Dr. Duke's Blog

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Do you know any trading coaches who publish the results of their trades daily, as the trade progresses? Dr. Duke analyzes the market and reviews the progress of his iron condor spreads in the Flying With The Condor™ service each day in this blog. If you have questions about any of the trades, Ask Dr. Duke.

The November position in the Flying With The Condor™ account survived the downturn in October very nicely and is well on its way to a 13% gain. The December position has just started and is up about 1% at this early point in its life.


Dr. Duke practices what he preaches! You are entering the "No Hype Zone"!



Is There Light?
Written by Dr. Duke   
Tuesday, 16 December 2014 17:52

Both yesterday and today, the market opened higher, but couldn't hold it. The market danced around the unchanged mark much of this afternoon, but traded off strongly in the last thirty minutes of trading. SPX dropped $17 to close at $1973, but RUT stayed in positive territory almost all day, closing down one dollar at $1139. The VIX was up about a point most of the day, but spiked toward the end of trading, closing at 23.6%, up over three points. Trading volume spiked up with 2.7 billion shares of the S&P 500 stocks trading. Trading volume rose 11% on the NYSE and was up 6% on NASDAQ.

I still don't get the panic surrounding lower oil prices. This is putting a lot of extra money in the pockets of consumers. I was working for a major oil company in the nineties when oil dipped below $10 a barrel; it was good for everyone except the oil companies. In fact, I was in the chemical subsidiary and we posted better numbers because of having cheaper feedstock.

In any case, the market is showing some signs of slowing its plunge. Tomorrow's FOMC announcement could push the market over the edge in this market environment. At times like these, traders tend to read too much into these announcements. Or maybe the Fed will give us some assurance. Maybe.

 
The Bears Are In Control
Written by Dr. Duke   
Friday, 12 December 2014 15:55

The markets took another leg down today with the S&P 500 dropping $33 to $2002, just above the 50 dma and below the high set back in September. SPX also closed at its low for the day. A close below the 50 dma on Monday will be significant. RUT behaved even more bearishly, gapping open lower and closing at its low for the day, down $15 at $1152. Trading volume spiked higher with 2.4 billion shares of the S&P 500 trading today. Trading increased 13% on the NYSE, but only increased 3% on NASDAQ. Closing at the lows and trading in higher volume are two strong signs of a serious trend, in this case, a bearish trend. On the other hand, a look at the price chart confirms strong support around $2000 on the S&P 500, so there is a good chance we will see it bounce next week.

It was easy to hear the talking heads today blaming market woes on the falling price of oil. To my mind, this is more grasping at straws to explain market behavior. Unless you happen to be in the oil business, lower oil prices are good for most industrial sectors and certainly put more money in consumers' pockets. Market analysts of all stripes have been telling us the market had gotten ahead of itself for some time. It was time for a breather.

But that doesn't explain this market behavior. Price volatility has been extreme for most of the past two years; we have experienced sudden and severe pull backs, followed by vertical ascents to take us right back where we started in short order - how does that make any sense? Did the economy collapse and rebound in just a few trading sessions? Take the last plunge for an example. SPX dropped $192 or 9.5% in 19 trading sessions (9/19 to 10/15). It only required 12 sessions to bounce back and fully recover that loss, and in fact, climbed even higher from there. I'm not naive. I know many emotional and political factors influence the markets, but fundamentally, we expect basic economics to ultimately drive the capital markets. Stockholders want a return on their investment and they project cash flow to analyze those prospects. How does this make any sense?

In any case, this drop was helpful for my SPX December iron condor, taking the pressure off the remaining 2080/2090 call spreads (rolled half to 2100/2110), but less helpful for the 1840/1850 puts spreads in my SPX January condor. We have a big weekend ahead of us with our Christmas party tomorrow evening. If you are in the Chicago area, you're invited! Drop me an email for the address.

 
Lower Again
Written by Dr. Duke   
Wednesday, 10 December 2014 19:39

The markets traded lower Monday and Tuesday, but bounced significantly before the end of the trading session and gave traders hop for the next day. But that wasn’t true today. SPX, RUT and the NASDAQ composite all closed at or near the lows of the day. SPX closed at $2026, down $34. RUT dropped $26 to close at $1162, and NASDAQ lost $82 to close at $4684. It seems like yesterday that analysts were speculating about NASDAQ breaking $5000.

As one might expect, volatility popped up significantly today with the VIX closing at 18.5%, up nearly four points in a single trading session.

Trading volume was also up, with 2.4 billion shares of the S&P 500 stocks trading. The 50 dma is 2.2B; trading in the S&P rose slightly above the 50 dma yesterday and rose a bit higher today. Trading on the NYSE rose 4%, but fell 8% on NASDAQ – not sure what that was about.

As always, the talking heads were searching for answers for the market’s drop; the consensus appears to be lower oil prices. Lower oil prices hurt tar sands and oil shale producers, but they help everyone else.

