Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 17 March 2023

The Standard and Poors 500 index (SPX) closed today at 3917, down 44 points on the day or -1.1%. However, SPX opened the week at 3835 for a weekly gain  of 2.1%. Today was the only down day all week. But the extreme price volatility leaves us feeling as though it traded down all week. Trading volume really came to life this week, running above the 50 day moving average (dma) all week, and peaking at 5.6 billion shares today, double the 50 dma at 2.6 billion shares.

VIX, the volatility index for the S&P 500 options, closed today at 25.5%, up 2.5 points or +11%. VIX opened the week at 24.1%, spiked as high as 30% on Wednesday and then dropped to a low of 23% on Thursday before running up to 25.5% today. The banking scare has created a wild ride for volatility.

I track the Russell 2000 index with the IWM ETF, which closed today at 171.23, down 4.8 points or -2.7% on the day and down 0.75% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today. IWM is well below both its 50 dma and 200 dma.

The NASDAQ Composite index closed at 11,631 today with a loss of 87 points or -0.7%. However, NASDAQ opened the week at 11,041 leading to a 4.3% gain for the week. NASDAQ managed to regain both its 50 dma and 200 dma this week. NASDAQ’s trading volume ran above average all week and spiked higher today with 7.9 billion shares as compared to the 50 dma at 5.4 billion shares.

We have experienced an interesting couple of weeks. Last Friday we read about the failure of the Silicon Valley Bank. That was a shock. No sooner had Yellen assured us all was well, then Signature Bank closed its doors and now we are hearing dire news about Republic Bank.
 
The CPI and PPI reports early this week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. Then we learned that the rising interest rates were at the heart of these bank failures. Of course, one has to wonder about bank management that didn’t see the writing on the wall as the Fed started this rate hike journey last year.
 
These events have led to speculation that the Fed meeting next week might announce a small discount rate hike or might even take a pause for a meeting or two. This administration has made some special concessions for these banks to keep their depositors whole. One has to wonder if Yellen is leaning on Powell to announce a pause in rate hikes at their meeting next week.
 
A small number of stocks appear to be handling this news well: AMD, AMAT, ANET and others. But this market remains extremely volatile.

Be careful. Stay largely in cash.

Details

Written by Dr. Duke

Created: 10 March 2023

The Standard and Poors 500 index (SPX) closed today at 3862, down 57 points on the day or -1.5%. SPX opened the week at 4055 for a weekly loss of 4.8%. SPX broke down through the 50-day moving average (dma) on Thursday and broke through the 200 dma today. This is serious. Trading volume ran below the 50 dma through Wednesday, but then increased on Thursday and spiked much higher today.

VIX, the volatility index for the S&P 500 options, spiked upward today to 29% before settling down to close at 25%. VIX opened the week at 19% for a weekly increase of 32%. The market is spooked by the prospect of a large number of bank failures. But it is worth noting that VIX pulled back from that spike at 29% before the market closed. That may be evidence of traders panicking and hitting the sell button too quickly, or it could be the beginning of something much more serious.

I track the Russell 2000 index with the IWM ETF, which closed today at 176.18, down 5.2 points or 2.9% on the day and down 8% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today.

The NASDAQ Composite index closed at 11,139 today with a loss of 199 points or -1.8%, and a weekly loss of 5.1%. NASDAQ broke down through its 200 dma yesterday and broke the 50 dma today. NASDAQ’s trading volume ran along the 50 dma all week and spiked higher today.

Recall my comments from last week: “The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday; his comments could change everything.”
 
Powell’s comments did cause some market weakness, but the surprise failure of the Silicon Valley Bank spooked the markets to the core. Suddenly everyone is talking about the financial collapse of 2008. The doomsday gurus are out in force. However, I think this is a typical overreaction. There is some measure of truth in the danger of rising interest rates on holders of large quantities of low yielding treasury bonds, but I think a specialty bank like Silicon Valley Bank is much different than J.P. Morgan Chase.
 
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 (IWM) are all flashing similar danger signals. SPX is down 1.5% today and down 4.8% for the week. Similarly, NASDAQ is down 1.8% today and down 5.1% for the week. And IWM is down 2.9% today and down 8.0% for the week. All three indices have broken down through their 50 and 200 day moving averages.

