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 November position in the Flying With The Condor™ account survived the downturn in October very nicely and was closed with a 13% gain. The December position closed with a 6% gain after several adjustments. The "V-bottom" corrections took their toll on the January position and it closed for a 7% loss, but we more than made up for that with an 18% gain in February. We closed the March position for a 9.5% gain and April for +12.6%. Flying With The Condor™ is up 11.2% for the year and is 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"!

Back and Forth
Written by Dr. Duke   
Tuesday, 31 March 2015 16:19

Today was another one of those days. Just when we think the market is bouncing back, it trades off. SPX opened this morning at $2084 and traded sideways through early afternoon. If the market had closed around 1:45 pm ET, we would have had a flat day, but then it simply traded off into the close, losing $18 to close at $2068. RUT lost $5, closing at $1253 and the VIX moved up almost one point to 15.3%. The VIX struck me as behaving somewhat benignly on a 1% drop in SPX; maybe we are all becoming accustomed to this whipsawing price action. Trading volume was mixed with slightly higher trading volume in the S&P 500 stocks at 2.0 billion shares (up from 1.9B yesterday), and a 15% rise in volume on the NYSE; but trading volume was flat on NASDAQ.

The Case Schiller housing price survey reported an annualized rise of 4.6% for January, up slightly from December's +4.5%. The Chicago PMI reported at 46.3 for March, up from 45.8. And the Conference Board consumer confidence survey rose to 101.3 from 98.8. I saw a couple of news headlines for today's markets, claiming the market dropped on mixed economic data - really?

The markets will be closed on Friday, but the jobs report will be issued anyway, so that could be interesting. Layering on that report will be the possibility of another shoe dropping over the weekend in the Greece/Euro Zone negotiations. We may see traders taking off more vulnerable positions this week, and we may see the VIX move a bit higher as traders seek protection from events over the long weekend.

Another V-Bottom
Written by Dr. Duke   
Monday, 30 March 2015 17:30

Once again, the market takes a little tumble, but then it rockets back higher. The "buy the dip" game is still working like a charm. SPX tacked on $25, closing at $2086 and RUT followed suit with a $17 gain, putting that small cap index at $1258. Volatility contracted a bit more with the VIX closing at 14.5%, down six tenths of a point. Trading volume was pretty flat with 1.9 billion shares of the S&P 500 stocks trading. Trading volume contracted 3% on the NYSE, but rose 5% on NASDAQ.

SPX gapped open this morning and never looked back. RUT gapped open even more strongly, so small caps are again leading the way - a bullish sign.

Pending home sales surprised analysts with a 3.1% gain in February, up from a positive 1.2% gain in January. Tomorrow brings the Chicago PMI report.

On Friday I closed my April iron condor position on RUT at 1110/1120 and 1310/1320 for a debit of $0.38, resulting in a net gain of $108 per contract or +12.6%. This brings our year to date gains for the Flying With The Condor™ service to +11.2%.

Finding Support?
Written by Dr. Duke   
Thursday, 26 March 2015 16:58

SPX opened weakly this morning and traded down to $2046 by 10:15 am ET. Then it recovered and traded up to $2067 (the 50 dma) by 2 pm ET, and closed at $2056, down $5. RUT closed down $2 at $1232. The VIX rose four tenths of a point to close at 15.8%. Trading volume was flat today with 2.3 billion shares of the S&P 500 stocks trading hands. Trading volume on the NYSE was unchanged, but was down 9% on NASDAQ.

We are becoming accustomed to these "mini-corrections". In March, SPX pulled back by 3.6% to a low on March 11th at $2040. In a matter of only a couple of weeks, we are back testing that support level. Today's price action, with the push down to $2046 followed by a bounce was reassuring for me. Perhaps the market is beginning the process of finding support at or close to $2040. One could interpret today's price action on SPX as bouncing off support near $2040 and then recovering to bounce off resistance at the 50 dma. In any case, I think we are observing a nervous market, trying to find its way. But tomorrow brings another revision to 4Q GDP; that could reassure the market or push it over the edge. Welcome to the brave new world of markets heavily influenced by central bank activity. It has never been easy to interpret the reasons for market trends, but it has become nearly impossible. I enjoy old westerns and today's traders are behaving like cattle during a thunderstorm out on the prairie. Will the next news event spark a stampede like yesterday's market rout?

