Dr. Duke's Blog

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Written by Dr. Duke

Created: 03 August 2012

Wow! That train left the station in a hurry! SPX gained $26 to close at $1391 and RUT stayed right in line with a $20 gain to $788. Surprisingly, trading volume wasn't up. Only 2.5 billion shares of the S&P 500 stocks traded today, down from yesterday's 2.8B and below the 50 dma at 2.7B. The VIX lost 2 points and ended the day at 15.6%. SPX powered through resistance at $1375 and broke the highs of a week ago. Now the resistance set at $1405 back in May is in sight. Can it break $1405? We'll see.

The non farm payrolls report, or the jobs report, started this ball rolling this morning with an announcement of 163 thousand new jobs in July, up from last month's anemic 64k. But unemployment stubbornly refuses to give in, rising to 8.3% - only a tenth of a percent, but not in the right direction. If hot air created jobs, we'd have a bunch of them; just look at all of the fuss over Chick-fil-A. Shame on them for creating all of those jobs. I guess free speech is no longer protected here.

The ISM Services Index also reported out today at 52.6, up slightly from June's 52.1. In spite of today's huge market run, the economic data remains pretty weak. I look for a bit of a correction next week, but maybe I'm wrong. Fortunately, my iron condor trading doesn't depend on my market forecasts being accurate. My Aug iron condor is up by $2,440 and the position delta on 20 contracts stands at -$11 with theta = +$41. Our Flying With The Condor™ service is up 35% so far this year and, if I count the gains from the open August position, we are crossing the 40% mark.

Enjoy your weekend. Express your opinions, but do it politely. And don't throw any red herrings into the discussion. That doesn't further the search for truth.

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Written by Dr. Duke

Created: 01 August 2012

Everyone was focused on the FOMC announcement this afternoon and the markets traded downward immediately after the announcement. SPX lost $4 to close at $1375. Interestingly, RUT didn't react to the Fed announcement, but then traded off very strongly in the last thirty minutes; RUT lost $16 to close at $771. VIX remained unchanged at 19%.

The FOMC announcement was almost identical to the last one, but appeared to be a little more negative in describing the state of the economy and used slightly stronger language about a possible intervention. That disappointed many traders who had positioned themselves bullishly in anticipation of another round of quantitative easing. 

SPX traded down to support at $1375, but RUT sold off dramatically, breaking support at $775 before landing at $771. This divergence may be significant; several times recently, RUT has been a good market predictor when it diverged from SPX.

ADP reported the addition of 163k new private payroll jobs, down a bit from last month's 172k. The ISM Manufacturing Index came in at 49.8, about flat with last month. But one has to remember this index is structured in such a way that numbers below 50 indicate contraction, so two successive numbers under 50 isn't a good sign. We have the unemployment claims data tomorrow. Traders will be attempting to interpret that report together with today's ADP report to give them a preview of the jobs report Friday.

My Aug condor was pushed back to delta neutral by today's drop in RUT. It now stands at a P/L of +$2,340 with delta = -$6 and theta = +$52.

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Written by Dr. Duke

Created: 31 July 2012

 The markets continued to basically tread water today, waiting to see if a new round of easing might come out of the Fed tomorrow. SPX closed down $6 at $1379 and RUT lost $5 to close at $787. Trading volume bounced upward today with 2.7 billion shares of the S&P 500, just under the 50 dma; trading on the NYSE was up 22% and trading volume on the NASDAQ increased 20%.

We had some modestly good economic data today, but no one was listening. The Case Schiller housing price index declined much less in May with a 0.7% decline (it dropped 1.9% in April). The Chicago PMI came in at 53.7 for July, up from last month's 52.9. Consumer confidence also rose to 65.9 in July, up from 62.7.

My Aug condor continues to build gains with a net gain of $2,260 with position delta = -$30 and position theta = +$46 (20 contracts). All eyes will be on the Fed tomorrow, but we may still see some reticence from traders with the jobs report looming Friday.

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Written by Dr. Duke

Created: 30 July 2012

 Maybe traders woke up today and realized Bernanke may not pull the trigger on QE III this week? Or maybe they just think the market was getting a little ahead of itself before we have a definitive announcement. The FOMC meets tomorrow and Wednesday with the statement issued Wednesday afternoon. SPX dropped $1 to close at $1385 and RUT lost $4 to close at $792. But trading volume fell off dramatically with 2.3 billion shares of the S&P 500 stocks trading (the 50 dma is 2.7B). Trading on the NYSE and NASDAQ both dropped 29% (curious coincidence). I think this indicates a fair amount of uncertainty before the FOMC announcement. In spite of minimal market movement, the VIX moved up 1.3 points to close at 18%.

