Dr. Duke's Blog

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Written by Dr. Duke

Created: 08 July 2022

The Standard and Poors 500 index (SPX) took a breather today from the recovery that began on July 1st, closing at 3899 with a slight decline of three points for a decrease of -0.08% for the day. SPX opened the shortened holiday week at 3793, resulting in a gain of 2.8% for the week. The index may be running into resistance at the high of the last attempted recovery in late June around 3921. Trading volume was anemic all week, running well below the 50-day moving average (dma). Declining volume during a recovery from the low for the year doesn’t show much conviction.

VIX, the volatility index for the S&P 500 options, opened this week at 27% and closed today one point lower at 26%. The market may be showing signs of life, but traders remain unconvinced.

I track the Russell 2000 index with the IWM ETF. IWM closed today essentially unchanged at 175.59, down 0.01% from yesterday’s close, but IWM managed a 4.1% gain for this four-day trading week. Seeing a strong rise out of the Russell 2000 index is encouraging but Russell is running into resistance from the highs set by the last recovery attempt, just as we see in the other broad market indices.

The NASDAQ Composite index followed the lead of the other broad market indices today, closing at 11,635, essentially unchanged from yesterday but up 6.1% for the week. However, before we get too excited, note the trading volume decline for the week. Today’s volume was a disappointing 3.6 billion shares, well below the 50 dma at 5.3 billion.

This reminds me of the film, Groundhog Day, where the day kept repeating itself. Several times this year I have thought the correction was over and the market was returning to at least a slightly bullish track. But each mini recovery has been followed by a lower low. So here we are again. The market has been trading steadily higher since the first of July but we have seen this movie before. Every one of the broad market indices are closing in on the last attempted recovery high. Will this time be different?

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Written by Dr. Duke

Created: 02 July 2022

The Standard and Poors 500 index (SPX) came to life in today’s shortened trading session, closing up 40 points, or +1.1%, at 3825. But that wasn’t enough to save the week from a 1.2% loss. Trading volume remained below the 50 day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, was choppy but largely unchanged this week. VIX opened today at 29.5% and closed at 26.7%. It seems like we have been trapped in this “no man’s land” around 25% most of this year. Traders are nervous but not panicked.

I track the Russell 2000 index with the IWM ETF. IWM traded lower all week but recovered somewhat today, putting on over two points or +1.2%. But that could not save the week from a 2.4% loss.

The NASDAQ Composite index attempted a recovery today, just as we observed for the other broad market indices, but the gains were disappointing. NASDAQ closed today at 11,128, up 99 points or 0.9%. However, NASDAQ closed the week at a loss of 4.6%. Trading volume ran slightly above the 50 dma at 5.3 billion this week but dropped off today to close at 4.8 billion shares.

I have been observing the market weakness this year as a classic correction in an ongoing bullish market. Even after today’s attempted recovery, the 2022 market has incurred significant damage:
 
·      The S&P 500 index: -20%


·      The NASDAQ Composite: -29%


·      The Russell 2000 index: -23%



I am shifting my opinion of this market to a bearish downtrend. Instead of looking for the bullish recovery, I am on defense and will be actively looking for bearish trades to profit from the downward trend.



I am currently almost entirely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I believe that style of trading will continue to do well in this environment so I am shifting investment cash to those trades. The upcoming earnings season will offer trading opportunities both before and after the announcements. I will be looking for more conservative income trades, e.g., deep ITM long term covered calls. This may be a good time for a vacation, or at least a pause in trading.

Enjoy this holiday weekend. Reflect on the exceptional freedom we enjoy in this country. Surrendering our freedom so the government can take care of us and tell us how to live is a poor bargain and will not lead to happiness.

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Written by Dr. Duke

Created: 24 June 2022

The Standard and Poors 500 index (SPX) began to show signs of life on June 17th and continued that recovery through today with a increase of 116 points to close at 3912, up 3.1% for the day and 5.3% for the week. Trading volume remained close to or below the 50 day moving average (dma) until spiking much higher today, reaffirming today’s strong gap opening and large recovery push.

