Dr. Duke's Blog


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 Flying With The Condor™ account gained 39% in 2011, while the S&P 500 traded unchanged and +19% in 2012, again beating the S&P 500 at +14%. In 2013  the Flying With The Condor™service came in at a gain of 13.3%, but the S&P 500 was up 30%. We recently closed the February condor for a gain of 7%, bringing our 2014 performance to -0.3%, as compared to the S&P 500 that is down almost 6%. Download our track record for the details.

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

A Pause or...
Written by Dr. Duke   
Thursday, 28 August 2014 15:00

It seems like SPX hitting $2,000 has brought all of the doom and gloom crowd out of the closet. Or it could be that the producers on all of the financial networks just call those contacts when they think that should be the story. Yes, I am that cynical. In any case,you don't have to go far to hear or read predictions of a severe correction. SPX pulled back as far as $1991 today before recovering to close down $3 at $1997. RUT dropped off $7 to close at $1166. Trading volume continues to be rather low. In fact, the trading in the S&P 500 has been steadily declining since the first week of August, closing today at 1.2 billion shares. Trading on the NYSE declined 11% and volume fell 12% on NASDAQ. Volatility remains pretty low with the VIX gaining three tenths of a point to close at 12.1%.

The second estimate of second quarter GDP was issued this morning at +4.2% and the GDP deflator was reported as +2.1%, up from the first quarter's +1.3%. The PPI and CPI have been running closer to zero. Yellen has said they are watching for inflation to rise to 2% or more before raising interest rates to cool the economy. A move to higher rates will throw cold water on this bull market.

Initial unemployment claims are flat at 298k and continuing claims rose by 25k to 2.53 million. Pending home sales for July increased 3.3%, a nice change from June's -1.3%.

Pardon me while I go back to watching for the sky to fall ( but it will happen when we least expect it).

Stuck at $2000
Written by Dr. Duke   
Wednesday, 27 August 2014 14:59

As many have predicted, SPX is pausing to digest the $2,000 mark. This is only natural when you think about it. Many investors see this as the wake up call to take some of their profits off the table. If the bulls are correct, it will be a temporary pause. Two different interviews on CNBC today predicted corrections of 50% or more. Wow! think about that for a while - that would take us back to the middle of 2009. I think I will get my put buying machine tuned up.

SPX closed flat at $2000 and RUT retreated a couple of dollars to $1173. Volatility is close to unchanged at 11.8%. Trading volume is tepid with 1.3 billion shares of the S&P 500 trading - flat with yesterday.  Trading volume declined 4% on the NYSE and declined 4% on NASDAQ.

I'm not sure what to think of the talk of such severe corrections. Much of this argument is based on concerns about the Fed's balance sheet as a result of the quantitative easing programs of the past few years. I'm not sure how the Fed will unwind its positions, or what the implications may be - we haven't been here before.

What is clear is that our country continues to go deeper in debt and interest rates are at record low levels. What happens when interest rates normalize? Interest payments on the debt will begin to crowd out other federal spending. Then the U.S. becomes like Greece. What is also clear is that the U.S. is no longer considered a friendly place for business. Much of it is moving off shore or, worse yet, is never starting up here in the first place. No wonder job creation is so sluggish.

Sorry to leave you on a sour note, but I don't think these issues are imagined, and they are serious.

SPX Toying With $2,000
Written by Dr. Duke   
Tuesday, 26 August 2014 15:40

The Standard and Poors 500 Index is struggling to get past that large round number of $2,000. Today, SPX ran as high as $2005 but couldn't hold that high price into the close at $2,000, up $2. Technically, SPX broke the $2,000 mark by two cents, closing at $2,000.02. RUT is still playing catch up and gained $10 today to close at $1175. RUT remains far from its closing high at $1208 in early July. Volatility was flat with the VIX unchanged at 11.6%. Trading volume remains flat on the S&P 500 stocks at 1.3 billion shares, unchanged from yesterday, but trading bumped up 8% on the NYSE and increased 4% on NASDAQ.

All of today's economic data was positive with a huge gain in durable goods orders: a 22.6% gain in July as compared toJune's +2.7% gain. The Case Schiller housing price survey came in at +8.1% for June, a bit lower than May's +9.4%, but still pretty strong. The Conference Board's consumer confidence survey hit 92.4 for August, up from 90.3. I'm not sure why this survey of consumers seems to be disconnected from the survey by the University of Michigan.

My September SPX condor only consists of the 1830/1840 puts at this point. I tried to close those remaining puts for five cents today, but couldn't get it filled. I should have entered the order first thing this morning; I might have been filled as SPX spiked up to $2005. Maybe tomorrow.

