Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 26 October 2012

The markets appear to be trading sideways at this point, unsure which way to turn. SPX closed down $1 at $1412 while RUT lost $4 to close at $813. VIX remains essentially unchanged at 17.8%. If we draw a downward trend line on RUT's chart from its peak on September 14 to today, the upper edge of the band today is at about $835 and the lower edge of the band is around $805. Interestingly, the 50 dma is at $832 and the 200 dma is at $806. So the question facing traders is this: Is this downward trend just a consolidation within a larger bullish trend? Or is it the beginning of a new bearish trend? Trading below the 200 dma will confirm the bearish trend scenario and breaking out above the 50 dma will confirm the resumption of the bullish run. In the meantime, we are dawdling here in "no man's land".

GDP for the third quarter came in today higher than expected at a +2.0% annualized growth rate, a big improvement over the second quarter's 1.3%. But that apparently didn't impress traders one way or the other. Bulls couldn't capitalize on the news, but neither could the bears. The University of Michigan's consumer sentiment survey came in at 82.6 for October, a slight decrease from September's 83.1, but probably well within the margin of error.

My November iron condor position remains at a gain of about 9% with 20 days until expiration.

We are having classic fall weather here in Chicago. Enjoy your weekend with family and friends. It is easy to become distracted as we trade all week; remind yourself what's important this weekend.

Details

Written by Dr. Duke

Created: 25 October 2012

SPX jumped upward at the open today but quickly lost steam and basically traded sideways. SPX closed up $4 at $1413 while RUT gained $3 to close at $817. Trading volume was mixed with the volume of the S&P 500 stocks essentially flat at 2.6 billion shares. Trading on the NYSE was up 7% but trading on NASDAQ was down 4%. VIX ended the day without much change at 18.1% - a dicey area, but not too bad.

Initial unemployment claims came in lower at 369k and continuing claims were essentially flat. Durable orders showed a gain of 9.9% for September and pending home sales rose a bit at 0.3%. But this didn't seem to affect the market much one way or the other.

SPX is holding support at $1410 rather well. For most of August, SPX traded between $1400 and $1420, so this is a pretty solid support area. The 200 dma is down at $1377; that could be a logical stopping point if we break support here.

My Nov condor position stands at a gain of 9%; I am looking for a stronger market to re-establish my call spreads. The 750/760 put spreads are pretty safe with a short strike delta of 12. Both AAPL and AMZN disappointed analysts with their earnings announcements, but neither stock is down very much in after hours trading. If that holds, maybe these results won't drive a bearish response in the overall market tomorrow.

Details

Written by Dr. Duke

Created: 24 October 2012

The markets basically traded sideways today; the Fed announcement had almost no effect on the markets. I suppose that makes sense; what else can the Fed say? Interest rates have been promised to stay low and the last announcement said they would do everything necessary to support the economy. SPX dropped $4 to close at $1409 and RUT lost $3 to close at $814. Trading volume dropped a bit to 2.6 billion shares of the S&P 500. Trading volume on the NYSE was down 3%, but was up 8% on NASDAQ (Facebook effect?). VIX lost a half point to close at 18.3%.

It is interesting to note that the SPX hit the same intraday low at $1407 that it hit yesterday. Breaking through $1400 would be very bearish. RUT has not really kept up with SPX since June; the trend line has not been as well defined; it took much longer to set new 2012 highs, etc. Now, you can draw a very nice downward trend on RUT and we are sitting on the bottom edge of that trend - not a good sign.

My November iron condor on RUT sits at a net gain of $1,180 or 7%. The 760 put is about one and a half standard deviations OTM with a delta = 14. Now we wait to see if earnings announcements from AMZN and AAPL perk up or depress this tenuous market.

Details

Written by Dr. Duke

Created: 23 October 2012

For several weeks now, companies have been warning about disappointing earnings and now we have seen several weak reports from the likes of FedEx, IBM, Intel, and 3M. More importantly, many of the companies reporting thus far have painted bleak pictures for the upcoming quarter. It appears that this morning's report from DuPont was the last straw and the selling began in earnest. SPX had closed right at support at $1430 last evening and it quickly sliced through that support level and traded as low as $1408 before rebounding a bit to close at $1413, down $21. RUT dropped $4 to close at $816. The SPX chart shows a lot of congestion in the range of $1400 - $1410 from late August, so I would expect this broad level of support to hold, but if it doesn't, look out below! It is hard to believe that Bernanke was promising more quantitative easing just a few weeks ago; today's drop takes us back to pre-Bernanke announcement levels.

