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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 2014 position in the Flying With The Condor™ account survived the downturn in October very nicely and was closed with a 13% gain. We also dodged the flash crash on August 24th by going to cash the previous week. The Flying With The Condor™ service ended 2015 up 40%, handily beating the S&P 500 Index. Check the Track Record in the Downloads section for details.


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

 

When the Standard and Poors 500 Index (SPX) gapped open lower and plunged on May 17th, traders panicked, but the bulls came back strongly the very next day and drove the market to new highs within several days, culminating in another all-time high at $2454 this past Monday. SPX traded weakly lower this week, opening Monday at $2443 and closing Friday at $2438. Most of this week’s trading was negative, but Friday was a moderately positive day. I find it interesting that trading volume spiked Friday. Last Friday’s trading volume spike was typical of options expiration. Yesterday’s spike suggested strong bullish support. The bulls are still in control.

The Russell 2000 Index (RUT) price chart stands in contrast to the almost perfectly bullish SPX price chart for the past six months. RUT has largely traded within a sideways channel since December. This is the most bearish indicator we currently have on this market. RUT opened the week at $1407 and closed yesterday at $1415. Last week’s spike higher to $1427 was short-lived. Russell’s position lagging the market indices may be contrasted with the NASDAQ Composite, which has been extremely bullish since mid-April. And this week’s trading continued that pattern as NASDAQ opened the week at $6197 and closed yesterday at $6265. The Goldman Sachs memo on June 9th took the wind out of NASDAQ’s sails by criticizing the high stock prices of many of the high tech market darlings: GOOGL, FB, AMZN, NFLX and others. NASDAQ opened June 9th at $6330 and is still struggling to get back to those levels.

NASDAQ’s trading volume spiked higher on Friday, just as we saw in SPX. It is interesting to note that trading volume yesterday exceeded the trading volume spike on June 9th as NASDAQ sold off.

Market volatility remains at historical lows, as measured by the VIX, closing at 10.0% on Friday.

Many market gurus are proclaiming an overbought market, but the bulls are strongly defending any attempts to push the market lower. You saw evidence of that bullish support in the trading volume spikes Friday on an otherwise modestly bullish day. If one watches any of the political commentary on cable TV, you would conclude that the country is on the verge of collapse. Yet this bull market just continues higher. Political intrigue, terrorist incidents and even crazies like Kim Jong Un don’t phase this market. But this is a nervous bull market. Consider the market 
sell-offs of March 31st, May 17th and June 9th. All were triggered by events that didn’t seem very significant. But all of these pull backs were immediately bought by the bulls, and the market went on to set new highs in each case. Investors really don’t have a choice. We have to continue to trade this bullish trend. But it remains a nervous market. This is no time for complacency. Watch your positions carefully. Keep your stops tight.

Many market analysts are becoming disillusioned with this market. At first they were enjoying the ride higher, but more and more market professionals are turning bearish. 
 
My assessment is bullish but cautious.
 
The essence of my case for remaining bullish is the following: The S&P 500 Index has been trading sideways in the range of 2405 to 2445 for about a month now. If we study the candlesticks over the past two weeks, we observe several long lower shadows - that shows the buying strength of the bulls coming through on every pull back. Another bullish sign is the strength of the markets in the face of so much bad news: political turmoil, terrorism, poor jobs reports, etc. Consider a case in point: the Labor Department reported a very weak 138k new jobs in June, but the market shrugged it off.
 
But I also remain cautious:
 
The sudden pull backs we have seen repeatedly this year show how many institutions have their finger on the sell button. But they are quickly buying as soon as they are sure it's safe. They are bullish but nervous. Buying the dips is still working.
 
The bottom line for us individual investors is to continue to play this market from a bullish perspective. However, we must rigorously apply our risk management. Close out trades quickly when they turn south. Close out the gains quickly as well. Position your trades with a bit more safety margin.

With apologies to Charles Dickens, this market reminded me of his great book, A Tale Of Two Cities.

Today’s markets gave us a wide range of price action with a huge decline on NASDAQ contrasted with the small caps in the Russell 2000 index finally coming to life after trading sideways all year. What should we conclude?