The next FOMC meeting is scheduled for 3/21 and 3/22. Before the Silicon Valley Bank failure, the general consensus for that announcement was a 50-basis point increase in the federal reserve discount rate. This bank failure may give the hawks on the FOMC a pause. They don’t want to be blamed for a large-scale financial collapse in their quest to control inflation.
 
Even if I am correct about today’s move being an overreaction, I don’t see much solid economic data to cause a quick or significant bounce next week. If anything, the fear of the Fed announcement the following week will keep traders treading water.
 
Stay largely in cash. This could get rough.

Details

Written by Dr. Duke

Created: 04 March 2023

The Standard and Poors 500 index (SPX) closed Friday at 4046, up 64 points on the day or +1.6%. SPX opened the week at 3992 for a weekly gain of 1.4%. With the exception of Tuesday, trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed Friday at 18.5%. VIX opened the week at 22% and declined steadily. Before I run off on a bullish charge, I have reminded myself that we have seen VIX at these levels several times this year. This market remains volatile and dangerous.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 191.50, up 2.6 points or 1.4% on the day and up 1.3% for the week. Friday’s trading decisively broke out above the failed rally highs of November and December.

The NASDAQ Composite index closed at 11,689 yesterday with a gain of 226 points or +2%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran along the 50 dma all week.

The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday, and his comments could change everything.
 
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 all gained about one and a half percent this week. Traders were closely watching the resistance levels established in November and December by the failed recovery highs. NASDAQ and Russell broke those levels last week, but the S&P 500 index lags behind.
 
The consensus of economists is for a 50 basis point increase in the federal discount rate at the FOMC meeting later this month. The announcement is scheduled for 3/22. The market is focused on two issues:



·      The need to get inflation under control.



·      The concern that the Fed may raise rates too aggressively and drive the economy into recession.



Powell’s comments before Congress on Monday will be watched very closely and will likely result in market volatility. Don’t go too far out on the thin ice. Stay cautious.

Details

Written by Dr. Duke

Created: 25 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 3970, down 42 points on the day or -1.1%. SPX opened the week at 4052 for a weekly loss of 2.0%. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed Friday at 21.3% after spiking as high as 22.9%. VIX opened the week at 21.8% with minimal change for the holiday shortened week. That was surprising given the weakness of the market.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 187.51, down 1.8 points or 0.9% on the day and down 1.7% for the week. IWM stood out last week, finding support at the failed rally highs of November and December. That support level was broken yesterday.

The NASDAQ Composite index closed at 11,395 yesterday with a loss of 195 points or -1.7%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran below the 50 dma and steadily declined all week.

Last week, comments from two FOMC members and strong numbers from the CPI and PPI reports appeared to support the prospect that more rate hikes may be required to get inflation to subside. The PCE price index report this week reinforced that fear and led to more selling.
 
The S&P 500 index fell 2.0% this week; NASDAQ declined 2.1% and the Russell 2000 dropped 1.7%. Traders were closely watching the support levels established in December by the failed recovery highs. SPX broke that level last week; the Russell 2000 index broke down on Tuesday and NASDAQ broke down on Friday.
 
The market is selling off because it fears continued rate increases by the Fed will drive the economy into recession, the often cited “hard landing”. The next Fed announcement is scheduled for 3/22 and all evidence suggests another rate increase. The only debate is the amount. The March FOMC announcement will most likely trigger another sharp market decline. Is this month’s market decline the result of the large institutional players pulling back and hedging their portfolios in preparation for that announcement? Using the S&P 500 as our market proxy, a decline of 12% from Friday’s close would return to the lows around 3500 from last October.
 
That analysis only leaves us with questions: Will February give back January’s gains? Is the bear market that began in early 2022 beginning a new leg lower? The best course of action is to stay largely in cash and focus on long term 
ultra-conservative positions.

Details

Written by Dr. Duke

Created: 18 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 4079, down 11 points on the day or -0.3%. SPX opened the week at 4097 for a weekly loss of 0.4%. Resistance at 4100 was set by the failed rallies in December and that level was solidly broken with a high at 4195 on February 2nd. This week witnessed a rally attempt that made it to 4150 before faltering and closing well below support at 4100. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, opened the week at 21.7% and declined to 18.1% on Wednesday. Comments from a couple of the FOMC members on Thursday spiked volatility to 20.3%. VIX declined on Friday to close down slightly lower at 20.0%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 193.13, up 0.3% on the day, but up 1.4% for the week. IWM had a remarkable week, posting positive trading gains every day this week. In contrast to the S&P 500 index, IWM found support at the failed rally highs of November and December and steadily climbed higher this week.

