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 Condorâ„¢ 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 Condorâ„¢ 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"!

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.

Slowing But Still Rising
Written by Dr. Duke   
Monday, 17 November 2014 17:15

SPX's price trend is clearly flattening, but it is still rising, just at a slower rate. Consider today's price action. SPX opens at $2038, trades down to $2034 and then up to $2043, and then closes at $2041, up nearly $2 on the day. This certainly isn't the large gains of a couple of weeks ago, but it just steadily rises. RUT's price trend is marked in its contrast with SPX. RUT has traded downward for the past three days, closing today at $1164, down $10. Should we ignore RUT's divergence? I don't think that would be wise.

Volatility opened higher this morning with 14.7% on VIX, but ended the day at 14.0%, about three quarters of a point higher than Friday's close. So volatility isn't very high, but it hasn't settled into very low levels after the October correction.

The markets have been trading at low volumes for the past several sessions, with 1.9 billion shares of the S&P 500 stocks trading today. Eleven trading sessions have passed since the trading volume of the S&P 500 exceeded the 50 dma. Trading on the NYSE declined 2% today and trading on NASDAQ decreased 4% from Friday's levels.

The New York Fed's Empire manufacturing index for November reported a result of 10.2 on their survey, up significantly from October's 6.2. Industrial production declined from September's +0.8% gain to a negative 0.1% loss for October. Capacity utilization declined a bit from 79.2% to 78.9% in October.

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. We'll see.

BTW, the answer to Friday's "big event" in last week's blogs: it was Prince Charles' birthday. He and I are the same age. That is the source of the nickname, Duke. The first blog reader with the correct answer has opted for a free copy of my forthcoming book, Time Is Money, which should be on Amazon before year-end.

Slowing Down
Written by Dr. Duke   
Thursday, 13 November 2014 17:58

The rise in unemployment claims was blamed for today's slowdown in the market, but the signs have been there for several sessions. A period of sideways trading is natural and healthy for a market that has been on such a stellar run higher for the past several weeks. SPX closed at $2039, with a one dollar gain, but RUT traded off by $11 to close at $1175. It appeared as though RUT had broken out above its September highs yesterday, but today's trading firmly pulled it back below that resistance level.

Volatility rose with the VIX gaining about three quarters of a point to 13.8%. Trading volume remains low, but rose a bit from yesterday's levels with 2.1 billion shares of the S&P 500 stocks trading (but the 50 dma = 2.2B). Trading volume increased 7% on the NYSE and trading on NASDAQ rose 6%.

Weekly unemployment claims rose twelve thousand to 290 thousand from last week's 278 thousand. Continuing unemployment claims rose by 36 thousand to 2.39 million claims. JOLTS job openings decreased by 118 thousand to 4.74 million in September.

Guesses continue to come in, speculating about tomorrow's big event. The winner gets a free book!

Final hint: it is the origin of my nickname.

Ho Hum
Written by Dr. Duke   
Wednesday, 12 November 2014 17:38

The markets continued their low volume, sideways to slightly higher march today. SPX lost one dollar to close at $2038 and RUT gained $7 to close at $1186. Interestingly, NASDAQ also broke out higher today. Both RUT and the NASDAQ composite have been trading sideways since Halloween, while SPX continued higher. That comparative price action has suggested a consolidation of prices was beginning for the markets, but today's price action reversed with SPX slowing and RUT and NASDAQ gaining. Trading volume bumped up today with 1.9 billion shares of the S&P 500 trading, but this remains well below the 50 dma. Trading volume increased 10% on the NYSE and increased 7% on NASDAQ. Volatility was nearly unchanged with a tenth of a point increase to 13.0%.

We didn't have any economic news of any significance today. CSCO announced earnings after the close and beat estimates. But their weak outlook is giving some traders second thoughts. That may weigh on NASDAQ stocks tomorrow.

Many of you have been messaging me with guesses about the "big event" coming on Friday. Hint: it is shared between two countries.

Written by Dr. Duke   
Tuesday, 11 November 2014 15:50

Taking a look at the NASDAQ Composite or the Russell 2000 Index would lead to a clear conclusion: the market is in a consolidation phase. But SPX has continued to make new highs, closing today at another all-time high at $2040, up only a dollar, but it still keeps trading higher. RUT closed flat at $1180. Is SPX going to be pulled into a sideways consolidation phase by the other indexes, or drag them higher? Trading volume continues to be very weak with 1.6 billion shares on the S&P 500; the 50 dma is 2.2 billion shares. Trading volume was down 11% on both the NYSE and NASDAQ. Volatility continues to come in, with the VIX closing at 12.9% today.

There wasn't any significant economic data reported today. We will see retail sales, weekly unemployment claims, and the University of Michigan's consumer sentiment data later this week. I wouldn't expect any of those reports to trigger a big move either way. Maybe the slow, sideways trading on low volume continues.