The Standard and Poors 500 Index (SPX) opened the week at $2437 and closed today, essentially unchanged, at $2432. Today’s price action on SPX ranged widely, trading up as high as $2446 this morning, but then trading down to $2416 this afternoon, before recovering somewhat into the close. SPX trading was very bullish over the last fifteen minutes of trading today. Trading volume spiked during those last few minutes. I find this significant increase in trading volume as prices recovered to be a very bullish signal – another example of market participants buying the dip. The bulls are still in control.

The Russell 2000 Index (RUT) has stubbornly lagged behind the other major market indices all year, but RUT woke up late this week, with large moves higher yesterday and today. RUT closed today at $1422, up $6. This close is right at the upper edge of the trading range that RUT has held since last December. RUT broke out and traded as high as $1434 earlier today, but couldn’t hold that high. Historically, small and mid-cap stocks always lead bullish markets upward and bearish markets downward. When traders are bullish, they tend to buy higher beta stocks with higher profit potential. Conversely, when markets cool, these same high beta stocks are the first to be sold. Russell’s apparent revival may be a leading indicator of the continuation of this bullish trend higher yet. I will be watching RUT next week to see if it can break out and close well above the upper edge of the trading range. That would be the final bullish indicator that has been missing thus far.

The Dow set an all-time high today, RUT made a valiant effort to break out of its sideways trading range, and SPX remained essentially unchanged. But the NASDAQ Composite told a completely different story. NASDAQ plunged $114 to close at $6208, nearly a 2% decline. This huge decline on NASDAQ was triggered by a Goldman Sachs report critiquing the high stock prices of the high tech market leaders such as Apple, Google, Nvidia, and FaceBook. The resulting high tech sell off triggered the S&P 500 volatility index (VIX) spiking up over 12% today, but VIX recovered significantly, closing at 10.7%, only up about a half percent on the day.

The bullish strength of this market is remarkable when you consider all of the political and global distractions. This market consistently trades higher, seemingly ignoring all of the negative distractions. I will continue to play this bullish market trend, but I am keeping my stops reasonably tight. It remains a nervous market. When in doubt, I close.

Wednesday’s market spooked traders of all stripes. The Standard and Poors 500 index (SPX) gapped open at $2383, down $18 from Tuesday’s close, and then proceeded to break through the 50-day moving average (dma) at $2369 and closed at $2357. The bulls reasserted themselves on Thursday and Friday, closing today at $2382, up $16 on the day. This didn’t quite recover all of Wednesday’s losses, but it was close. SPX has traded in the sideways range of $2320 to $2405 since mid-February and today’s close moved us toward the upper half of that trading range.

Trading volume on SPX spiked higher on Wednesday’s decline, but then pulled back as the market recovered. Thursday and Friday’s trading volume remained above average, which acts as a reinforcement of the market’s recovery. Although one could argue that trading volume wasn’t very strong for the past two days, so the reinforcement of the move was modest.

The Russell 2000 Index (RUT) has the strongest sideways trading pattern of all of the major market indices with a range of $1350 to $1420, held since early December. Wednesday’s decline was most severe on RUT, taking the index price down close to the lower edge of this trading range that remained as solid support since early December. Russell recovered weakly yesterday and today, closing at $1367 today, up $6. But this recovery effort fell short of the opening of $1388 on Wednesday. Once again, RUT is behaving more bearishly than the blue chip stocks of the S&P 500. That is a sign of traders’ hesitation in this market. The bulls are in control, but this isn’t an “all in” moment.

The S&P 500 volatility index (VIX) spiked up to 15.6% during Wednesday’s sell off, but closed today at 12.0%. This isn’t back to the very low volatilities we witnessed during most of May, but it is well within the range for most of 2017.

The markets have been trapped in a sideways trading pattern for several months now. The bulls are treading water and supporting this market for now, but that may change at some point. This week’s price action was reassuring, but sideways markets don’t last forever. At some point, the perceptions shift one way or the other.

The markets opened weakly today, probably fueled by the weak earnings report from Macy's and perhaps the continuing soap opera in Washington. SPX opened at $2395 and fell as far as $2382 before bouncing and closing at $2394, down five dollars on the day. There is a strong support level at $2380 that was established on May 3rd and 4th, and that support was reinforced today. RUT traded in similar fashion, trading down as far as $1380 before recovering some of the losses to close at $1390, down $9. RUT has been trading at or just above $1390 for the past seven sessions.