I think a better answer is simply that this strong bull market needed a rest. $2015 marks the September high on SPX and is the next support level. But today's trading seemed more serious than just "taking a breather". We'll see... Where did Santa Claus go?

 
Conflicting Trends
Written by Dr. Duke   
Thursday, 04 December 2014 17:20

This time of year is historically bullish, e.g., the Santa Claus rally and so on. But we are in a tiring bull market. SPX was up over 30% last year and has climbed even higher this year, now up 12% year to date. It is only natural to expect some slowing, sideways consolidation trading. Traders will refer to the market "taking a breather" and so on. On Monday, it looked like a pull back or correction was starting, but the bears could not take advantage of that down day and the bulls took the reins back. When you think about it, even in October, once the bulls took control, we traded straight up - what a run! So the bulls are clearly in control, and this is their time of year, so they have historical trends on their side. On the other hand, this bull is tired; it has been a long run. Maybe this conflict of the historical bullish season of the year coupled with a tired market that needs to consolidate explains this market. Anyway, it's a thought.

SPX pulled back a bit, closing down two dollars at $2072. RUT dropped back $6 to close at $1173. Volatility remains pretty low with the VIX closing at 12.4%. Trading volume has remained pretty low for the past six weeks or so; volume on the S&P stocks has run below the 50 dma pretty consistently throughout November. Today was no exception with 1.9 billion shares of the S&P 500 trading (the 50 dma = 2.2B). Trading volume dropped 6% on the NYSE and increased 1% on NASDAQ.

The Challenger job cuts report came in 21% lower in November - much better news than October's 12% increase. Initial unemployment claims came in at 297k this week, down 17k. Continuing claims rose 39 thousand to 2.4 million. The unemployment data jump around a lot, but the trend is clearly downward, but at a slower than desired rate. Tomorrow's jobs report will be interesting, given a market that seems a bit nervous. Monday's weak retail sales news from the holiday weekend caused a sell-off, but it didn't last. The bulls came roaring back.

It seems like many of the guests on CNBC have been predicting a correction all year, but betting on the bulls has continued to be the winning play. We'll see...

 
Took It Right Back
Written by Dr. Duke   
Tuesday, 02 December 2014 17:27

I was surprised we finally had a bit of a pullback in the markets, but it was very brief. SPX gained everything it lost yesterday, closing at $2067, up $13 (it lost $14 yesterday). RUT wasn't quite so strong with a gain of $14 to close at $1168. Volatility backed off a bit with the VIX losing almost one and one half points to close at $12.9%. Trading volume dropped off a bit from yesterday with 2.1 billion shares of the S&P 500 stocks changing hands. Trading volume on the NYSE dropped 12% and declined 3% on NASDAQ.

The only economic data today was a report on construction spending, up 1.1% for October, a nice improvement after the 0.1% drop in September.

My December iron condor on SPX remains hedged to the hilt and thus far, that is holding the net loss (assuming we closed today) to about -5%. I have not sold the put spreads for the January position; I considered it yesterday, but thought we might see more weakness before the market resumed its march higher.

The FOMC's Beige book will be released tomorrow. We may have some volatility surrounding that announcement.

 
Finally a Down Day?
Written by Dr. Duke   
Monday, 01 December 2014 16:14

 I hope you all had a wonderful Thanksgiving.

We have become accustomed to the markets rising every day, so what's going on? SPX clipped off $14, closing at $2053 while RUT traded even more weakly, gapping open lower and closing at $1154, losing $19 on the day. One would expect trading volume to pick up from the holiday-shortened session Friday, but trading in the S&P 500 stocks actually bumped up to 2.3 billion shares, popping up over the 50 day moving average, at 2.2 billion shares. Trading volume rose 19% on the NYSE and rose 78% on NASDAQ. The VIX gapped open higher this morning and closed one full percentage point higher at 14.3%.

The ISM manufacturing index reported today at 58.7 for November, a drop from October's 59.0. Today's market weakness appeared to be primarily driven by the weak retail sales over the Thanksgiving holiday, coming in 11% lower than last year. There were also weaker economic reports from China and Europe, raising the specter of a global economic slowdown. the Fed's Beige book comes out Wednesday, amid reports that the FOMC members are worried about deflation; if that is explicitly addressed in the minutes, we could see additional market weakness. Of course, this week's economic news builds up to the jobs report Friday.

 
Last One Out Turns Out the Lights
Written by Dr. Duke   
Wednesday, 26 November 2014 15:12

Today's market was typical of pre-holiday markets, with low trading volume and small price moves. SPX gained another $6 to close at a new closing high of $2073 and RUT gained $4 to close at $1191. Volatility is basically flat with the VIX at 12.1% (down one tenth of a point today). Trading volume on the S&P 500 isn't out yet, but trading was down 13% on the NYSE and down 11% on NASDAQ.

