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.
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.
Full Steam Ahead?
- Written by Dr. Duke
The Standard and Poors index (SPX) gapped open and headed higher this morning, closing the day's trading at 4230, up 37 points or 0.9% for the day. SPX opened Tuesday morning at 4217, so the index barely made it back to its starting point, up 0.3% for the week. It shows the volatility of this market when we see a gap opening lower on Wednesday and then a gap opening higher just two days later. Trading volume remained under the 50-day moving average (dma) all week.
VIX, the volatility index for the S&P 500 options, declined strongly today, closing at 16.4%. This was the lowest close for VIX since April 16th. Will it hold or will traders find something new to worry about next week?
The IWM ETF, based upon the Russell 2000 index, rose only modestly today, closing at 227.40, up 0.98 or 0.4%. IWM opened the week at 227.46, so this index was essentially unchanged for the week. That observation takes some of the optimism out of today’s strong bullish move on the blue-chip stocks. If the large institutional firms were truly shifting to “risk on”, we should see these high beta stocks picking up steam.
The NASDAQ Composite index closed today at 13814, up 200 points or 1.5%. However, NASDAQ gapped open lower on Wednesday and then gapped open higher today, leaving the index essentially flat for the week, since opening Tuesday at 13829. NASDAQ’s trading volume came to life this week, moving above the 50 dma on Wednesday and Thursday. It is interesting to see today’s strong bullish move was not even quite up to the 50 dma.
Today’s strong market finally pushed the IBD market assessment back to Confirmed Uptrend. Let’s review the recent history:
• May 4th: Confirmed Uptrend to Uptrend Under Pressure
• May 7th: Uptrend Under Pressure to Uptrend Resumes
• May 10th: Uptrend Resumes to Confirmed Uptrend
• May 12th: Confirmed Uptrend to Uptrend Under Pressure
• June 4th: Uptrend Under Pressure to Confirmed Uptrend
The fact that IBD’s rather conservative measure has been whipsawed back and forth over the past month is telling. It isn’t just you. This has been an extremely volatile market that has challenged even the most experienced analysts.
It is easy to focus on today’s positive market action and perhaps even become euphoric. After all, the market has worn us down.
Review this week’s performances for each of the broad market indices:
• The S&P 500 was up 0.3%.
• The Russell 2000 was down 0.03%.
• The NASDAQ Composite was down 0.1%.
I hope today was indeed the sea change we want to see. But it pays to be somewhat circumspect. Caution and trading discipline still rule the day.
Largely In Cash
- Written by Dr. Duke
The Standard and Poors index (SPX) tried to recover from its dramatic low on May12th but the recovery stalled this week. SPX closed Friday at 4156, down three points on the day or -0.1%. Friday’s close left SPX with a small decline of 0.3% for the week. Trading volume reached the 50 dma on Wednesday but remained below average the balance of the week.
VIX, the volatility index for the S&P 500 options had another volatile week, opening Monday at 20%, spiking to 26% on Wednesday and closing yesterday back at 20%. VIX is often called the fear index and this market is twitchy. It can’t decide whether it is bullish or bearish.
The Russell 2000 index, as measured by the IWM ETF, tried to recover from the low set on May 12th but couldn’t quite make it. IWM closed Friday at 219.97, just a touch higher than Monday’s open at 219.78. IWM tested the 50 dma on Tuesday and again yesterday but pulled back to close below the 50 dma both times.
The NASDAQ Composite index closed at 13471, down 65 points but the index managed a positive increase for the week of 0.8%. NASDAQ tried to recover its 50 dma on Friday but pulled back before the market closed. NASDAQ’s trading volume remained below average and declined all week.
Last week’s report of the consumer and producer price indices resulted in talk of runaway inflation and spooked the market. The market attempted a recovery move this week, but feel short.
NASDAQ remains weak and Friday’s failed attempt at breaking out above the 50 dma was disappointing. This week’s trading with its retest of last week’s low was disconcerting. Likewise, the Russell 200 can’t recover its 50 dma. The S&P 500 and the Dow Jones Industrials are the only major market indices trading higher than the 50 dma. I found myself closing several trades on Friday rather than risking the weekend and Monday’s open.