Trading volume jumped up a bit to 2.8 billion shares of the S&P 500 (50 dma = 2.5B). Trading on the NYSE was up 7% and was up 9% on NASDAQ.

VIX spiked up to 19.7% earlier today, but settled at $18.8%, up 2.2 points. This is the neighborhood where VIX was just before the Draghi press conference in early September when the focus was on Europe - this is a dangerous neighborhood. I will be looking closely at the futures tomorrow morning to see if the slide is likely to continue.

I took today's market weakness as an opportunity to close the 910/920 call spreads on my November iron condor on RUT. It now stands at a net gain of $1,280 or 7.5%. Tomorrow brings the FOMC report and press conference; will it matter?

Details

Written by Dr. Duke

Created: 22 October 2012

It was only one week ago that we noted that SPX had bounced off support at the 50 dma; then SPX headed back up and challenged earlier highs around $1465. But that challenge failed and led to the huge decline Friday, closing at the 50 dma. Then SPX traded down as low as $1422 today before clawing its way back to close near the 50 dma at $1434. It was a quick round trip. SPX closed at $1434, up $1 and RUT closed at $821 down less than a dollar. If you look at the one minute chart, you will see that the last hour of trading saved the day for SPX. It appears we are trading in the $1430 to $1465 range in roughly one week cycles back and forth. Perhaps this is the pre-election dance?

Trading volume dropped off dramatically with 2.4 billion shares of the S&P 500 trading; trading on the NYSE declined 30% and volume dropped 26% on NASDAQ.

My Nov iron condor stands at a P/L of +$1,500 with position delta = +$48 and position theta = +$60. It will be interesting to watch AAPL this week through both a new product launch and an earnings announcement. After hitting that low at $610 Friday, AAPL was up over $24 today. And analysts wonder why individual investors are hiding under the bed?

Details

Written by Dr. Duke

Created: 18 October 2012

GOOG inadvertently released its earnings announcement during the trading session today and spooked the markets. Trading opened a little weak this morning based on weak unemployment claims data (388k vs. last week's 342k), but had rebounded until about 12:30 pm ET when the GOOG earnings announcement surprised the market. GOOG tumbled and then trading in GOOG was halted, but the market averages tumbled with GOOG and then continued for a couple of hours before recovering some of their losses before the close. SPX closed down $4 at $1457 and RUT lost $5 before closing at $837. Trading volume bumped up a bit with 2.9 billion shares of the S&P 500 (GOOG alone traded 12 million shares). Trading on the NYSE increased 5% and trading volume on NASDAQ increased 15%.

Despite all of the excitement surrounding Google, volatility remained calm with the VIX at 15%.

My Nov iron condor on RUT stands at a net gain of $1,800 with position delta = +$13 and position theta = +$64. It will be interesting to see if the GOOG debacle and Microsoft's earnings disappointment pull this market back down tomorrow, or if it rebounds after today's GOOG shock.

Details

Written by Dr. Duke

Created: 16 October 2012

I speculated that support in the form of the 50 dma on SPX had held yesterday. Today's price action was certainly very convincing that the market has bounced off support and the bullish trend is very much alive. Should we"go all in" as the poker players say? I don't think so. I really am an optimist in my daily life. I'm not the pessimist that expects everyone I deal with to cheat me, and is pleasantly surprised when things turn out well. But one has to have his or her rose colored glasses firmly in place to ignore the serious economic issues facing this country and the world. So I may place some bullish trades (I did enter a Dec 660/690/720 call butterfly on AAPL yesterday), but I am still cautious and watching this market very closely. If nothing else, I think the high frequency trading crowd has given this market a higher level of volatility than ever seen historically - that alone gives me pause. SPX was hot today, rising $15 to close at $1455 and RUT followed right along, closing up $7 at $835. VIX traded down early, but ended the day unchanged at 15.2%.

One likes to see increased volume to reinforce the observed trend direction. And trading volume inched up today with 2.6 billion shares of the S&P 500 trading. Trading on the NYSE increased 6% and volume moved up 10% on NASDAQ.