The Bears Take a Swipe
Written by Dr. Duke   
Wednesday, 25 March 2015 16:14

This morning's market looked weak, but didn't appear like anything serious was happening. However, it was as though the market sprung a slow, but steady leak that just continued to pull it lower all day. Before we knew it, we were looking at serious losses. SPX lost 1% or $30 to close down at $2061, and RUT even took it on the chin more strongly, closing down at $1234, down $30, but this was a 2.4% drop on RUT. The NASDAQ composite traded more like RUT, losing 2.4% or $118 to close at $4877. All of the major market indexes have been trading weakly for the past three days, but today was a significant shift. As one might expect on a day like this, trading volume spiked up with 2.3 billion shares of the S&P 500 companies trading. Trading volume rose 9% on the NYSE and increased 37% on NASDAQ.  Volatility popped up with the VIX increasing almost two points to 15.4%.

The only economic data reported today was durable goods orders for February, which were down 1.4%, a turnaround from the 2.0% gain in January. The market's extreme reaction to this data point reinforces what I have been saying for some time. The unprecedented quantitative easing and extremely low interest rates for a prolonged period of time have created a unique market environment. Wall street veterans have nothing in their past market experience to draw upon; this is new for veterans and newbies alike. No one feels like they know how this will play out. We haven't been here before. Consequently, we have a nervous market that sells to protect profits first and asks questions later. I think this is largely the cause for the V-bottoms and price volatility we have been experiencing for the past couple of years.

My April iron condor on RUT at 1110/1120 and 1310/1320 stands at a net gain of 11% if closed today, and the May position that we just opened last week is already up 4%. I have been nervous about the downside lately and have allowed myself more safety margin when selling the put spreads. On days like today, that feels good.

I close with the two questions on all traders' minds:

1) Where will this correction bottom?

2) Will the bulls buy this dip strongly just as they have for the past two years and create one more V-bottom?

Written by Dr. Duke   
Monday, 23 March 2015 16:03

Markets have to take pauses from time to time, and after Friday's huge move higher, a breather or pause should be expected. SPX closed at $2104, down $4. RUT dropped $2 to close at $1265. Volatility increased slightly with the VIX increasing about a third of a point to 13.4%. Trading volume spiked up Friday even more than would be normally expected for an expiration Friday. Hence, lower trading volume was to be expected today with 1.9 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE declined 49% and volume dropped off 40% on NASDAQ.

Existing home sales were reported at an annualized rate of 4.88 million in February, up slightly from January's 4.82M.

My April iron condor on RUT at 1110/1120 and 1310/1320 closed today up 9.5% with position delta = -$73 and position theta = $81. Delta of the 1310 call is just under 9, so the pressure on the call spreads remains minimal.

By all measures, we are in a strong bullish market. However, the pattern of frequent "V-bottoms" is not likely to disappear, so keep your stops tight. Several of the stops on my directional trades are being hit as the market whipsaws, but there's not much you can do about that - whipsaws and V-bottoms are simply characteristic of this market.

The Bulls Are Stampeding!
Written by Dr. Duke   
Friday, 20 March 2015 14:30

The markets traded up strongly today. SPX closed at $2108, up $19. Both RUT and NASDAQ gapped open higher, with RUT closing at $1266, up $11 and the NASDAQ closing up $34 at $5026. RUT set another all-time high today, and NASDAQ is nearing its all-time high at $5049. Trading volume on this expiration Friday would have been higher anyway, but I think the bulls stampeding increased it even more so. Trading in the S&P 500 stocks hit 3.4 billion shares; trading volume on the NYSE rose 87% and trading ran up 55% on NASDAQ.

There wasn't any significant economic data reported today, so I guess we are still riding the FOMC announcement euphoria. One of my newsletters headlined with something to the effect that the Fed has written a blank check - here is how you cash in. The IBD Big Picture technical indicator had not yet posted as I write this, but I suspect their "Uptrend Under Pressure" will shift to "Confirmed Uptrend" tonight.

SPX settled at $2099.02, up $9.60 from yesterday's close. The average move for 2014 was $8.74. RUT had not yet posted its settlement value at the time of writing and I can't hang around; I'm taking my honey out to dinner (yes, I am referring to my wife).

Enjoy your weekend.

I Didn't Expect That!
Written by Dr. Duke   
Wednesday, 18 March 2015 15:26

The Fed dropped the word, "patient", from their commentary about when interest rates will rise, and the market clearly liked what it heard. SPX ran upward $25 to close at $2100. RUT traded even higher to set a new all-time record at $1252, up $10. Accordingly, volatility contracted with the VIX dropping almost two points to a touch under 14%. Trading volume spiked higher with 2.6 billion shares of the S&P 500 stocks trading.  Trading volume rose 30% on the NYSE and was up 15% on NASDAQ.

