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.
Higher and Higher
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- Written by Dr. Duke
The markets continued to trade higher today and the euphoria continues (unless you own NFLX). SPX gained $10 to close at $1755 and RUT gained $3 to close at $1116. Volatility remained flat with VIX closing unchanged at 13.3%. Trading volume jumped upward with 2.5 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE surged upward 13% and trading on the NASDAQ was up 6%. New market highs are becoming routine events in this marketplace. It makes me uneasy. RUT set a new high with its intraday high of $1122, but it closed almost precisely at its opening price, setting up the classic doji candlestick. The doji is the sign of a marketplace nearly perfectly balanced between the buyers and sellers; candlestick analysts view this as a sign of indecision, and possibly a change in direction.
The September jobs report was issued today, a couple of weeks late due to the government shutdown. It reported a drop in new jobs to 148 thousand and a slight drop in unemployment from 7.3% to 7.2%. Most analysts had expected closer to 180k new jobs. The previous month's reports were revised with August moving up to 193k from 169k. But July was revised downward to 89k from 104k. So the report was similar to recent ones: not too bad, but not very good either. But many view these weak reports as positive news in that the Fed isn't as likely to remove its stimulus programs. That is probably a short sighted viewpoint, but we'll see.
As you probably have guessed, my NFLX earnings trade didn't work as planned. The put helped, but wasn't sufficient to save me. I adjusted the trade this morning, but NFLX just continued to fall all day, so I closed for a loss this afternoon. The CEO's comments on the conference call that the stock price had traded too high apparently were taken to heart.
Where Does It End?
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- Written by Dr. Duke
Markets took a pause today, but the bulls remain very much in control of this market. The bears are left trying to argue that the markets are over valued. That is always a tough argument. Consider Tesla. By most any financial measure the stock has been and continues to be over valued, but it continues to trade higher. Tesla is showing a little weakness lately, but it remains over $170/share. The bulls took a little bit of a pause today, but the bull trend remains strong. SPX closed unchanged at $1745 and RUT dropped $2 to close at $1112. Volatility is flat with VIX closing at 13.2%, unchanged on the day. Trading volume dropped back with two billion shares of the S&P 500 trading. Volume on the NYSE decreased 23% and trading dropped 9% on NASDAQ.
New home sales came in at 5.29 million for September, down a bit from the previous report of 5.39 million units. It is one more report of the real estate market holding its own, if not rising.
My Nov iron condor on SPX at 1650/1660 and 1800/1810 has been hedged once and repositioned, so it is currently underwater with a P/L of -$3,260 or -16% with position delta = -$27 and position theta = +$126 on 20 contracts.
My trading group entered the following trade on Netflix today with the diagonal call spread, Jan14/Nov $350/$400. I also bought the Nov $300 put just in case the earnings announcement went south. That gave us a position where we were only exposed to a loss of 2-3% if NFLX fell out of bed, but we still have a bullish position if the stock continues its run. As I write this blog, NFLX is trading around $390, so I will sell the put protection tomorrow and allow the spread to profit as NFLX trades upward. Check out Dr. Duke's Trading Group if you would like to learn more about using options conservatively.
Markets Rally, But...
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- Written by Dr. Duke
SPX jumped $23 to close at $1722 and RUT gained $13 to close at $1092. This was a new all time high for RUT and SPX is only a few dollars off of a new all time high as well. Trading volume jumped up to 2.3 billion shares of the S&P 500. Trading on the NYSE increased 7% and but trading on NASDAQ only increased 1%. Volatility collapsed almost four points to close at 14.7%.
This market appears to be set on continuing to make new highs. This sets off my personal alarms, but we have to respect the tape. Trade small and hedge yourself appropriately.
The Sky Is Falling!
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- Written by Dr. Duke
The continual drumbeat of global financial collapse started to have an effect on Wall Street today. Unfortunately, the common financial media outlets are playing the same Chicken Little game. Bill Gross of PIMCO fame (the largest bond fund in the world) was interviewed on CNBC several weeks ago and pointed out how it was virtually impossible for the treasury to default on the debt - it requires less than 20% of incoming monthly tax receipts to pay the monthly interest bill. But it was clear that that didn't fit what the producers at CNBC were selling and so it was simply ignored. Our freedom is in danger when the press effectively becomes a propaganda tool for a political point of view.
The Fed's empire manufacturing survey surprised analysts with a
significant decline to 1.5 for October from last month's 6.3 reading.
The Beige Book will be released tomorrow and maybe the CPI data as well.