VIX, the volatility index for the S&P 500 options, opened this week at 31% and steadily declined to close today at 27%. However, this level of volatility is far from benign. VIX opened 2022 just under 18% and even that level was somewhat elevated compared to the VIX prior to the 35% crash in March 2020.

The NASDAQ Composite index followed the lead of the other broad market indices today, gapping open higher and continuing the bullish run, closing up 3.3% at 11,608 and up 8.5% for the week. This might have qualified for a “follow through day" to confirm the resumption of an uptrend in the IBD methodology, but the trading volume was disappointing at 4.4 billion shares, well short of the 50 dma at 5.1 billion.

The 2022 market correction now stands at significant levels:
 
·      The S&P 500 index: -24%


·      The NASDAQ Composite: -32%


·      The Russell 2000 index: -28%



The question on everyone’s mind is whether this week’s trading marks the bottom of this correction. That assumes we remain in a bullish market. Unfortunately, there is a less pleasant answer. We could be transitioning to a recession with the accompanying bear market and we are simply observing the classic lower highs and lower lows of the bearish trend.

 I was certainly of the bullish persuasion in late March as the market appeared to be recovering to return to the highs earlier in the year. Instead, the S&P 500 collapsed to new lows in early May, and then lower again in late May, and then took another step lower in mid-June.
 
I am currently almost entirely in cash; my only active trades are the SPX condors of the Flying With The Condor™ service, up 26% this year. I opened two earnings trades on FDX for the trading group subscribers yesterday and closed them for modest gains today. I remain unconvinced that the bull market has resumed. It is safer on the sidelines.

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Written by Dr. Duke

Created: 18 June 2022

The most recent plunge for the Standard and Poors 500 index (SPX) began on June 9th and hit an intraday low Thursday at 3640, down 24% for the year. Friday’s trading was somewhat more positive with a modest gain of eight points or 0.2%. The S&P 500 stocks ended the week with a 4.2% loss. Trading volume spiked Friday on quadruple witching.

VIX, the volatility index for the S&P 500 options, began a spike higher on June 9th at 24%, peaking on June 13th at 35%. VIX closed Friday at 31%, with volatile readings this week, but ending unchanged from Monday’s open.

I track the Russell 2000 index with the IWM ETF. IWM was modestly higher on Friday at 165.18, gaining 1.3 points or +0.8%. IWM opened the week at 173.63 for a decline of 4.9%.

The NASDAQ Composite index recovered slightly on Friday, closing at 10,798, up 152 points or 1.4% but down 1.7% for the week. Trading volume spiked Friday on quadruple witching.

Summarizing the 2022 market to date:
 
·      The S&P 500 index: -24%
·      The NASDAQ Composite: -32%
·      The Russell 2000 index: -28%

It goes without saying that the major driving forces for this correction are:
 
·      Record levels of inflation
·      Record oil prices
·      Rising interest rates
·      Fear of a recession



The Federal Open Markets Committee (FOMC, or the Fed) continued their raising of the discount rate for Federal funds, increasing it by 75 basis points on Wednesday. The size of that increase surprised the market and resulted in Thursday’s sell-off. Raising interest rates is designed to slow the economy and thus slow wage and price increases. The Fed is also selling treasury bonds and other securities in their portfolio to decrease the money supply, an additional upward pressure on interest rates.
 
Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling that represents a large number of stockholders throwing in the towel. Thursday’s low on above average trading volume may have represented that capitulation low, but that certainly wasn’t confirmed by the modest rise in the markets Friday.

I am almost entirely in cash at this point, and I am not anxious to enter any new trades. I have too many scars this year from trying to jump back into the market.