Today's spike lower sent volatility upward, with the VIX hitting a high at 11.2% before settling back to 10.6%. Trading volume on both the S&P 500 and the NASDAQ Composite came in below the 50 day moving average today, in spite of this morning's plunge lower. That tells me that no one hit the panic button.

The price behavior of today's markets reinforces the fact that the bulls are firmly in control of this market. Buying the pull backs remains a profitable strategy.

The resilience of these markets is notable. My conclusion is that a break out to the upside is the most probable immediate future. The fact that volatility didn't completely erase its intraday spike higher suggests today's decline made some traders uneasy. I remain bullish but also very cautious.

 

The S&P 500 Index (SPX) closed today at $2397, down $2 for the day. The Russell 2000 Index (RUT) closed at $1392, essentially unchanged (up twenty two cents). But the NASDAQ Composite Index closed up $18 for a new all-time high of $6121. Normally, we see these three major market indices to be somewhat in sync. Most commonly, we draw conclusions for the divergence of the large blue chips represented in the S&P 500 from the small to mid-cap stocks of the Russell 2000.

SPX is bouncing off resistance at the upper edge of a trading channel that dates back to March 1st. RUT has been even more neutral, currently in the middle of a trading channel that dates back to the first week of December. However, the NASDAQ is a different story. That price chart has been steadily climbing higher since the election and today was no exception. NASDAQ is being driven by the high technology stocks that are on fire. Stocks like AAPL, AMZN, FB, ISRG, PCLN, GOOGL and many others are driving the NASDAQ Composite. It wasn't long ago that Google was approaching $500, and I thought that to be rarified air, but no more. Many NASDAQ stocks are approaching $1,000 per share. PCLN closed at $1911 today. We are in the midst of a high tech boom in the stock market. Most smaller companies and the large traditional blue chips were not invited to the party.

I find it interesting that the very success of these NASDAQ stocks is scaring many analysts. Predictions of a correction or worse are common. Price measures, such as P/E ratios and dividend yields do indeed suggest an overbought market, but far from historical extremes. Recent earnings announcements have been very positive with large numbers of companies beating analyst estimates and the outlooks for next quarter have been generally positive. Anyone who has much market experience will be quick to tell you that corrections are exceedingly hard to predict. Bull markets will ignore a lot of negative news and then one day... they won't.

What is a trader to do? I have been buying diagonal call spreads on some of these hot NASDAQ stocks. I am hedging my bets a bit by selling the front dated call slightly in the money. That gives me a lower break-even price, allowing the trade to tolerate some minor pull-backs. But don't take a long nap. This market requires close monitoring.

The major market indices continue to trade sideways, and volatility is quite low. SPX closed today at $2391, up less than three dollars. The volatility index for the S&P 500 index, VIX, closed at 10.5% today, near the lows for this year. SPX has been trading in the range of $2320 and $2400 since mid-February. Powerful market forces are arrayed on either side of this market. The bulls are citing a more business-friendly administration, a reduction in regulations and prospects of tax reform. The bears cite several months of stellar market advances, high price/earnings ratios, and an aging bull market. It doesn't seem as though any negative news affects the market. Every dip is quickly bought, but the market can't seem to quite make the break-out to new highs either.

For the last couple of months, I have been loading my portfolio with iron condor positions on the S&P 500 index (SPX), The Russell 2000 index (RUT) and the NASDAQ 100 index (NDX). Today, I sold the NDX May 5375/5400 and 5800/5825 iron condor for a credit of $195 per contract. Yesterday, I sold the NDX June 5200/5225 and 5825/5850 iron condor for $506 per contract. The disadvantage of selling iron condors in this environment is the low implied volatility, which lowers the option premiums. On the other hand, that low volatility is one more sign of the sideways, treading water nature of this market, and that favors these trades.

Don't neglect trade management. Entering this positions and then going on vacation is a prescription for disaster. Be sure you have a clear plan for risk management, e.g., if SPX breaks down through $2300, I will buy one $2300 put for every ten condors. Establish a series of these rules and trade what the market gives you each day. Don't try to predict its movement tomorrow.