SPX lost $12 to close at $1698 and RUT gave up $11, closing at $1080 (this figures since the rally yesterday forced me to close my October call spreads on RUT). The reversal on SPX at $1710 reinforces the resistance level set by SPX's high in early August. Volatility spiked up almost three points to 18.7% on today's sell off. For RUT, today's price action is merely a common pull back after setting another all time high. RUT's bullish posture underscores the underlying strength of this market. RUT has been leading this bull market all year. All of the technical signs point to a bull market poised to erupt once Washington settles the debt/spending issue. But when the consensus of the evidence seems so obvious, it worries me. Keep your positions on a short leash.
I entered the EBAY Oct 46/50 and 58/62 iron condor today as a play on this evening's earnings announcement. EBAY's price action has been very sluggish since December, so the OTM options didn't have much premium, but it is a high probability trade, returning about 11% in 2-3 days. In after hours trading, EBAY is unchanged at $54.
New Highs?
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- Written by Dr. Duke
The Russell 2000 Index (RUT) hit a new all time high today, closing at $1090, up $6. SPX didn't set a new high, but it did trade upward by $7, closing at $1710. SPX's all time closing high is $1726. But the question is whether this makes any sense with the politicians bickering and posturing? Perhaps the market is telling Washington that they don't take any of these scare tactics seriously, that the treasury debt interest will continue to be paid and that an agreement will be reached at some point in the near future. I happen to agree with that position, but I am still surprised that the market is taking this so well. The volatility index, VIX, traded up to 17.7% this morning, but then gradually calmed down to close at 16.1%.
However, trading volume was down across the board, so maybe we shouldn't take these increases too seriously. Trading in the S&P 500 stocks decreased to 1.7 billion shares; trading volume on the NYSE declined 11% and trading dropped 15% on NASDAQ.
No significant economic data was reported today. The Empire manufacturing report is due tomorrow and Fed's beige book and CPI data are due Wednesday. But it isn't clear if any of these events will occur given the government shutdown. Today's strong run in RUT forced me to close the October 1110/1120 call spreads. That put another cramp in the potential gains for October, which now stand at +5.4%.
The politician watch continues. I continue to write unflattering emails to my congressman and senators, but they aren't listening. They are too busy posturing for the cameras.
What A Turnaround!
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- Written by Dr. Duke
The markets continued their jubilant march upward today with SPX gaining $11 to close at $1703 and RUT trading even stronger, closing at $1084, up $15. Volume dropped off from yesterday with 2.0 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 15% and decreased 8% on NASDAQ. The VIX shed another point today, closing at 15.7%.
Apparently, all is well with Washington, the economy and the world. I didn't understand why we traded down as far as we did on trumped up fears of debt default and I don't understand why the market has jumped so strongly upward now that the two sides appear to be only minimally talking to each other. But I have to remind myself that the market is often irrational.
SPX is trading just below resistance at $1710, set by the high in early August. Support stands at the 50 dma at $1678. The candlestick on October 9 is not too far off of a classic doji, but with an elongated lower shadow, setting up a classic reversal. The candlestick purists wouldn't call this a doji or a hammer, but it did at least suggest a reversal.
But no one would have predicted this strong turnaround. From the intraday high on September 19th through the intraday low on October 9th, SPX dropped $84, but SPX has now recovered $57 or 68% of that drop in three days. Wow! It is also worth noting that the bullish trend of higher highs and higher lows remains alive and well. The low in late September was at $1630 and the closing low on Tuesday was $26 higher.
My first blush analysis of the RUT price chart is simply that it has behaved more bullishly all along, trading down less and now trading upward even more strongly. RUT's close today at $1084 is very close to its all time high at $1088 on October 1st. So the charts are clearly bullish, but be careful about taking any bullish positions; protect the downside. The bulls are in charge, but this remains a very volatile market.
Enjoy the weekend.
Wow!
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- Written by Dr. Duke
Today's market rally was unprecedented. SPX ran up $36 to close at $1693. RUT closed up $26 at $1070. Both indexes gapped open this morning. SPX then proceeded to break through resistance at the 50 dma at $1678 and closed well above that level at $1693. RUT traded even stronger, gapping open above the 50 dma and breaking through resistance at $1062. As one might expect amid all of this enthusiasm, volatility dropped off by three points with VIX closing at 16.5%, a very bullish move.
Trading volume was not as large as I would have guessed. 2.2 billion shares of the S&P 500 stocks traded today, down from yesterday. Trading increased by 1% on the NYSE, but decreased 17% on NASDAQ. We saw record breaking one day advances on many of the market indexes today, but trading volume was flat at best?
Of course, the question of the day is whether this enthusiasm is warranted. It isn't clear that a deal has been reached on the debt limit or the government shutdown. If the debt limit is just kicked down the road a few weeks, does that warrant a strong bull market? One can't argue with the tape, but I am not reassured that all is well.