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Written by Dr. Duke

Created: 11 June 2022

Friday’s market reminded me of the classic Monopoly game card. The Standard and Poors 500 index (SPX) collapsed Friday after the latest CPI report, losing 117 points to close at 3901, down 2.9% in one day. This culminated a disastrous week for the S&P 500 with a 5.7% loss. Support levels from the May lows are 3875 and 3801. However, trading volume remained below average all week, only touching the 50-day moving average (dma) on Friday.

VIX, the volatility index for the S&P 500 options, spiked as high as 30% on Friday and then declined to close at 28%. VIX opened the week at 25% and declined to 23% by Wednesday, but increased Thursday and Friday. The increase on Friday seemed less than I would have expected for a large gap opening lower that continued even lower with no intraday recovery.

I track the Russell 2000 index with the IWM ETF. IWM gapped open lower on Friday and lost nearly five points or 2.7%. IWM opened the week at 188.79 and closed Friday at 178.59 for a decline of 5.4%.

The NASDAQ Composite index gapped open lower Friday and closed at 11,340, down 414 points or 3.5% and down seven percent for the week. Trading volume was modest all week and only slightly above the 50 dma, even during Friday’s market collapse.

The 2022 market has been declining steadily for multiple reasons:
 
·      Record levels of inflation
·      Sharply rising energy prices
·      Rising interest rates
·      A negative Q1 GDP estimate



Overall market trading was largely constrained to a sideways trading pattern for the last couple of weeks but that dramatically changed Friday after another record setting CPI report.
 
Stagflation is the term for a period of high inflation coupled with a slow growing or even a recessionary economy. The Fed’s cure for inflation is largely constrained to raising interest rates to slow the economy and consequently slow wage and price increases. They raised rates a quarter point at their last meeting and will likely raise rates by a half point on Wednesday.
 
An additional concern is whether the current market is overpriced. The broad market indices are all substantially lower at this point. The declines in 2022 follow:
 
·      The S&P 500 index: -19%
·      The NASDAQ Composite: -28%
·      The Russell 2000 index: -20%


I consider removing 20% or more from the market indices probably trims prices to a more reasonable level. On the other hand, the price increases of consumer goods and energy are setting all-time records and we have not yet seen any softening of those prices. Technical analysts watch for a trading volume spike at a market low that may be interpreted as “capitulation”, the last surge of selling, representing a large number of stockholders throwing in the towel. We have not seen that volume spike as yet. It could get worse before it gets better.

Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.

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Written by Dr. Duke

Created: 04 June 2022

The Standard and Poors 500 index (SPX) closed Friday at 4109, down 68 points on the day or -1.6%. SPX opened the week at 4151, resulting in a loss of one percent for this shortened holiday week. 
Trading volume spiked higher to open the week on Tuesday but sank far below the 50-day moving average (dma) for the rest of the week.

VIX, the volatility index for the S&P 500 options, opened Tuesday at 27% and closed Friday at 25%. This is the lowest level for VIX since the last week of April.

The NASDAQ Composite index closed at 12,013 Friday, down 304 points or 
2.5% and down one percent for the week. Trading volume spiked Tuesday but declined below 50 dma for the balance of the week.

The overall market has been very volatile this year, and the overall trend has been lower. After hitting a low of 21% on May 20th, SPX strengthened somewhat over the past two weeks to cut the loss to -14%. The principal worries for the market are record levels of inflation, rising energy prices and increasing interest rates. The last GDP estimate was negative, causing concerns about stagflation to mount. Can the Feds raise rates enough to counter inflation without cratering the economy?

Overall market trading was flat this week. Are we about to tip over into an even more severe correction? Or have we stabilized at this level? That is anyone’s guess. Last week’s trading was very bullish, but we have seen many short-lived rallies this year abruptly and painfully ended. Remain on guard. Trade small and leave a substantial amount of your investment capital in cash or in relatively safe utility and REIT stocks.

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Written by Dr. Duke

Created: 20 May 2022

Fridays are becoming the most exciting days in the market. The Standard and Poors 500 index (SPX) opened today at 3927 and traded higher for about 30 minutes before starting a steady decline to a low of 3810 around 1:30 PM ET. But then the bulls took over and drove the market into the close at 3901, essentially a flat day from Thursday’s close. What a ride! 