Volume Continues To Fade
Written by Dr. Duke   
Monday, 25 August 2014 15:18

Markets continued to trade higher today, so the hated bull market continues to move higher and befuddle everyone, and the arguments about market valuation continue. SPX broke through $2,000 this morning, but couldn't hold it, closing at $1998, up $10. RUT also traded higher, up $5 at $1165. Volatility continues to be relatively low at 11.7%, up two tenths of a percent.

Trading volume has been trending consistently lower as this year has progressed and today was no different. Trading in the S&P 500 stocks declined to 1.3 billion shares, well below the 50 dma of 1.9 billion shares. Trading declined 4% on the NYSE, but rose 6% on NASDAQ.

New home sales were released for July today, coming in at an annualized rate of 412 thousand, down a bit from last month's 422 thousand.

My Sep iron condor on SPX now only consists of the 1830/1840 put spreads and at +13%, is nearing its maximum gain of 15%. If the market starts to sell off, I may close those put spreads; otherwise, I will allow them to continue to decay in value and increase our gains. I will probably enter my October condor later this week.

New S&P 500 High
Written by Dr. Duke   
Thursday, 21 August 2014 17:33

The S&P 500 Index (SPX) set a new all-time high today, closing at $1992, up $6. Yesterday's close fell a little short of the closing high on July 24th at $1988. RUT continues to trade much weaker than SPX or the NASDAQ composite, closing today at $1160, up $3. RUT closed above its 50 dma but almost touched the 200 dma intraday. By contrast, NASDAQ has set three all-time highs this week and SPX set a new all-time high today. Trading volume remains below average and was flat to mixed today with 1.6 billion shares of the S&P 500 stocks trading, up from yesterday's 1.5B, but well below the 50 dma at 1.9B. Trading volume was up 2% on the NYSE and down 6% on NASDAQ.

Initial unemployment claims dropped to 298k today, from last week's 312k. Continuing unemployment claims dropped to 2.5 million. Existing home sales increased to an annualized rate of 5.15 million for July, up from last month's 5.03M. The Philadelphia Fed survey increased to 28.0 for August from last month's 23.9.

I closed the 2040/2050 call spreads of my September SPX iron condor today. I will look for an opportunity to sell new Sep call spreads if the market pulls back; otherwise, I will allow the 1830/1840 put spreads to expire worthless for a 15% gain for September.

I am thinking the markets may pull back a bit or at least pause when SPX crosses the big $2000 mark. But who knows? Nothing has stopped this bull yet. Valuation arguments are the current debate.

Higher Prices On Low Volume
Written by Dr. Duke   
Tuesday, 19 August 2014 15:32

 Markets continued to trade higher today, but the low trading volumes that have characterized this market throughout 2014 continue. SPX, RUT and the NASDAQ composite all gapped open higher this morning. NASDAQ set a new all-time high both yesterday and again today. SPX traded upward $10 to close at $1982 and RUT closed at $1162 for a gain of $4. RUT is now above its 50 dma, but remains well below its early July high. However, SPX is within striking distance of its July closing high of $1988. Trading in the S&P 500 stocks dropped slightly to 1.6 billion shares. Trading volume on the NYSE declined 1%, as did trading volume on NASDAQ. The 50 dma on SPX trading volume has dropped from 2.4 billion shares to 1.6 billion in the last four months.

Volatility dropped slightly with the VIX closing at 12.2%, down about one tenth of a point.

The Consumer Price Index (CPI) increased 0.1% in July, down from last month's 0.3% increase. Housing starts for July were up with an annualized rate of 1093k, up from June's 945k. Building permits increased to 1052k from last month's 973k. Traders will be studying the FOMC minutes that will be released tomorrow for clues of the timing of higher interest rates. But all signals from Yellen have been for low rates well into 2015. She will be speaking at Jackson Hole Friday and we may see the markets move a bit, depending on the interpretation of her speech.

My Sept iron condor on SPX at 1830/1840 and 2040/2050 stands at a net P/L of +$2,540 on 20 contracts or +16%. The trade remains largely delta neutral (-$41 on 20 contracts) even with the recent moves higher. I chose to use SPX because RUT has been much more volatile this year.

This most recent correction is following a similar pattern to those of the past 18 to 24 months - down in a relatively short period of time, but then fully recovering those losses in an equally short period of time.

Off To the Races
Written by Dr. Duke   
Monday, 18 August 2014 18:59

SPX traded up $17 to close at $1972. RUT outperformed SPX by gaining $17 (1.5% vs. 0.9%) to close at $1158. SPX is now solidly above resistance in the range of $1950 to $1960. RUT did trade more strongly than SPX today and finally closed above the 200 dma, but it remains below its 50 dma. RUT has a lot of ground to make up if it is going to catch up with the blue chips. Volatility fell another point with the VIX closing at 12.3%.

Trading volume was lower across the board today - not too surprising after an option expiration Friday. But the lower trading volume in general this year underscores the reticence about this bull market. Traders are now looking forward to Yellen's talk this week and will be scouring the Fed minutes for signs of rising interest rates. Other traders are arguing how best to value this market - the usual arguments between the bulls and bears when the market is trading higher and climbing the proverbial wall of worry.

