moved to Uptrend Under Pressure. Indeed.

The turn lower on SPX and NASDAQ today wasn’t severe, but the Russell 2000 really took it on the chin, effectively surrendering all of the gains since last Friday.

The talking heads attributed the weakness to CPI coming in at +0.4%, down from 0.6%. You would think that was a positive sign of inflation declining. But apparently some economists had expected CPI to decline to an increase of 0.3%. As is often the case, the talking heads don’t have a clue.

The optimists would point out that the correction low is often retested and sometimes more than once before the new upward trend begins. 

I entered several new trades this week and that may have been premature. I aggressively rolled out several positions today to reduce the capital at risk. We’ll see what happens on Monday.

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Written by Dr. Duke

Created: 06 October 2023

The Standard and Poors 500 index (SPX) put on quite a show today, running up 50 points or +1.2% to close at 4309. SPX opened the week at 4285 for a weekly gain of 0.6%.  The low this week on Tuesday and each day afterward was just above the 200-day moving average (dma), so it appeared to be finding support, but today’s move was dramatic. Trading volume ran close to or just above the 50 dma all week.

VIX, the volatility index for the S&P 500 options, closed today at 17.5%, down significantly from the intraday highs this week around 21%.

I track the Russell 2000 index with the IWM ETF, which closed today at 173, up 1.7 points or one percent. IWM opened the week at 176 for a loss of 1.7% for the week. IWM is the weakest broad market index, having broken both the 50 dma and the 200 dma during this correction. IWM would have to gain nearly 5% just to recover its 200 dma.

The NASDAQ Composite index closed today at 13,431, up 212 points or 
1.6%. NASDAQ opened the week at 13,218 for a weekly gain of 1.6%. NASDAQ appeared to find support near its lows from mid-August.

VIX, the volatility index for the S&P 500 options, closed today at 17.5%, down significantly from the intraday highs this week around 21%.

The broad market context for the past several weeks was ugly to say the least. All of the broad market indices had broken down through the 50 dma and the Russell 2000 had broken down through the 200 dma. S&P’s decline since 7/27 was 8.5%; that got my attention. I bought some SPX puts for protection, but today’s spike higher forced me out of those. Hopefully, it doesn’t whipsaw on me next week.



When I was a boy growing up in Florida, hurricane Donna came through Orlando. Dad built our house in preparation for that night, so we were quite safe. Suddenly the sound of the wind and rain stopped. We walked out into the yard. You could see the stars. It was eerie. We quickly went back inside. You don’t know the size the eye of the hurricane. This market reminds me of that night. Perhaps the storm is over, but the winds may come up again next week.

This is still a good time to be in cash.

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Written by Dr. Duke

Created: 22 September 2023

The Standard and Poors 500 index (SPX) closed today at 4320, down ten points on the day or -0.2%. SPX opened the week at 4445 for a weekly loss of 2.8%. SPX broke down through its 50-day moving average (dma) last week and fell farther this week, leaving the index about midway between the 50 dma and the 200 dma. Trading volume remains well below average.

VIX, the volatility index for the S&P 500 options, closed today at 17.2%, down slightly from yesterday’s 17.5%. VIX remains below the volatility spike  around 18-19% during the mid-August correction, even though SPX broke those 
mid-August lows yesterday.

I track the Russell 2000 index with the IWM ETF, which closed today at 177, down about one half of one point or -0.2%. IWM opened the week at 184 for a loss of 3.6% for the week. IWM broke down through its 50 dma two weeks ago and broke down through its 200 dma early this week. IWM is now more than halfway down from its 7/31 high to its low of 2022.

The NASDAQ Composite index closed today at 13,212, down 12 points or 
-0.09% today, and losing 3.4% for the week. NASDAQ broke down through its 
50 dma last week but is now closing the gap to its 200 dma. NASDAQ found support today at its high from 2022.

The broad market context for the past several weeks isn’t pretty. It would be easy to be concerned that we are setting up for a more serious market correction and October is an infamous month for ugly corrections. As one might expect, Wall Street doomsday gurus are on every financial network. All three broad market indices have posted weekly losses over three consecutive weeks and are consistently below their 50-day averages. The worst chart belongs to Russell, which broke down through its 200 dma this week.

Conventional wisdom expected the FOMC to pause its rate hikes this month and I expected the market to react positively when it did pause. Instead, the market took significant steps lower. The relatively low levels of trading volume provide the only glimmer of hope.

This is a good time to be in cash.

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Written by Dr. Duke

Created: 15 September 2023

The Standard and Poors 500 index (SPX) closed today at 4450, losing 55 points on the day or 1.2%. SPX opened the week at 4481 for a weekly loss of 0.7%. SPX managed to break out above the 50-day moving average (dma) yesterday but gave that up decisively today, closing at 4450, 33 points below the 50 dma at 4483. Trading volume spiked today due to the simultaneous expiration of stock options, index options, and stock index futures. This occurs quarterly on the third Friday of March, June, September and December, and is sometimes still referred to as quadruple witching even though single stock futures are no longer traded.

VIX, the volatility index for the S&P 500 options, declined steadily this week, closing yesterday at 12.8%. VIX appeared to continue that trend this morning, opening at 12.7%, but then it spiked to 14.2% before settling at 13.8% at the close.

I track the Russell 2000 index with the IWM ETF, which closed today at 184, down two points or 1.1%. IWM opened the week at 185 for a loss of 0.5% for the week. IWM touched its 200 dma on Wednesday and today's low was very close the that support level. I follow the Russell 2000 because these high beta stocks are effectively the canaries in the coal mine. They haven't fallen off their perches, but they are twitching.

The NASDAQ Composite index closed today at 13,708, losing 218 points or 1.6% today, and also losing 1.3% for the week. NASDAQ recovered its 50 dma at 13,881 yesterday but today’s close broke well below the 50 dma and came close to the low of 13,749 set on Thursday of last week. NASDAQ’s trading volume spiked today due to triple witching.

The broad market hit highs toward the end of July, but then gave all of those gains back by the third week of August. Then it struggled to recover to a lower high by the first of September, then fell again to a low on 9/8 and today’s close was very close to that low last week. We were all taught the basics of defining a trend: a bullish series of higher highs and higher lows or a bearish series of lower highs and lower lows. The picture isn’t perfectly bearish, but it isn’t pretty.

The S&P 500, NASDAQ Composite and the Russell 2000 have all posted weekly losses both of the last two weeks and are consistently below their 50-day averages. The worst chart belongs to Russell, struggling to remain above its 200-day average. Note the small lower shadows on today’s candlesticks in SPX and NASDAQ. There aren’t many buyers willing to buy those lows of the day. Traders may be waiting on the FOMC announcement next week, but the mood is dark.


Note the CPI and PPI reports from earlier this week. Inflation appears to rising again. The FOMC is being squeezed. A rising inflation rate may dictate another hike in the discount rate. But higher interest rates are hurting banks as prices of low interest treasury bonds on their balance sheets are declining. Another rate hike may push some of the smaller regional banks over the edge. The Fed is caught in a classic dilemma.

It is only prudent to limit our exposure to this market.