The cash basis of my trading accounts moved higher this week, from 75% to 92%. I didn’t open many new trades this week and I was cautious when rolling out current income positions. I continue to focus on stocks that appear to be weathering these transient storms well. There is nothing wrong with cash.
Is It Safe To Come Out?
- Written by Dr. Duke
After trading sideways for over a month, the Standard and Poors index (SPX) dramatically fell out of bed this week, closing at a low on Wednesday of 4063, down 2.7%. The market recovered somewhat on Thursday and then gapped open and traded higher Friday. However, even Friday’s strong move higher of 1.5% was not enough to result in a positive week for the S&P 500, down 1.3% for the week. Wednesday’s low almost reached the 50-day moving average (dma). Trading volume reached the 50 dma early in the week but declined Thursday and Friday.
VIX, the volatility index for the S&P 500 options took a wild ride this week, opening Monday at 17%, spiking to 28% on Wednesday and closing today just under 19%. VIX appears to suggest the market’s temper tantrum is over…
The Russell 2000 index, as measured by the IWM ETF, opened the week at 225.03 and hit a low on Wednesday of 211.85. IWM gapped open this morning and closed at 221.02, up 2.4% on the day, but down 1.9% for the week. IWM remains below its 50 dma at 222.98.
The NASDAQ Composite index closed at 13430, up 305 points or 2.3%, but the index remains down 1.9% for the week. The damage to this index has been significant, losing 8.3% since April 29th. Today’s close leaves NASDAQ well below its 50 dma at 13540. NASDAQ’s trading volume remained below the 50 dma all week and declined even farther today.
This week’s report of the consumer and producer price indices resulted in talk of runaway inflation and spooked the market. The reaction in the markets this week may have been excessive, but the potential of excessive inflation is real. The government has been printing money throughout this pandemic and talk of additional spending in the form of minimum wage increases and infrastructure spending are on the front page. Just as the pandemic stimulus bills contained little to support those actually hurt by the pandemic, I fear the same for an infrastructure bill.
The rotation out of high tech into classic industrial stocks is evident as we compare the S&P 500 with the NASDAQ Composite. But we cannot ignore the high-tech stocks that make up the NASDAQ. They now make up a large portion of our economy. NASDAQ has corrected by 8% and that will have ripple effects in the economy. In summary, there are many negative factors that cannot be ignored. On the positive side, it is remarkable that we have now had four pullbacks since the first of the year and each time the bulls have taken the opportunity to buy the lows. I worry about the possibility of the bulls losing heart.
This week’s market has taken its toll on my “slightly bullish perspective” on the market. I will be watching very carefully as next week unfolds.
The IBD market assessment reaffirms what we traders are feeling. That assessment moved from Confirmed Uptrend to Uptrend Under Pressure to Uptrend Resumes and then back to Uptrend Under Pressure in 7 trading sessions. We are being whipsawed in and out of this market.
The cash basis of my trading accounts moved significantly higher this week, from 47% to 75%. I didn’t open many new trades this week and was cautious when rolling out current income positions. I continue to focus on stocks whose price charts show them to be weathering these transient storms well. There is nothing wrong with cash.
- Written by Dr. Duke
The markets have plateaued for the past eleven trading sessions. The Standard and Poors index (SPX) closed Friday at 4181, down 30 points on the day, but SPX opened the week at 4185, so the index was essentially flat for the week. Trading volume finally reached the 50-day moving average (dma) Thursday and Friday.
The volatility index for the S&P 500 options, VIX, closed Friday at 18.6%, up one point on the day and also up one point on the week.
The IWM ETF, based on the Russell 2000 group of companies, has traded higher for the past couple of weeks, but that ended Thursday and Friday. IWM closed Friday at 224.89, down 3.10 points.
The NASDAQ Composite index closed at 13942, down 120 points, and down about 0.8% for the week. NASDAQ’s trading volume trended higher this week but remains well below the 50 dma.