There was no economic news today; we get the CPI tomorrow and the FOMC minutes Wednesday. I find it interesting how few of us feel good about these strong market advances. Hmmm...

Was That All Of It?
Written by Dr. Duke   
Thursday, 14 August 2014 15:46

The Standard and Poor's 500 Index continued higher today and closed up $8 at $1955. RUT was more subdued, gaining $2 to close at $1143. SPX has a strong area of resistance from $1950 to $1960 and today's action solidly broke $1950. RUT remains below its 200 dma, so it certainly hasn't turned strongly bullish.

After I wrote yesterday's blog, Investors Business Daily moved their market indicator to Confirmed Uptrend from Market in Correction. That surprised me because I am not fully convinced we are out of the woods. One negative indicator for the past two days is lower than average trading volume with the S&P 500 stocks trading 1.5 billion shares both days; the 50 dma is 1.9 billion. Today's trading on the NYSE was down 6% and trading on NASDAQ was down 3%. That doesn't sound like charging bulls. Volatility continues to fall with the VIX losing a half point to 12.4%, so I must be the only trader who is worried..

Unemployment claims increased to 311k from last week's revised 290k figure; the four week moving average increased to 296k. Continuing unemployment claims increased 25k to 2.544 million.

I am tentatively entering some bullish trades, but I am watching them very carefully. If we have passed the bottom of the correction, it was certainly a mild one with a 4% correction on SPX. On the other hand, we are 45 points higher from the low on August 7th. Is it significant that I don't feel like we have gained $45?

Getting Very Close...
Written by Dr. Duke   
Wednesday, 13 August 2014 14:14

The markets have been trading higher for the past several days, but still have not broken through key resistance levels. SPX gained $13 today to close at $1947. RUT gained $9 to close at $1142. Consistent with these gains, volatility has declined, with the VIX dropping over one point to close at 13% today. Trading volume wasn't much higher today with 1.5 billion shares of the S&P 500 stocks trading; this was flat with yesterday. Trading on the NYSE increased 5% and trading volume increased 3% on NASDAQ.

SPX traded as high as $1948 just before noon but then just wandered sideways the balance of the day. Resistance in the range of $1950 to $1960 remains an obstacle to calling an end to this correction. We need to see a close above those levels.

The Labor Department's job openings report (JOLTS) hit 4.67 million for June, the highest number of openings since February of 2001. One problem with this report is that it doesn't distinguish between full time and part time jobs; I am concerned that ObamaCare is driving companies to offer new employment as part time jobs. Retail sales were reported for July today at an increase of 0.1%, down from June's +0.2%. Most recent economic data have been positive and are not trending lower, but we are far from the robust growth that has characterized all past recoveries from recession. The economy remains very weak.

I closed the SPX Aug 1920/1930 put spreads today; assuming the 2020/2030 calls expire worthless this weekend, that will result in a 3% loss. But my SPX Sept 1830/1840 and 2040/2050 condor currently stands at a net gain of 13%, so that is helping a lot. Probably the main risk for this market is unexpected news from one of the global hot spots. Absent that, I am inclined to think we will continue to see modest gains.

Big Day For the Bulls
Written by Dr. Duke   
Monday, 11 August 2014 16:55

The markets gapped open higher this morning, but stalled in the afternoon as traders began taking profits. SPX gained $5 to close at $1137 while RUT gained $11, closing at $1142. In spite of the afternoon pullback, traders seemed to relax a bit with the VIX losing almost two points to close at $14.2%. Friday's strong day trading higher, followed by a gap open higher today certainly seems to suggest we have found the bottom of this correction. But the sell off in the afternoon is a bit concerning. The resistance level to watch on SPX is around $1950. A close above $1950 would be the strongest confirmation that the correction was over. But we are in options expiration week, and that can be a very volatile week for both stock prices and the implied volatility of the options.

If we view the small caps as the "canary in the coal mine", then RUT's relative strength for the last several trading sessions is a strong signal for a correction bottom. Both SPX and RUT gapped open higher today, but if we look at the magnitude of the move since Friday's open, RUT is up 2% whereas SPX is lagging behind a bit with a gain of 1.4%.

No economic news of any consequence was issued today. In fact, outside of retail sales reports on Wednesday, it looks like a pretty light week for economic news, at least the economic news more likely to move the market. Friday brings the Empire manufacturing survey, capacity utilization data, industrial production,  PPI and Michigan consumer sentiment data. Those are all important economic indicators, but they rarely move the market.

Maybe this market is most vulnerable to fears emanating out of events in the Ukraine and the Middle East, but that is impossible to predict. Even a solid sideways day tomorrow would be a welcome relief.

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