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 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"!



New Highs Keep Coming
Written by Dr. Duke   
Thursday, 24 July 2014 17:07

The Standard and Poors 500 Index (SPX) made a new all-time high today, closing at $1988, up $1. This is the third day in succession that a new all-time high has been achieved (based on closing prices). In short, it remains a strong bull market. RUT is trading weaker with a close down $2 to $1156. RUT seems to be just trading along its 50 dma as SPX marches higher, but SPX's climb higher is slowing a bit.

Trading volume on the S&P 500 stocks was also above its 50 dma for the third day in succession. So these are the classic new highs on higher trading volume. Volatility is relatively low with the VIX at 11.8%, but it rose a bit today (about three tenths of a point).

Today's economic news was positive with initial unemployment claims declining 19 thousand to 284 thousand and continuing claims dropping by eight thousand to 2.50 million. New home sales declined modestly in June to an annualized rate of 442k from 406k in May.

I have not met anyone who is cheerfully trading this bull market. It seems that very few students of the market are comfortable with this bull market, including me. But what can you do? You have to trade what you see. I am having good luck with diagonal call spreads. The short call premium gives you a little breathing room in case of a pull back. I am also adding a put to some of these positions, rendering it similar to a collar trade. We may not see much action in the markets tomorrow. Next week brings a lot of economic data and more likelihood of some larger price moves one way or the other.

 
Pushing Higher
Written by Dr. Duke   
Tuesday, 22 July 2014 14:43

SPX came out of the gate pushing higher this morning and basically traded sideways the rest of the day. SPX closed up $10 at $1984, just shy of its all-time high of $1985 on July 3rd. RUT has been weaker than SPX lately, but matched SPX's enthusiasm today, gaining $10 to close at $1156. As one might expect in the midst of all of this bullish euphoria, the VIX declined about six tenths of a point to close at 12.2%. I readily admit that I don't see the economic underpinning for this bull market at these levels, but you have to play what you see (but I suggest you hedge yourself just in case).

The Consumer Price Index (CPI) was reported today at +0.3% for June, down slightly from the +0.4% the previous month. The annualized rate of existing home sales was 5.04 million in June, up from May's 4.91 million.

Apple is down fifty cents in after hours trading following its earnings announcement. I think that's the smallest move after an earnings announcement from Apple I have ever seen. Apple is now a boring blue chip stock...

 
The Bulls Are Back In Charge
Written by Dr. Duke   
Monday, 21 July 2014 15:18

If Friday wasn't sufficiently convincing, today's market action confirmed the strong hold on this market by the bulls. SPX opened this morning and traded lower, hitting $1966 around 11 am ET. But support is in the $1950 to $1960 range; it didn't even challenge support. SPX recovered most of those losses, closing at $1974, down $5 on the day. RUT closed at $1147, down $5. Volatility rose a bit with the VIX tacking on a quarter point to 12.8%.

No economic news of any significance was scheduled for today. CPI and existing home sales come out tomorrow.

There are certainly plenty of solid economic reasons for this market to not be this strong, but...

 
Are the Bears Still Hungry?
Written by Dr. Duke   
Tuesday, 15 July 2014 15:29

The markets opened higher this morning, but the bears came to the table early and drove the markets lower.  SPX hit its low for the day around noon ET and then recovered a bit to close at $1973, down $4 on the day. RUT traded weaker than SPX (as usual), closing down $12 to $1154. For SPX, this remains well above support in the range of $1950 to $1960. RUT traded down through support at $1156 and the 50 dma at $1950 and bounced back to close just below the $1156 support level.

The VIX moved up slightly, about a tenth of a point, to close at 12%. Retail sales for June increased 0.2%, down from May's +0.5%. The Empire manufacturing survey moved up significantly for July to 25.6 from June's 19.3. Tomorrow brings the Fed Beige Book (minutes from the last FOMC meeting) and PPI.

Tomorrow's trading in RUT will be interesting; will RUT lead the market lower or bounce back higher?