I wonder what the debt rating agencies are discussing behind closed doors. Of course, the Feds have sued S&P over their bond rating services in 2007-2008, so they may be chastised into pretending all is well. Federal debt is now at 17 trillion and rapidly rising; the current debt situation is worse than it was in 2011 when they downgraded the treasury debt. What happens to the market then?
Yesterday's Free Fall Ends?
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- Written by Dr. Duke
SPX opened this morning and plunged as low as $1646 before bouncing and closing near its opening at $1656 for a one dollar increase on the day. RUT traded a little more bearishly, closing down $4 at 1043. RUT opened at the 50 dma that it broke yesterday, but it couldn't hold that level and fell to $1039 before rebounding to close at $1043.
Trading volume increased to 2.4 billion shares of the S&P 500 while trading on the NYSE decreased 2%. But trading volume on NASDAQ increased 8%. Volatility pulled back a bit as the markets bounced; the VIX closed down one point to 19.6%. This is still a high level for volatility, so don't take a nap yet. And there is no sign that Obama will soften his refusal to negotiate; so increased volatility may be with us for a while.
The FOMC minutes from the September meeting were issued today. The minutes revealed a lot of debate over whether or not to taper stimulus - not too surprising. Many members believed the economic data had not yet reached the goals previously set by the committee, while other members wanted to soften the goals and declare the economic data were "good enough". Markets hit their lows around 11 am ET and then traded up close to the intraday highs by 2 pm when the FOMC minutes were released, so the minutes had little, if any, effect on the markets. One might be tempted to credit the news of Yellen's nomination as the market-turning event, but that news was out yesterday, so that doesn't track. But it is true that markets will take some calming effect from Yellen's
nomination. Many analysts believe Yellen is likely to
continue Bernanke's dovish policies, and perceive this as bullish for
the markets.
With a market this nervous, attempts to rationalize its behavior are largely futile. I will go crawl back into the cave.
Turning Downward
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- Written by Dr. Duke
The president and the media are getting their way, trying their best to scare everyone with the prospects of a global meltdown that starts with the U.S. defaulting on the debt. Haven't we heard this before? Did we go over the fiscal cliff? Did sequestration force us into recession? But it appears that the propaganda is starting to work. If you tell a lie long enough, everyone believes it. SPX broke through the 50 dma today, and appeared to be in free fall thereafter, closing at $1655, down $21. RUT gave way as well, breaking support at $1062 and then the 50 dma at $1050, closing down $19 at $1047. Volatility spiked upward, with the VIX touching 21% intraday and closing at 20.3%. VIX is now roughly where it was at the bottom of the pullback that ended June 24. But Obama still insists he will not negotiate, so we may see further declines in the markets before this is over.
I watch CNBC all day and I find it fascinating how several guests have pointed out why it is highly unlikely, if not impossible, that we will default on the treasury debt (see yesterday's blog for the details). But the hosts all continue to breathlessly worry about what will happen if we default. One has to wonder why.
Bearish technical data is starting to accumulate. The percentage of NYSE stocks that are above their 50 day moving averages (dma) has continued to decline since May, even as the market hit new highs. This shows a deterioration of the underlying health of the market even as the overall averages hit highs in August and September. And we have the historical tendency for market crashes occurring in October. The silliness in Washington coupled with the media propaganda may succeed in crashing this market in spite of the economic underpinnings. Don't get me wrong; the economy is certainly weak, and this is the weakest and longest economic recovery in history. But we are not in or near recession status. This drama is being orchestrated.
As it turns out, I was wise to close the put spreads on my October iron condor on RUT. It now stands at a gain of 7%; if the call spreads expire worthless, which now appears highly probable, we will end that trade with an 8.4% gain and our Flying With The Condor™ gains will be up +11% for the year. We are still lagging behind the S&P 500, but we are gaining on it.
The Sky Is Falling
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- Written by Dr. Duke
The incessant drumbeat of Armageddon and global financial disaster appeared to finally start to weigh on the market today. SPX dropped off $14 to close at $1676 and RUT closed down $12 at $1066. Trading volume dropped off again today with 1.7 billion shares of the S&P 500 stocks trading. Trading volume was flat on the NYSE and decreased 6% on NASDAQ. Volatility spiked up nearly three points with VIX closing at 19.4%.
From a technical standpoint, SPX has now broken through support at the 50 dma. RUT traded down very close to the support level around $1065. So far, the markets have held up rather well, but the spike in volatility today is worrisome.
My October condor consists only of the RUT 1110/1120 and 1130/1140 call spreads at this point and each day brings more gains via time decay; we now stand at a gain of 4.2% and the delta of the 1110 calls is 8, so the position is very safe; the maximum potential gain is 8.4%.
Be sure to hedge your positions. October is historically a dangerous month and Washington is adding to that danger.