The CPI was released with a rise of 0.6% for September. Industrial production turned positive at 0.4% up in September - a big change from the previous month's 1.4% decrease. And capacity utilization edged up to 78.3% for September from 78.0% last month.

My Nov iron condor on RUT is nearly delta neutral with a net gain of $1,660 with position delta = +$22 and position theta = +$61. We are up almost 10% with 30 days to go until expiration. That's a pleasant change from the struggles managing my condors in September and October.

One cannot deny the bullish trend of the current market, but pick your positions carefully and manage the stops conservatively. This market will react badly to the next negative news item coming out of Europe.

Details

Written by Dr. Duke

Created: 15 October 2012

After the mildly positive jobs report about ten days ago, SPX tried to break through resistance at $1465 to new highs, but could not hold those levels. Ever since then, the market has been slowly deteriorating. But SPX has been testing support at $1430 over the past four sessions and it has held. Today, SPX opened at $1429, traded as high as $1441 and closed near that high at $1440. RUT ran up $5 to close at $828. And this occurred on higher volume with 2.6 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE was up 9% and trading on NASDAQ was up 2%. VIX dropped almost a full percentage point to 15.3%.

Retail sales for September came in with an increase of 1.1%. The Empire Manufacturing Survey reported a drop of 6.2, but that was better than the previous month's -10.4. At this point, I'll take "less bad" as an improvement.

My Nov iron condor on RUT stands at a P/L of +$1,480 with delta = +$28 and theta = +$60.

Details

Written by Dr. Duke

Created: 12 October 2012

SPX popped up at the open today, but couldn't hold those levels. By noon it had broken support at $1430 and repeatedly tested that level all afternoon, closing at $1429, down $4. RUT was even weaker, losing $7 to close at $823. Trading volume dropped with 2.5 billion shares of the S&P 500 trading today. Trading volume on the NYSE dropped 11% and trading decreased 3% on NASDAQ. VIX increased about one half of a percentage point to close at 16.1%.

SPX closed today right at support and the 50 day moving average. The market has dropped enough at this point that one either has to say the upward trend line since June has been broken or significantly redraw that trend line. If SPX breaks support at $1430, the next support at $1420 looks pretty weak; the next solid support is around $1400. So if we can't hold $1430, we may see $1400 in short order.

The University of Michigan consumer sentiment numbers came in very upbeat at 83.1, a big jump from last month's 78.3. The PPI increased 1.1% which was lower than last month's 1.7% rise, so that was reassuring to analysts watching for signs of inflation.

I closed the 790/800 puts in my Oct condor today. This leaves the Oct 900/910 call spreads to expire worthless next weekend. Assuming those spreads expire worthless, my October iron condor will post a loss of $320 or 2% on 20 contracts. The Nov condor stands at a P/L of +$1,100 with delta = +$37 and theta = +$56.

Have a great weekend.

Details

Written by Dr. Duke

Created: 11 October 2012

The market traded higher this morning on the back of improved unemployment claims numbers, but it didn't last. After trading as high as $1444, SPX closed at its opening price, $1433, unchanged for the day. RUT fared a little better, closing at $830, up $3. Trading volume was mixed with 2.8 billion shares of the S&P 500 stocks, above the 50 dma of 2.4B, but trading volume was down 11% on NASDAQ and up 7% on the NYSE. The VIX declined almost one percentage point to 15.6%.

Today's trading action was not bullish by far, but perhaps not bearish either. After all the bulls managed to push SPX to $1444, but they could not hold those gains; on the other hand, the bears could not break support at $1430.

The report of new unemployment claims came in at 339k, down from last week's 369k and continuing claims are 3.27 million, down 20 thousand. Maybe traders read the fine print later in the day and found out that California's numbers were not included in the report - oops! We will have to wait until next week to see if unemployment claims really declined. That may have contributed to the market taking back this morning's gains.

My Oct iron condor stands at a P/L of +$260 with delta = +$75 and theta = +$138. I will apply the two sigma rule tomorrow; it doesn't look like the 790/800 put spreads will survive that test. The Nov position stands at a P/L of +$1,260 with delta = +$27 and theta = +$58.

As long as VIX holds steady or declines (as it did today), and support holds on SPX, perhaps this market will muddle through this earnings season. But it is hard to predict what kind of bad news could pop up from Europe or if a slew of poor earnings forecasts start to take their toll.