We did not have any significant economic data or reports issued today, but the balance of the week is loaded: Tuesday has the Chicago PMI, consumer confidence, and Case Schiller; Wednesday brings the ISM Index, ADP employment data and the FOMC announcement; Thursday has the weekly unemployment claims data and Friday has the granddaddy of economic reports: the U.S. Nonfarm Payrolls Report. So seeing a slow day in the market today and probably also tomorrow makes sense in light of some of the market-moving data due later in the week.

My Aug iron condor on RUT stands at a P/L of +$2,360 with position delta = -$30 and position theta = +$29. With 17 days to go, our 650/660 put spreads are far OTM and the 850/860 call spreads are about one and a half standard deviations OTM. Absent a major market move, this position will likely expire worthless. But time will tell. Large market moves have become common the past couple of years.

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Written by Dr. Duke

Created: 28 July 2012

 Thursday's large upward move continued Friday. The SPX opened at Thursday's close, moved higher, broke through resistance at $1375 to close at $1386, up $26. RUT followed suit with a gain of $19 to close at $796. Trading volume didn't follow suit; trading in the S&P 500 was flat with Thursday's levels. Trading volume on the NYSE was down 2% and volume on NASDAQ was up 8%.

The markets have been displaying the traditional higher highs and higher lows of a bullish trend since early June, but it has been a very choppy ride. Can this run of the past few days be sustained? That is hard to predict, but I see entirely too many headwinds to allow a bullish market to continue for long. But I have been wrong before; all one can do is follow his rules.

I attended the Invest Like A Monster trading conference in Chicago yesterday. Talks by Jon Najarian, Jeff Macke and Rick Santelli were the highlights - it was a great conference. Be sure and sign up for the next one; it was first class in every respect. You won't be disappointed. See OptionMonster.com for more information about the next conference.

My Aug iron condor on RUT stands at a P/L of +$2,080 with delta = -$30 and theta = +$61, so this position is holding up well so far with one adjustment to date.

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Written by Dr. Duke

Created: 26 July 2012

The ECB president, Mario Draghi, committed to doing whatever was necessary to preserve the Euro, and that buoyed the markets significantly. Every major index finished the day higher. SPX gained $22 to close at $1360 and RUT closed at $777, up $8. Trading volume was up with 3.2 billion shares of the S&P 500 stocks trading today (the 50 dma = 2.8B). Trading on the NYSE increased 14% and volume jumped 10% on NASDAQ. VIX dropped almost two points to 17.5%. 

I find it fascinating how what may well be hollow promises can move a market this much. I think Europe is a long ways from solving their debt issues, but maybe I'm just a cranky old fart. My wife assures me I am, but that doesn't mean I'm wrong.

New unemployment claims dropped 35k to 353k and continuing claims reported at 3.3 million, down 30k. Durable orders increased 1.6% for June (flat from May), while pending home sales dropped 1.4% in June. All in all, not terrible data. This data doesn't support the excessive gloom and doom heard earlier this week, but we aren't out of the woods either.

My Aug iron condor on RUT at 650/660 and 850/860 stands at +$2,360 with delta = -$2 and theta = +$31. Will this rally continue tomorrow or will another news item take us down? The only predictable aspect of this market is volatility; maybe that is the new normal due to high frequency trading?

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Written by Dr. Duke

Created: 25 July 2012

The big news for today's market was AAPL's disappointing earnings announcement. But the overall market seems to be stabilizing (famous last words?) and maybe that helped stop the slide in AAPL. 

SPX closed at $1338, flat on the day. RUT traded down $2 to $769. It appears as though the 50 dma on SPX is acting as support with price action touching it yesterday and today. Trading volume was down a bit with 2.8 billion shares of the S&P 500 trading. Volume was down 3% on the NYSE and was up 1% on NASDAQ. VIX relaxed by a little over one point to close at 19.3%. 

Based on yesterday's weakness, IBD downgraded to "Market In Correction" last evening.

New home sales came in at 350k for June, down from May's 382k. Existing home sales will be posted tomorrow. Many voices are claiming to see the bottom in real estate. But that seems to depend largely on where you are in the country. 

My Aug RUT condor stands at a P/L of +$2,080 with delta = +$8 and theta = +$54.

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Written by Dr. Duke

Created: 23 July 2012

 Spain's bond yields hit 7.3% and Europe's debt problems have returned to center stage. While reviewing the various news sites I monitor today, I was surprised by the number of "dooms day" articles. According to the headlines, the middle class is disappearing, everyone's in poverty and the next great depression has begun. I admit that the global economic picture isn't pretty and our economy is right behind Europe on the same path. But it just appears like the tone of all of the financial press just turned on a dime. It all strikes me as a combination of mob psychology and yellow journalism; of course, thinking for yourself has gone out of style since everyone has become so afraid of being accused of being politically incorrect. SPX opened lower this morning and proceeded down to $1338 before bouncing to close at $1351, down $12.  RUT closed at $779, down $13. Trading volume dropped from the high levels of expiration Friday with 2.6 billion shares of the S&P 500 trading. Trading on the NYSE was down 17% and trading on NASDAQ was down 10%.