The NASDAQ Composite index closed at 11,787 yesterday with a loss of 69 points or -0.6%. NASDAQ trended higher the first three days of this week but declined with the S&P 500 index on Thursday and Friday. NASDAQ’s trading volume ran below the 50 dma all week. Unlike SPX, NASDAQ remains well above the support levels of the failed rally attempts in November and December.

Comments from two FOMC committee members threw cold water on the market on Thursday, renewing fears that additional rate hikes are in store. Of course, the strong numbers from the CPI and PPI reports didn’t help. Those reports support the Fed’s case that more rate hikes may be required to get inflation to subside. The next Fed discount rate announcement is scheduled for March 22nd.
 
The most encouraging sign in the markets this week is the strength shown in the Russell 2000 this week. Those small to midcap stocks are the classic high beta stocks that the large funds tend to move into when they foresee a bullish market.
 
Trading volume has again fallen below the 50 dma. Note the spiking trading volume around February 2nd when the market broke through resistance to the upside. That money has returned to safety.
 
I will be watching the markets carefully on Tuesday for signs of strength. I noted the long lower shadows on the SPX and NASDAQ candlesticks for Friday. That often shows that traders sold off and drove prices lower but then met a group of buyers who found those prices attractive. We will see if that action follows through on Tuesday.
 
This market looks somewhat better than last week, but it is entirely too early to say the bear market is over. Stay vigilant.

Details

Written by Dr. Duke

Created: 11 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 4090, up 9 points on the day or +0.2%, but that didn’t save the week, ending down 0.7%. SPX broke resistance at 4100 last week and advanced to a high around 4200 on February 2nd before beginning the pull back that continued this week. This latest rally set a new resistance level a hundred points higher, but the bear market isn’t over yet. Trading volume was mixed all week, running just above and just below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, closed yesterday at 20.5% after opening the week at 19.2%. VIX spiked on Friday to 22% but pulled back into the close at 20.5%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 190.31, up less than a point on the day, but down 2.7% for the week. Unlike SPX, this latest IWM rally hit resistance around 199, the level set back in August by the failure of that rally. SPX never came close to its August levels. IWM found support on Friday at its January highs around 188.
 
The NASDAQ Composite index closed at 11,718 yesterday with a loss of 71 points or -0.6%. NASDAQ trended lower this week, losing 1.6%. NASDAQ’s trading volume ran above average three days this week before falling significantly below the 50 dma on Friday.

The FOMC announcement last week, coupled with the positive January Trifecta, seemed to bring the bulls back to the table, but that enthusiasm faded this week. The market broke out above the most recent rally highs last week but could not hold those highs and gave back all of those gains this week. On Friday, I entered bullish trades on ENPH and SLB. Both stocks were trading positively in the midst of a bearish market. Our AAPL diagonal spread is still in the black after a tough week.
 
This market remains solidly in its bearish posture, having quashed the latest bullish recovery. I am largely on the sidelines at this point.

Details

Written by Dr. Duke

Created: 03 February 2023

The Standard and Poors 500 index (SPX) closed today at 4136, down 43 points on the day or -1.0%. SPX opened the week at 4049, thus closing with a 2.1% gain for the week. SPX had a strong resistance level defined by the failed recoveries in December around 4100 and SPX solidly broke through that resistance on Wednesday after the FOMC announcement. SPX added to those highs on Thursday with a strong gap opening and a run up to 4180. Trading volume ran at or above the 50 dma all week, a dramatic shift from the low trading volume levels since the December holidays.

VIX, the volatility index for the S&P 500 options, closed today at 18.3% after opening the week at 19.8%. A rare VIX divergence occurred yesterday with VIX rising, in contrast to the strong gap opening and run higher on SPX. That was a prediction of today’s decline on the S&P 500 index.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 196.99, down 1.3 points on the day or -0.7%. IWM hit resistance at 190 both yesterday and today. This is the high from mid-August. By contrast, SPX remains 4% below its corresponding August high. IWM is strongly leading SPX, a very bullish sign.