The end result for the week was a 2.8% decline in SPX. The intraday low today updates the correction to 21% since the January 4th open. Trading volume rose steadily all week and moved above the 50-day moving average (dma) for the last three days of the week.

VIX, the volatility index for the S&P 500 options, opened this week at 30%. I found it interesting that Wednesday’s rout of the market only spiked VIX to 31%. Thursday and Friday both saw intraday spikes up to 33%, but VIX settled down to 29% today. This certainly isn’t a low level of volatility, but it is lower than one would have expected for the significant decline we witnessed Wednesday. The large institutional players are not as spooked by this market as I am.

The NASDAQ Composite index closed at 11,355 today, down 34 points or 
0.3% today but down 3.2% for the week. Note how the intraday low was very close to the low last Thursday. Is NASDAQ finding support? Trading volume only reached the 50 dma today.

The overall market has been very volatile this year, but the overall trend has been lower. The Ukraine crisis, record levels of inflation, rising energy prices and increasing federal debt are some of the worries keeping traders up at night. Soon after we began to see inflation getting out of hand, a new worry appeared: the prospect of the feds raising interest rates to slow the economy and counter inflation, but perhaps risking a recession in the process.

Traders find themselves coping with two somewhat opposed issues: run away inflation and rising interest rates. We don’t want inflation to get out of control, but we also fear that the FOMC may raise rates too far and/or too fast and the economy will be effectively shut down.



One interesting recent price pattern is common to S&P 500, NASDAQ and the Russell 2000 indices this week. All of these indices rallied off intraday lows on May 12th. Again, all of these indices posted intraday lows today that were close to the intraday lows of May 12th. That may be a sign of the market stabilizing and finding support. The S&P 500 is off 21%; the NASDAQ Composite is off 30%; the Russell 2000 is off 25%. Do the current prices represent good value? One could argue that today’s recovery from intraday lows suggests that traders are starting to bargain hunt. But we have seen that before. Stay cautious. The second mouse gets the cheese. Let the market prices show us the way.

We don’t have solid answers to these questions today. Until we have those answers, we should remain largely in cash. Trade small if you trade at all.

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Written by Dr. Duke

Created: 13 May 2022

The Standard and Poors 500 index (SPX) closed today at 4024, up 94 points or 2.4% in a single day. But SPX had declined this week by 3.7% through Thursday’s close, so even with today’s strong recovery, SPX was down 1.4% for the week. The CPI and PPI announcements this week were the principal reasons for this week’s market weakness. Today’s open on SPX gapped open much higher than Thursday’s close and today’s open was also today’s low; both are very bullish signs.

VIX, the volatility index for the S&P 500 options, opened this week at 32% and then spiked to over 35%, before declining steadily and then gapped lower today to close at 29%. But this remains a high level of volatility.

The NASDAQ Composite index closed at 11,805 today, up 434 points or 
3.8% in a single trading session. However, it couldn’t make up for the week’s earlier losses, so NASDAQ closed down one percent for the week. Trading volume ran above the 50 dma all week. Thursday’s intraday low set a 30% correction for NASDAQ since the January highs.

Last week I was complaining about how commonly the market has sold off on Fridays this year, but I thought the market was finally finding support. Well, I was dead wrong as the market took another step lower this week. The difference this week was the strong bullish recovery today on all of the broad market indices. The S&P 500, NASDAQ and the Russell 2000 indices all gapped open at this morning’s open and continued to trade higher into the close.

The inflation data earlier this week appeared to push the market to new lows, but it may be that analysts started to realize that the rate of inflation may have peaked. The Consumer Price Index peaked at a year over year increase of 8.5% last month; CPI increased 8.3% this month on a year over year basis. Similarly, on year over year basis, PPI increased 11.5% last month , but declined to 11% this month.