Recent talk of increased taxes and new taxes seems to have stalled the bullish market trend, resulting in the flat, sideways trend of the past couple of weeks.
I remain with a slightly bullish perspective on the market. The market dipped a couple of times last week but recovered quickly. After all the talk of corrections since the first of the year, I took those recoveries as an encouraging sign.
The cash basis of my trading accounts hasn’t changed much this week, moving from 44% up a bit to 47%. I continue to trade, but cautiously. I am closing as many trades as I open. I closed my SBUX trade early and could have made more money if I waited until Friday, but I am locking in gains when I can and closing out trades at the first sign of trouble.
With a sideways market, it is crucial to only trade stocks that are bucking the trend. Look for charts of stocks that are up on down or flat market days. Be cautious and disciplined. Cash positions minimize your risk.
A Market Plateau
- Written by Dr. Duke
The markets have been on a strong bullish run higher since late March but the broad market averages have been drifting sideways for the past eight trading sessions. The Standard and Poors index (SPX) closed today at 4180, up 45 points, but SPX opened precisely at 4180 this past Monday. Trading volume continues to run below the 50-day moving average (dma), but it did move slightly higher a couple of days this week.
The volatility index for the S&P 500 options, VIX, moved as low as 15% one day last week, but VIX increased this week, bouncing between 17% and 20%, and closing today at 17.3%.
The IWM ETF, based on the Russell 2000 group of companies, has tracked within a channel defined by 215 and 226. IWM recovered its 50 dma today and closed up 4.18 at 225.76. These small to mid-cap companies should be leading the bullish trend, but they remain rather sedate. On the other hand, they aren’t being sold off aggressively either.
The NASDAQ Composite index closed at 14017, up 198 points, but that resulted in NASDAQ being essentially unchanged for the week. NASDAQ’s trading volume continued to just trend sideways, well below the 50 dma.
Talk of increased taxes and new taxes put a damper on the markets this week. But the effects were rather subdued, resulting in a sideways, lethargic market. The market has hit a plateau, which is normal in a bullish trend. It is important to note that we have had several opportunities in the past couple of months for the bears to take control, but it hasn’t happened. The bulls are not aggressively buying, but they are holding the broad indices largely unchanged.
I found a larger number of good stock charts this week and that increased my market disposition to slightly bullish. I entered more trades today and that shifted the cash basis of my trading accounts from last week’s 58% down to 44% today. Stocks seem to be prone to short runs higher followed by quick pull backs, and then it starts over. Many of my losses in the first quarter would have recovered if I had ignored my stops – but that would be a fool’s errand.
Make Hay While the Sun Shines
- Written by Dr. Duke
The markets have been on a strong bullish run higher since late March with the Standard and Poor’s 500 Index (SPX) closing today at 4185, up 15 points on the day or 0.4%. The S&P 500 is up nearly 8% since it started this run on March 25th. Trading volume for the S&P 500 companies has risen slowly this week but remains below the 50-day moving average (dma) at 2.50 billion shares.
Volatility for the S&P 500 options, quantified by the volatility index, VIX, continues to decline as the market heads higher, closing today at 16.3%.
The IWM ETF, based on the Russell 2000 group of companies, tracked steadily along its 50-day moving average (dma) this week. I would prefer to see these stocks leading the bullish charge, but they are at least solidly tracking higher. IWM rose 0.9% this week, a bit softer than the S&P 500 at +1.5% for the week.
The NASDAQ Composite index closed at 14052, up 14, and up 1.4% for the week. NASDAQ’s trading volume slowly rose this week, closing today at 4.5 billion shares. However, this level of volume remains well below the 50 dma at 6.0 billion shares.
This week’s news reports seemed to paint the picture of two distinct and opposite perspectives on the pandemic and its effects on the economy. It appears that more and more people and local authorities are rebelling against continued lockdowns and rigid mask and social distancing mandates. The governmental authorities here in Illinois are still adamant about remaining largely locked down and wearing masks everywhere. However, as my wife and I ventured out for dinner a couple of times this week, we witnessed increasing impatience with these restrictions. Businesses are scooting those table closer together and getting back to normal. But it is all being done quietly as the signage and welcoming comments remain along party lines.