The NASDAQ Composite index closed at 12,007 today with a loss of 194 points or -1.6%. NASDAQ traded strongly higher this week with a growth of 4.3%. NASDAQ and the Russell 2000 are leading this bullish run. NASDAQ’s trading volume has posted above the 50 dma all of this year with only three exceptions, one of which was today.

With the close of SPX on Tuesday, the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac, posted a positive number for 2023. Since 1950, a positive result for the January Trifecta was followed by positive annual gains on the S&P 500 with only three exceptions. The average annual gain was 17.5% for those years. But we have another interesting statistic. We have seen 13 positive January Trifectas following a midterm bear market since 1950. All 13 posted positive annual gains with an average gain of 22% on the S&P 500 and 32% on NASDAQ.
 
The FOMC announcement on Wednesday, followed by Powell’s press conference, set this bull market running. Powell threaded the needle rather well, assuring the markets that the previous rate hikes are beginning to have positive effects in pulling in the rate of inflation, but he also gently pointed out that this week’s quarter point raise would probably not be the last increase this year. The market was extremely volatile immediately after the announcement but settled into a positive trend during the press conference, although SPX gave back some of those gains as it pulled back into the close. All bets were off on Thursday as the market gapped open higher and solidly broke out above resistance. The bulls were solidly in charge. But VIX moved higher, signaling a shift in market sentiment. The market was much more cautious today, although it retained most of the week’s gains and held above the 4100 support level from August. 



I am starting to enter some bullish trades. But my finger is on the exit button.

Details

Written by Dr. Duke

Created: 27 January 2023

The Standard and Poors 500 index (SPX) closed today at 4071, up 10 points on the day or +0.25%. Today’s modest gain was a bit misleading since the S&P 500 gained a full four percent this week. SPX broke out above the 50-day moving average (dma) last week and broke out above the 200 dma this week. We have a solid resistance level defined by the failed recoveries in December around 4100. SPX threatened those highs with an intraday high at 4094, but it then pulled back into the close. If the S&P 500 index runs out of gas next week as the FOMC meeting comes into view, we have intermediate support levels with the 50 dma, then 3900 and 3775. With few exceptions, trading volume has run below the 50 dma since November. In my opinion, that is evidence of the large institutional players cautiously waiting on the sideline. Fed watching will be the principal activity through the announcement on Wednesday.

VIX, the volatility index for the S&P 500 options, steadily declined this week, opening Monday at 20.2% and closing today at 18.5%.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 190, up one point on the day or about one half of one percent. However, IWM posted a strong week, up 2.7% and, most significantly, breaking through 188 on Thursday and trading up to 190 today. That IWM level of 188 is equivalent to 4100 on the S&P 500. That was the resistance level set by the failed recoveries in December. IWM and NASDAQ are the only broad market indices to break out above those December highs.

The NASDAQ Composite index closed at 11,622 today with a gain of 109 points or one percent. NASDAQ broke out above its 200 dma today and also solidly broke out above the highs of the failed recoveries in December. NASDAQ’s trading volume has been running above the 50 dma for the past twelve trading sessions with only one exception. It appears the bulls are bargain hunting among the beat-up high-tech stocks of the NASDAQ.

I have previously discussed the January Trifecta, developed by Yale Hirsch of the Stock Trader’s Almanac. The S&P 500 would have to drop over 5% by the close of trading on Tuesday for the January Barometer, and hence, the January Trifecta, to fail. This month and consequently the year, are looking more positive, but I am still licking my wounds from last year.
 
My trading is off to an excellent start this year with the trading group up over 19% and our two open trades are both posting gains. The Flying With The Condor™ service is up eleven percent. The hobgoblin worrying me is the FOMC announcement on Wednesday. That could easily kill this bullish recovery.



Make fun of me if you wish, but I remain cautious.

Details

Written by Dr. Duke

Created: 20 January 2023

The Standard and Poors 500 index (SPX) closed today at 3973, up 74 points on the day or +1.9%. Today’s impressive gain salvaged the week for the S&P 500 with a loss of 0.7%. Yesterday’s close would have left the index down 2.5% for the week. SPX broke out above the 50-day moving average (dma) today and closed just above the 200 dma. We have a new resistance level defined by Tuesday and Wednesday’s highs around 4100. Support may be found at the lower edge, 3782, of the sideways consolidation from 12/19 to 1/5. If SPX breaks down through 3782 and then 3700, we could be headed for support at the earlier low at 3497, or even break down for a new low for this bear trend. Trading volume continues to be rather anemic, running along the 50 dma again this week. This suggests that a large amount of cash remains on the sideline and also that a capitulation low has not yet been reached.