I was surprised at the market's intense reaction to the FOMC announcement today. Removing the "patient' adjective would seem to suggest higher interest rates coming sooner, but traders didn't take it that way. The announcement included a downgraded assessment of the strength of the economy and projections of year end interest rates that were lowered from the last announcement. It now seems very strange that just a couple of weeks ago, the markets pulled back because of a fear that the jobs report was so favorable that the Fed would raise interest rates sooner. Trying to put the market on a rational basis that enables some predictability appears to be a difficult, if not impossible, task.

Waiting On the Fed
Written by Dr. Duke   
Tuesday, 17 March 2015 14:52

Ho hum. I expected a slow day on the street today and I wasn't disappointed. SPX lost $7 to close at $2074, but RUT gained $2, closing at $1242. Volatility was unchanged with the VIX closing at 15.7%. Trading volume was anemic with 1.9 billion shares of the S&P 500 stocks trading. Trading volume was down 5% on the NYSE and up 1% on NASDAQ.

The only economic news for the day wasn't reassuring. Housing starts fell markedly in February, down to an annualized rate of 987k, down from 1081k. You might think this was weather related, but that was only part of the story; the decline was present across the country. Building permits held steady with 1092k in February, up a bit from last month's 1060k.

Tomorrow may be a volatile day in the markets with so much attention focused on the FOMC and the prospect of increasing interest rates. This topic has taken on "bogeyman qualities", with traders and institutions behaving as though the Fed will move interest rates from zero to 10% overnight and crash the economy. If you don't believe me, tune in to CNBC tomorrow afternoon and listen to the breathless commentary surrounding whether the word, "patient", is present in the announcement.

My April iron condor on RUT at 1110/1120 and 1310/1320 is delta neutral with delta = $1.50 per contract, and stands at a net gain of 7.3% with 30 days to expiration. We closed the March position last week, locking in a 9.5% gain.

Get your popcorn ready, tomorrow afternoon should be interesting. Or maybe it turns out to be a non-event. The market likes to fool us.

Strong Day In Advance of the Fed
Written by Dr. Duke   
Monday, 16 March 2015 16:39

The markets roared back once again - how many times is this "buy the dip" strategy going to work? It will be painful when it doesn't. SPX gained $28 to close at $2081. RUT wasn't quite as enthusiastic, but then again, it didn't fall as far either. RUT closed at $1240, down $8. Volatility contracted a bit with the VIX dropping almost a half point to 15.6%. But it wasn't a super-enthusiastic rally. Trading volume declined  across the board with two billion shares of the S&P 500 trading and trading declined 5% on the NYSE. Volume also declined 8% on NASDAQ.

The Empire manufacturing survey came in at 6.9 for March, down from February's 7.8. Industrial production increased 0.1% in February, somewhat better than January's 0.3% decline. Capacity utilization dropped off a bit in February, from 79.1% to 78.9%. Housing starts and building permits issue tomorrow and then the big kahuna, the FOMC announcement, on Wednesday. Did traders get a hint of that announcement and that set off the rally?

Head Fake
Written by Dr. Duke   
Friday, 13 March 2015 15:32

Once again, we see the market whip higher one day and then give it all back the next. It wasn't quite that bad, but it does wear on you. SPX closed down $13 today at $2053, after gaining $26 yesterday. RUT lost $5 to close at $1232. Volatility rose a bit with the VIX closing up 0.6 points at 16.0%. At the worst of it today, SPX did in fact give back all of yesterday's gains, but it recovered somewhat in the last hour of trading this afternoon. Trading volume was flat to slightly higher with 2.1 billion shares of the S&P 500 stocks trading today. Trading volume was up 7% on the NYSE, but flat on NASDAQ.

The Producer Price Index (PPI) came in with another negative number for February, -0.5%. This was not quite as bad as last month's -0.8%, but this consistent string of low to negative numbers is beginning to alarm economists who fear a deflationary environment, similar to what Japan has suffered through for the past ten or fifteen years. This probably comes in on the delay raising interest rates side of the Fed's scorecard. The University of Michigan's consumer sentiment survey continues to be pretty high at 91.2 for March, down from 95.4 in February.

I closed my March iron condor on RUT at 1050/1060 and 1290/1300 today, locking in a gain of 9.5%. Both spreads passed my Two Sigma Rule, but the swings of this market back and forth have me a little concerned, so I decided to lock in a nice gain and go to cash. My April position stands at a net gain of 5% today, but this position has more room for adjustments if they prove necessary, so I am more comfortable with that position.

Have a nice weekend. It is actually teasing us here in Chicago with almost warm weather - not really, but at least the snow is melting and I can see the sun.

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