 
Interesting Week
Written by Dr. Duke   
Friday, 11 July 2014 14:42

SPX closed up $3 today at $1968 and RUT traded down two dollars to close at $1160. Volatility pulled back a bit with the VIX losing a half point to close at 12.1%. SPX lost almost one percent of its value this week (0.8% to be precise). The broad support range of $1950 to $1960 was reaffirmed with SPX dipping into that range three times this week. Trading volume fell off significantly today - did I miss the memo of today being a holiday? Only 1.6 billion shares of the S&P stocks traded today. Trading was down 15% on the NYSE and declined 10% on NASDAQ.

The small cap stocks fared much worse than their blue chip cousins this week, with RUT losing 3.7% of its value. The support level at $1155 held; that support level was established in mid-April when RUT bounced back upward, only to be pulled back lower in May. RUT's 50 dma is at $1150, so this is a strong support area for RUT. The NASDAQ composite fared a little better than RUT, but still worse than SPX, closing the week down 1.4%. In many ways, this week seemed to be a replay of the pullback in RUT and NASDAQ from early March until mid-May. The SPX largely traded sideways while RUT and NASDAQ took it on the chin.

This divergence between the small cap stocks and the blue chips has many analysts worried. The small caps historically lead the bull charges, but also lead the bearish corrections. When traders are very bullish, they begin to invest in higher risk stocks to make the larger gains. And when traders start to worry, they seek protection in the blue chips. The question remains: are the small cap stocks the leading indicator for a correction? I find that question sufficiently worrisome that I left my hedges in place over the weekend, in spite of a relatively quiet and flat day in the markets.

We'll see... Enjoy your weekend.

 
Is the Scare Over?
Written by Dr. Duke   
Wednesday, 09 July 2014 17:28

The S&P 500 index opened higher this morning and then chopped sideways until after the FOMC minutes were released at 2 pm ET. Then SPX strengthened a bit more to close at $1973, up $9. RUT traded weaker all morning, saw a little boost after the Fed minutes, but then gave most of it back by the close, ending at $1174, up $2. Trading volume declined markedly from yesterday with 1.8 billion shares of the S&P stocks, equal with the 50 dma. Trading decreased 12% on the NYSE and declined 20% on NASDAQ.

So what changed today? We had two strong down days and now a weakly up to sideways day. But what was the impetus to drive markets down in the first place? And what slowed the slide today? The standard answer on most financial news media was that traders took confidence from the FOMC minutes detailing the end of quantitative easing in October - really? No news there. That makes me wonder what happens when we get another weak economic report. This market has ignored all bad news for quite some time.

The only thing I can conclude is that a large number of traders are nervous and anxious to protect their gains by selling at the least bit of negative news, an ugly rumor, or even a frown from the boss. If those nervous nellies are encouraged by reading the Fed minutes, heaven help us when the next piece of bad news hits the wires. Maybe the crazy guy with the sign, The End is Near, is onto something.

 
Down Again
Written by Dr. Duke   
Tuesday, 08 July 2014 16:22

All of the major market indices traded downward today. In fact, the NASDAQ composite, Russell and the S&P 500 all gapped open lower this morning and continued lower through most of the morning. But all of the indices recovered some of their losses before the close. I think traders were just taking some profits off the table before Alcoa led off the earnings announcement cycle this evening. SPX lost $14 to close at $1964 and RUT closed at $1172 for a loss of $15. Volatility only picked up modestly with the VIX closing at 12.0%, up less than three quarters of a point. The initial reports from the Alcoa earnings announcement appear to be positive, so perhaps this two day slide will end tomorrow (or at least not accelerate). Trading volume popped up with two billion shares of the S&P 500 stocks trading today. This was one of the rare days where trading volume was above the 50 dma (just five times since the first of May).

RUT and the NASDAQ traded down more strongly than SPX. In addition, all of the indices bounced back somewhat in afternoon trading. Closing at the lows of the day would have been very bearish. SPX bounced off support at $1960. RUT traded down to $1169 in late June before heading higher to challenge its all-time high just a few days ago. Today's intraday low on RUT was $1167. For all of those reasons, I didn't join the "sky is falling" crowd today, but that didn't stop me from hedging my RUT July condor position - better safe than sorry. I can afford the insurance. We'll see if I need that insurance.