VIX, the volatility index for the S&P 500 options, closed today at 19.9% after opening the week at the same level of 19.9%, and then spiking to a high on Thursday of 21.7%. The disappointment of another failure to break out higher isn’t apparent from the VIX levels. The bulls have not yet given up hope. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. On the other hand, the bears have not really taken control of this market. Yesterday was their opportunity but they could not follow through today.

The NASDAQ Composite index closed at 11,140 today with a gain of 288 points or +2.7%. NASDAQ closed above its 50 dma today but remains well below its 200 dma at 11,567. NASDAQ’s trading volume spiked to six billion shares today, well above the 50 dma at 4.9 billion shares. NASDAQ has taken the largest hit in this bear market and traders are looking for an opportunity to get back in the high-tech stocks at attractive prices.

The most negative evidence for this market is the long string of market rallies that have failed to break resistance and then have fallen to new lows. I was able to capitalize on the brief rally this month in AAPL, BA, CAT, and WYNN, but I closed for gains at the first sign of weakness. However, one has to take account of today’s strong rally into the close. If there are any remaining bulls out there, that has to be encouraging. 



I remain cautious.

Details

Written by Dr. Duke

Created: 13 January 2023

The Standard and Poors 500 index (SPX) closed today at 3999, up 16 points on the day or +0.4%. SPX broke out above the 200-day moving average (dma) today, a positive sign for the S&P 500 but it is far too soon to break out the champagne. SPX has run into strong resistance around 4100 three times since September of last year. Trading volume continues to be rather anemic, running along the 50 dma again this week.

VIX, the volatility index for the S&P 500 options, closed today at 18.4% after opening the week at 21.8%. You have to go back to January of last year to find volatilities below 18%. I am unsure this lower level of volatility actually reflects complacency on the part of the large institutional traders. The flat trading volume in the S&P 500 tells me they are largely still on the sidelines and remain fully hedged. They are waiting for a successful test of the 4100 level on SPX.

I track the Russell 2000 index with the IWM ETF. IWM closed today at 187.05, up 1.2 on the day or +0.7%, but IWM was up 4.5% for the week, much stronger than its big cap brothers. IWM broke out above both its 50 dma and 200 dma this week. The next level of resistance for IWM is around 188, where the rallies in November and December failed. Seeing the Russell 2000 lead the large cap stocks is very encouraging.

The NASDAQ Composite index closed at 11,079 today with a gain of 78 points or 0.7% but closed the week up nearly four percent. NASDAQ broke out above its 50 dma on Wednesday and made additional progress higher for the balance of the week. NASDAQ’s trading volume broke the 50 dma four times this week, but those were modest spikes in volume. However, NASDAQ must grow 3.6% just to challenge the levels of resistance from November and December when the earlier rallies failed.

Yale Hirsch of the Stock Trader’s Almanac was the first analyst to define and publish the Santa Claus Rally. This year’s Santa Claus was weak, but positive, with an opening on 12/23 at 3815 and a close on 1/4 at 3853, or +1%. Yale also would track the first five days of January and that was also positive this year. The January Barometer, defined as the trading record for the entire month, will be the next signal. In years when the Santa Claus rally, the first five days, and the full January results are all positive, the full year has been positive 90% of the time with an average gain in the S&P 500 of 17.5%.
 
FactSet Research published a report this week on the projected earnings of the S&P 500 for the fourth quarter of 2022. They predict a decline of 3.9%. This would be the first decline since the third quarter of 2020, at -5.7%. This earnings decline sets up the next question. Has the S&P 500 index price decline of 2022 been sufficient to balance that projected earnings decline? Or do we need prices to decline further to reach reasonable P/E ratios?
 
I remain cautious. I entered a few trades this week, but I am watching them like a hawk. My condor trades are on fire in this market. I have already closed both the January and February positions, leaving us up 11% for the year. The S&P 500 is only up 3% over the same period of time. Ouch! I just threw my arm out patting myself on the back.