SPX sliced through support at $1357 (this level was support twice in April and resistance once in June) and almost reached support at $1335, the low from just a few days ago. But the markets bounced strongly and stopped the bleeding, at least for today. Support should also be found at the 50 dma at $1333. By contrast, RUT's chart is much more ugly. RUT has gapped downward the last two trading sessions. RUT's low today at $775 is near both the 50 dma at $777 and the 200 dma at $774. In fact, the 50 dma is threatening to cross the 200 dma - not good. As you might expect on a day like this, VIX spiked upward to 20.5% but pulled back to 18.6% by the close of trading.

My Aug iron condor on RUT stands at a P/L of +$1,840 with delta = -$5 and theta = +$75. With today's price move, this position would have become much more profitable, but the spike in IV tempered that rise (remember: condors are negative vega positions). So, return to your bomb shelter and wait for the next dose of bad news. But our condors are doing well...

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Written by Dr. Duke

Created: 20 July 2012

 This market is playing out like one of those novels you read on the beach this summer - many interesting characters and just when you think the bad guy has left the story, he surprises you with his resurrection. In our novel the European debt crisis returns to the stage, this time focusing on Spain's debt issues. This derailed the mini rally we had going in the S&P 500 for the past few sessions. SPX gave up $14 to close at $1363 on 3.0 billion shares, a pretty hefty increase in volume, but it was expiration Friday. RUT closed at $792, down $11. Trading volume on the NYSE was up 16% and volume on the NASDAQ was up 3%.

SPX broke a significant resistance level at $1375 yesterday, but was unable to hold that today, pulling back into the sideways trading range. Corporate earnings are holding up reasonably well during this earnings cycle, but growth in both earnings and revenue is slowing. In addition, companies are being very cautious with their future guidance. I continue to think this market is caught in between some powerful forces. On the one hand, governments around the world are printing money to shore up their economies, plus global corporations have trimmed their balance sheets significantly the past couple or three years, so earnings are holding up in spite of signs of economic softening, if not outright recession. And then of course, we have the looming fiscal cliff here in the states with the inmates in charge of the asylum in Washington. In short, I think these forces are opposite in nature, but roughly balanced. Thus, we have brief rallies and then, just as the shorts have covered, the market heads back down. I'm not sure what will change in that picture for the balance of the year. 

My July iron condor position expires worthless this weekend; RUT settled at $795.27 (SPX settled at $1370.28). My Aug iron condor position stands at a net gain of $1,800 with position delta = -$33 and position theta = +$65. What a difference a day makes! With the expiration of the July position, our Flying With The Condor™ service stands at a year to date gain of 35%. By comparison, the S&P 500 is only up 8% for the year. That comparison will make me enjoy my weekend a bit more. Have a great weekend. Savor all the many beautiful things that surround you.

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Written by Dr. Duke

Created: 18 July 2012

 The markets rallied pretty strongly today. SPX tacked on $9 to close at $1373 while RUT gained $6 to close at $805. Volume ticked up modestly with 2.7 billion shares of the S&P 500 trading; trading volume on the NYSE edged up 4% and trading volume on NASDAQ was up 2%. The VIX moved down to 16.2%. I don't have a precise tally, but it seems to me that the earnings reports thus far in this cycle have not been compelling; most, if not all, of the guidance has been pessimistic or at least cautious. Bernanke's recent testimony underscored the weakness of the economy. So why is the market trading upward? It seems the only possible answer is the expectation that the Fed will begin a new round of quantitative easing and boost the economy and the markets. How many days will pass without Fed action before the markets trade back downward?

SPX hit $1375 today before pulling back to close at $1373. $1375 is where the market stalled in early July. Can it break that resistance level this time? I still believe we have too many headwinds to move this economy and the markets forward. Even if the Fed rides to the rescue once again, how much effect will it have? On the other hand, most corporations have become very lean and efficient the past few years, so earnings may not be growing, but they aren't collapsing either. My expectation is to see the market trade largely sideways between these relative positives and negatives. But the boys and their computers will inject a lot of chop and volatility into the picture, so be careful. It is going to be a rough ride.

My July iron condor continues to coast into expiration. The Aug positions stands at a P/L of +$240 with delta = -$91 and theta = +$112. The 850/860 call spreads remain about one standard deviation OTM, so no adjustment is required as yet. But the position is showing the effects of the recent rally.