 
The Pause That Refreshes?
Written by Dr. Duke   
Monday, 07 July 2014 14:41

The futures predicted a weaker start this morning, but I wondered if the weak start would hold. It seems like the bulls have been very successful at recovering and pushing higher nearly every day. But that wasn't the case today. SPC closed down $8 at $1978, a reasonably modest decline, but RUT took it on the chin, dropping $21 to close at $1187. The NASDAQ composite also fell off significantly with a loss of $34, closing at $4452. Trading volume gains and losses are deceptive after a holiday weekend because the last day before the holiday is frequently a shorter trading session, and that is augmented by a large number of traders on holiday. Trading in the S&P stocks came in at 1.6 billion shares, up from Thursday's weak number, but well below the 50 dma at 1.9 billion shares. Trading volume rose 1% on the NYSE and rocketed up 71% on NASDAQ.

There wasn't any significant economic data reported today. The minutes from the last FOMC meeting will be released on Wednesday.

It seems like all indicators continue to be bullish for the market. In my opinion, we have a very weak economy, but the slight improvements we are seeing are being lauded everywhere. So today's pull back probably isn't anything more than a temporary slowing in the overall bullish trend. But I remain cautious. Trade bullishly, but protect yourself.

 
The Sideways March Continues
Written by Dr. Duke   
Monday, 30 June 2014 14:44

Not much was going on in the markets today. SPX closed down one dollar at $1960, but traded throughout the day in a very narrow six dollar range. A little more action was happening with the small caps with RUT trading down to $1185, before recovering to close up $3 at $1193. The NASDAQ composite had solidly broken out to new highs last week and continued that push higher today, gaining $10 to close at $4408, another all time high. Can NASDAQ pull the blue chips higher? Volatility is roughly flat with a rise of three tenths of a point on the VIX at 11.6%. Trading volume returned to normal after Friday's activity associated with the Russell rebalancing. Trading volume in the S&P 500 came in at 1.8 billion, a half million shares below the 50 dma. Trading declined 15% on the NYSE and dropped 31% on NASDAQ.

The Chicago PMI may have thrown a little cold water on the market today, coming in at 62.6 for June, down from last month's 65.5. Pending home sales spiked up 6.1% in May, a big improvement from April's 0.5% increase. Economic data abound the rest of the week with the ISM manufacturing and services indices, the ADP private employment report, construction spending, factory orders, and, finally, the big daddy of economic reports: non-farm payrolls on Thursday morning (the exchanges are closed on Friday).

For now, it appears the bulls and bears are pretty evenly matched with SPX trading largely sideways for the past couple of weeks. Many analysts have been expecting a pullback or correction, but so far, no amount of bad news has been able to give the bears the upper hand. All we can do is trade what we see.

 
Those Poor Bears
Written by Dr. Duke   
Thursday, 26 June 2014 18:34

The bears appeared to be in control for a short time this morning. SPX traded as low as $1945 before recovering to close at $1957, down only $2. RUT followed suit, closing down $2 at $1181 after hitting an intraday low at $1172. Volatility is unchanged with the VIX closing at 11.6%. Yesterday I was surprised at the market overlooking the first quarter GDP debacle; this morning it appeared some traders had second thoughts, but it didn't take long for the bulls to reassert themselves. Shorting this market is dangerous work.

Initial unemployment claims were essentially unchanged this week with 312k, down from last week's 314k. But the continuing unemployment claims increased from 2.56 million to 2.57 million.

My July iron condor on SPX started 5/21 with spreads at 1760/1770 and 1950/1960. I hedged with Aug 1050 calls on 6/2 and closed the hedges on 6/11 for a net gain of $1,200. I closed and rolled the 1950/1960 calls to 2000/2010 on 6/6. Today I closed the 1760/1770 put spreads for a dime. This position is now roughly at break-even. I will sell new put spreads and push the position back into a profitable state either tomorrow or next week.

The last three days of price action appear to be establishing the area of $1945 to $1950 on SPX as support. Unless the bears can hold a close below that level, the bullish trend must be assumed to be unchanged. Perhaps a sideways consolidation is the most bearish price action possible in this market. But be careful, it could all change in a blink of the eye. Large and fast price fluctuations have become the new normal.

 
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