We are well into earnings season. IBM was weighing heavily on the Dow Jones Industrial Average today after disappointing analysts during their earnings announcement yesterday. But the heavier weight on the markets is the diminishing euphoria that pushed the markets higher after the election last year. The realities of politics and the difficulty of delivering on campaign promises is throwing cold water on this market.

The Standard and Poors 500 Index (SPX) closed down four dollars today at $2338, but the Russell 2000 Index (RUT) closed five dollars higher at $1367. Volatility rose a bit with the VIX rising a half point to 14.9%.

Trading volume in the S&P 500 stocks ran at 1.9 billion shares today. Trading volume has run below the 50 day moving average (dma) since March 20th. Below average trading volume tells us that the large institutional players aren't panicking and selling, but it also tells you that those same players aren't going "all in" either.

Pull up the price chart for SPX. Draw trend lines at $2320 and $2400. SPX has traded sideways within this channel since mid-February. This  sideways trading channel is even more obvious in RUT, and has been in place since early December.

So what should we be trading today?

In spite of the overall market averages trending sideways, there are a few high fliers that deserve a bullish trade. Consider BABA, CMG and ISRG for straight forward bullish trades: long stock, covered calls, diagonal call spreads, etc.

Non-directional options trading strategies are perfect for this type of sideways market. Consider "at the money" calendar spreads, butterfly spreads, and iron condor spreads on the major market indices (SPX, RUT, and NDX).

Good trading.

 

SPX closed today at $2359, down four dollars, after bouncing off the 50 dma at $2341. This mirrors last Monday, when the 50 dma provided support for SPX. I am paying close attention to the 50 dma as my trigger for adjusting and closing positions. The Russell 2000 Index behaved even more bearishly today, breaking down through the 50 dma, and closing down $16 at $1370. But the NASDAQ Composite is still holding up rather well, closing today at $5895, down $17, but near the top of its recent trading range.

SPX and RUT are solidly in sideways trading patterns, but seem to have enough bullish support to hold the line when the bears mount a charge to the downside. My concern is what event might finally rattle the bulls. This rally was built on expectations of a better economy under the new administration, but Washington gridlock appears to remain the norm. When the bulls lose faith, it could get ugly.

Will the jobs report this Friday be the seminal event?

In the meantime, classic delta-neutral trades are a good fit for this market.

Market analysts have been nervous since last Tuesday's meltdown. The "sky is falling" gurus have been preaching correction to anyone who would listen. But the balance of last week's trading was somewhat reassuring - sideways beats going farther down. But the doomsday gurus appeared to be getting their wish this weekend as the futures plunged. The SPX futures this morning were downright ugly and SPX opened at $2329 and traded down as far as $2322 before finding support. Then a steady grind higher began that lasted virtually all day, hitting its high for the day at $2345 just a few minutes before the close at $2342, down two dollars on the day. The 50 day moving average (dma) stands at $2332, so technical analysts will observe that support at the 50 dma held, even though it briefly dipped below support intraday. The other positive piece of data was found in today's trading volume in the S&P 500 companies: 1.9 billion shares with the 50 dma at 2.1 billion shares. The final positive indicator came in VIX, the volatility of the S&P 500. VIX spiked to over 15% this morning, but immediately began its retreat, closing at 12.5% for the day. The trends in volatility and trading volume show that traders didn't panic.

Tomorrow's opening will be crucial to see if the market follows through on today's reversal, but the preponderance of the evidence seems to point to the bulls retaining control of this market.

The Russell 200 Index (RUT) displayed a similar trading pattern to SPX, opening weak, hitting a low at $1335, but then recovering at close at $1357, up three dollars on the day. This close for RUT places it squarely within the sideways trading channel of the past four months.

Looking forward this week, the only significant economic data scheduled to report is the final estimate of fourth quarter GDP on Thursday. Unless there is a big revision downward, that report isn't likely to move the market; we already know last year's growth was anemic. Maybe the risk to the bulls is in the political realm, but predicting Washington political moves makes predicting market tops and bottoms look easy.