A host of economic data posted today with initial unemployment claims reported early due to the holiday with 313k claims, up from last week's 292k. Continuing claims dropped from 2.33 million to 2.32 million. Durable orders posted an improvement of 0.4%, a nice change from last month's decline of 0.9%. The Chicago PMI dropped off significantly to 60.8 from last month's 66.2. The University of Michigan consumer sentiment survey declined to 88.8 from 89.4. New home sales posted an annualized rate of 458k for October, up slightly from 455k.

There wasn't anything in this host of economic data that was particularly alarming or encouraging. Coupled with lightly staffed trading desks, the markets didn't really react.

Over bought indicators continue to build as this market heads higher. I don't see a correction in the immediate future, but it seems like we are overdue for some sideways cooling off. The markets will be closed tomorrow and only open for a half day of trading on Friday, so not much market movement is anticipated until everyone returns on Monday.

Happy Thanksgiving. Count your blessings - yes, even that crazy uncle.

 
It Used To Be News
Written by Dr. Duke   
Monday, 24 November 2014 15:56

The Standard and Poors 500 stock index set a new all-time closing high today at $2069, up $6. It wasn't long ago that this would be news, but it almost seems like an everyday occurrence now. RUT came back to life today, gaining $15 to close at $1187. That is almost exactly where RUT closed on November 12th, and then traded downward from there while SPX continued higher. RUT remains well below its high March 4th at $1209.

Volatility continues to contract, albeit slowly. VIX closed down about a quarter point to 12.7%. Trading volume was higher Friday due to options expiration, so it wasn't surprising that trading volume fell back today with 1.8 billion shares of the S&P stocks trading. Trading dropped 27% on the NYSE and declined 16% on NASDAQ. Friday was the first time that S&P trading volume has been above the 50 dma since October 31st. We continue to see this market steadily march higher on low trading volume. This is surely the bull market no one believes in. I admit I don't understand it. Perhaps our premise that we can study the fundamentals and rationalize market price behavior requires reexamination? I would like to think I understand it...

There wasn't any significant economic news today, but tomorrow brings third quarter GDP, Case Schiller housing prices, and consumer confidence reports.

I spoke at the Traders Expo in Las Vegas last week. They recorded my talk and you may play the video on the Traders Expo e-show page.

 

 
Same Old Story
Written by Dr. Duke   
Wednesday, 19 November 2014 15:51

SPX threatened to trade lower today, hitting a low around $2040 this morning, but then it recovered in the afternoon to close at $2049, down $3.  SPX spiked upon the release of the Fed minutes at 2:00 pm ET, but dropped back to close roughly where it was before the announcement. RUT declined $13 to close at $1158. RUT has steadily trended lower since 11/12/14. This divergence has caught many analysts' attention, but SPX seems undeterred and just climbs higher, leaving RUT in the dust. Volatility remains flat with the VIX steady around 14% - not exactly low, but not very high either.

Trading volume remains low with 1.9 billion shares of the S&P 500 stocks trading today; the 50 dma = 2.2B. Trading on the NYSE rose 3%, but trading volume declined 2% on NASDAQ.

Housing starts declined a bit with an annualized rate of 1.009 million for October, down from September's 1.038 million. Building permits ran in parallel with 1.080 million, down from 1.031 million.

I sold an iron condor on GMCR, anticipating their earnings announcement; based on after hours trading, that trade looks like a winner. My December iron condor on SPX remains fully hedged and stands at a net loss of about 4% (the hedges are working).

I may not get my blog written tomorrow since I will be traveling to Las Vegas for the Traders Expo. You can hear my talk on the internet version of the trading conference if you can't make it out to Las Vegas. But this is a good time to leave frigid Chicago.

 
Don't Tempt the Market Gods
Written by Dr. Duke   
Tuesday, 18 November 2014 16:38

I ended yesterday's blog with these comments, "My rational analysis of the markets and the economy cause me to be more pessimistic about the prospects of continued market highs. RUT's declines of late appear to support that thesis. But every time I think I have built a solidly reasoned case for the market's direction, the market seems determined to prove me wrong." As predicted, SPX came out of the gate running and tacked on $10 to close at $2052. RUT came to life as well, gaining $6 to close at $1170. Today's close on SPX was a new all-time high, but RUT continues to lag behind its most recent September high around $1185. It doesn't have to make sense; it just is.

Trading volume was mixed with 1.9 billion shares of the S&P 500 trading, flat with yesterday and below the 50 dma. Trading increased 8% on the NYSE, but decreased 3% on NASDAQ. Volatility was essentially unchanged with the VIX at 13.9%.

The Producer Price Index (PPI) for October increased 0.2%, up a bit from last month's 0.1% decline. I keep wondering where inflation is hiding; a lot of money has been pumped into this economy.

I added to the hedges on my December position today. With the additional hedges, my December condor's current P/L at -6% should remain about constant if SPX continues higher. Everything tells me the market is going to pull back, but I can only play what the market gives me, and it continues to rise. The FOMC minutes will be released tomorrow; it is anybody's guess whether that could move the market. Sometimes analysts fix on a single word and it moves traders one way or the other.

 
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