That is the best explanation I have for today’s strong market. But next week may bring a new reason to trade lower. I keep thinking the market has turned the corner and I dip my toe in the water. As a result, I have lost several toes. This market has humbled me and I remain largely in cash.

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Written by Dr. Duke

Created: 06 May 2022

The Standard and Poors 500 index (SPX) closed today at 4123, down 24 points or 0.6%. The initial response to the FOMC announcement on Wednesday was positive, but that wore off quickly with SPX trading off significantly the last two days. Trading volume was modestly above the 50-day moving average (dma) this week.

VIX, the volatility index for the S&P 500 options, opened Monday at 30%, traded as low as 25% on Wednesday before spiking higher and closing today at 30%. This level of volatility is not modest, even if we are becoming accustomed to it. Remain vigilant.

The NASDAQ Composite index closed at 12,145 today, down 173 points or 
1.4%, and down 1.5% for the week. Trading volume ran below the 50 dma all week. Monday’s intraday low is a 23% correction since the January highs for NASDAQ.

Last Friday’s low was the low for that week, and today’s close was this week’s low. The only good news is the appearance of the broad market finding a support level this week. Of course, I may be proven wrong next week. NASDAQ closed today just below the lows set on Monday and Thursday. SPX’s low on February 24th was around 4115 and trading this week appeared to be trading right along that line.

We have suffered through a lot of bad news: record levels of inflation, FOMC moving to raise interest rates and shrink the money supply and, to top it all off, a negative GDP growth number for the first quarter.

I remain largely in cash, although I did venture out with a couple of trades late in today’s trading session. Those trades were a result of my observations that the market appeared to be finding support this week.
The trades I entered today are just my “toe in the water”. My posture remains very cautious, largely in cash with close stops on the few positions in play.

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Written by Dr. Duke

Created: 29 April 2022

The Standard and Poors 500 index (SPX) closed today at 4132, down 156 points or 3.6%. SPX closed the week down 2.9%. If I put on my rose-colored glasses, I would point to Monday and Thursday’s moderately bullish trading sessions. The pessimist (or realist) might note that the market closed at or very near the lows for the day both on Tuesday and today. Why is that significant? When the market trades down strongly, buyers often come into the market to buy what they consider bargains. When that doesn’t happen, it is a dire warning. Adding to the negativity was increasing trading volume. SPX’s trading volume was above the 50-day moving average (dma) every day this week. Increased volume reinforces the observed trend, in this case, a bearish trend.

VIX, the volatility index for the S&P 500 options, opened Monday at 30% and closed today at 34%. These levels of volatility aren’t quite back to those of early March, but they are close. I track the Russell 2000 index with the IWM ETF. IWM closed today at 184.95, down 2.9%. IWM opened the week at 190.99, resulting in a loss of 3.2% for the week. IWM is trading at levels not seen since December 2020. IWM is down 22% this year.

The NASDAQ Composite index closed at 12,335 today, down 537 points or 
4.2%, and down 3.2% for the week. Trading volume ran below the 50 dma all week. Today’s close represents a 22% correction since the January highs for NASDAQ.

My rose-colored glasses are ruined. I was stomping on them today. It is difficult or impossible to put a positive spin on this market. The S&P companies have now hit corrections of 14% three times this year. NASDAQ and the Russell 2000 are now down 22%. Unfortunately, I don’t see any light in this tunnel. Inflation is setting records. The Fed is reducing the money supply and raising interest rates to fight inflation. Powell appears to be hinting at a half percent rate increase at the meeting next week. We just set our first negative GDP number for the first quarter. Economists label the economy as in a depression after two successive negative GDP declines.
I am largely in cash now, and plan to stay there or may even close more trades. I may be 100% in cash by the Fed meeting. The only exceptions are my index condor trades. They are doing well. My Flying With The Condor™ service is up 16% through April and the May and June positions both remain in the black. But even those positions may be adjusted next week.
I am going to have to see some solid market growth before venturing out with any new trades.