I closed my SPX Nov 1810/1820 put spreads today for a nickel. That completes the November position for a net gain of $2,160 on 20 contracts or +12.9%.

The really big event comes on Friday. Bet you don't know what that is... I will send a book to the first person who answers correctly.

Temporary Pause?
Written by Dr. Duke   
Friday, 07 November 2014 15:06

Is this the pause that refreshes before the market seeks new all-time highs? Or are we going to consolidate sideways for a bit and work off this huge bullish drive of the past three weeks? Hard to say. SPX traded flat today, gaining less than a dollar to close at $2032. RUT gained a dollar to close at $1173. NASDAQ and RUT have both been trading sideways for the past several sessions while SPX just continued setting new record highs. If we go back to the charts when we were at the lows of this most recent correction, RUT and NASDAQ were the first indexes to recover and start posting positive gains. They led SPX out of the hole. Are they now slowing and leading SPX into a consolidation phase? Trading volume was down today with two billion shares of the S&P 500 trading; trading declined 5% on both the NYSE and NASDAQ.

The non-farm payrolls report came out before the bell this morning and posted 214 thousand new jobs, less than last month (240k) and less than what economists had predicted (250k). The unemployment rate ticked down a tenth of a percent to 5.8%. But the markets appeared to just yawn; they didn't trade strongly in either direction.

My November iron condor position only consists of the 1810/1820 put spreads at this point, so I am just watching those options decay. They are far enough OTM to be very safe (over four standard deviations), but I may close them soon just to free up margin for a new trade. The maximum return is 13.5% and we are essentially there. My December condor has been skirting along the edge of requiring hedging for the past week. Even though the market was flat today, I decided this morning to enter half of my normal hedge. That makes an ugly surprise on Monday less likely (more correctly, it will make the ugly surprise a bit less ugly).

Enjoy your weekend.

Which Way?
Written by Dr. Duke   
Tuesday, 04 November 2014 15:55

One has to wonder what effect, if any, the election results will have on the markets. SPX appears to be slowing over the past two days, but any market needs a rest after such a torrid run higher. SPX closed down $6 at $2012 and RUT dropped $5 to $1165. But look at today's price action on SPX. It opened at $2016 and traded down as low as $2001 before recovering into the close. That price action tells me that there are still a large number of bulls who are waiting to step in and buy on any pull back. On the other hand, volatility has been edging up with the VIX opening Monday at 13.8% and closing today at 14.9%.

I watch for divergences between SPX and the VIX. Sometimes that gives us an early warning. SPX has traded slightly higher for the last three days with an open Friday at $2001 and a close today at $2012. That slightly bullish action on SPX together with a slight increase in volatility makes me think the market isn't quite sure which way the election will push prices.

Trading volume was mixed today with a slight increase in the trading volume of the S&P 500 up to its 50 dma at 2.1 billion shares. Trading on the NYSE increased 7% and trading volume decreased 5% on NASDAQ.

It's almost time to go watch the election returns.

Just a Pause?
Written by Dr. Duke   
Monday, 03 November 2014 17:22

Today's markets had one of those slow days with minimal progress in either direction on lower than average volume. That has been unusual lately as the markets just shoot higher day after day. SPX closed unchanged at $2018 after trading as high as $2024. RUT dropped off $3 to close at $1170. The VIX added almost three quarters of a point to close at 14.7%. Trading volume was down across the board with 2.0 billion shares of the S&P 500 stocks trading. Trading volume declined 15% on both the NYSE and the NASDAQ.

Today's candlestick on SPX was the classic doji, a sign of indecision or balance between the bulls and the bears. It wouldn't be surprising to see the indexes slow and trade sideways for a bit after such a strong rally over the last two weeks.

The ISM manufacturing index posted an increase to 59.0 for October from 56.6 in September. Construction spending was up slightly with a decline of 0.4% in September, up a bit from the -0.5% last month.

My November iron condor continues to build gains as the market heads higher. The remaining SPX Nov 1810/1820 put spreads are far OTM at this point with a little less than three weeks to go. My December iron condor on SPX is positioned at 1810/1820 and 2080/2090. Since we sold the put spreads on 10/21, our gains on that side have balanced recent losses on the call spreads so the entire position stands at a net loss of about 1%. If SPX continues higher, we will have to hedge our call spreads.

We have the jobs report coming up on Friday. We may see some more low volume, sideways trading days this week in advance of that report.

I sold the HLF 42/45 and 63/66  and the PCLN 1125/1130 and 1270/1275 iron condors today in anticipation of their earnings announcements (all with NovWk1 options). HLF looks like a winner at this point, but PCLN announces earnings in the morning before the market opens.

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