I have not changed my market position very much this week. The cash basis of my trading accounts remains similar to last week at 58%. I find it hard to become very confident about this market. The run upward for the past month has been impressive. However, it is hard to ignore the closed businesses I see in my community. I don’t think it is prudent to put too much cash at risk too quickly. I have been jerked around several times this year and I don't want to take another hit.
The Market Sees a Bright Future
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) continued its run higher today, closing at 4129, up 32 points on the day or 0.8%. This was a strong week for the market, rising 2.4% and setting a new all-time high today. Trading volume for the S&P 500 companies continues to decline. Today’s volume came in at 1.85 billion shares, much lower than the 50-day moving average (dma) at 2.50 billion shares. Trading volume has been steadily declining since mid-March.
As one would expect with such a strong bullish run, volatility for the S&P 500 options, quantified by the volatility index, VIX, opened the week at 18.2% and steadily declined to today’s close at 16.7%.
The only bearish news this week came from the Russell 2000 group of companies that populate the IWM ETF. IWM declined this week to close today at 222.59, down 1.7% for the week. The 50 dma at 221.69 appears to be holding as support.
The NASDAQ Composite index appears to be recovering from its recent funk, closing today at 13900, up 71, and up 2.2% for the week. NASDAQ’s trading volume continues its steady decline since mid-March and is even more pronounced than the decline of trading volume in the S&P 500. Today’s volume on NASDAQ came in at 3.26 billion shares, almost half of the 50 dma at 6.31 billion shares. By comparison, SPX trading volume was about 75% of its 50 dma.
Last week’s jobs report was a big boost for this market. That report, combined with continuing distribution of the Covid 19 vaccine and more states reopening their economies, appears to be bringing out the bulls. The market is always discounting the future, and this market sees a much-improved future. I started opening more positions and selling more puts; my cash basis is down to 53%.
Is That A Light Up Ahead?
- Written by Dr. Duke
The Standard and Poor’s 500 Index (SPX) gapped open Thursday morning and closed trading at a new all-time high of 4020, up 47 points on the day or 1.2%. SPX gained 1.3% for the week, so most of the week’s gain occurred yesterday. If we assume that Thursday’s rally finally put an end to this most recent market pullback, then maybe traders can take a breath and start to put money to work again. This has been the third pullback this year with the 50-day moving average (dma) acting as the support level in each case. The S&P 500 index trading volume has remained below average since March 12th except for quadruple witching on March 19th.
VIX, the volatility index for the S&P 500 options, gapped open lower on Thursday morning and proceed to decline all day, closing at 17.3%. One must back track on the VIX chart to late February of 2020, just before the March correction, to find volatilities in this range.
IWM, the ETF based on the Russell 2000 index, closed Thursday at 223.74, up 2.80 or 1.3%. IWM recovered its 50 dma on Wednesday but remains well below its recent high of 233.98 on March 15th.
The NASDAQ Composite index closed Thursday at 13480, up 233 points or 1.8% on the day. NASDAQ gapped open Thursday morning and finally recovered its 50 dma. Similar to the S&P 500, NASDAQ’s trading volume continues to decline and has only broken out above the 50 dma once since March 5th (on quadruple witching March 19th).
2021 has been a rough ride for traders. It’s too bad we didn’t have New Year’s Eve parties to celebrate when we could. We have been licking our wounds most of the last three months. The S&P 500 has now pulled back three times, but Thursday’s trading appears to have turned the corner with a much smaller pull back and a bounce off the 50 dma. The NASDAQ Composite has yet to recover all of its losses due to the rotation out of high-tech stocks.
This morning’s jobs report was a huge surprise to traders with over nine hundred thousand new jobs added to the economy. That should help fuel the reopening of our businesses, or at least, those who have survived. Thursday’s market action was encouraging, and I cautiously added a few positions. But I remain 67% in cash. I think the jobs report may be the catalyst to push this market higher. I am anxious to see the market open on Monday.