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"!

QE Officially Ended
Written by Dr. Duke   
Wednesday, 29 October 2014 14:50

Today's FOMC announcement officially pronounced the end of the Fed's quantitative easing programs. All in all, the announcement was pretty standard fare. Of course, analysts are arguing whether the announcement was hawkish or dovish, or whether various phrases used in the announcement mean interest rates will rise in April or July of next year. It reminds me of a group of medieval soothsayers studying tea leaf residues.

The markets dropped quite a bit in the first few minutes after the announcement, but then stabilized. Apparently traders have decided the market can stand on its own. SPX lost $3 to close at $1982 and RUT also lost $3, closing at $1146. Trading volume was up a touch with 2.2 billion shares of the S&P 500 stocks trading. Trading on the NYSE increased 5% and trading volume increased 13% on NASDAQ.

Plot SPX with its Bollinger bands. It is amazing how quickly it has traveled across the band from the lower edge nearly to the upper edge in just a few days.

We won't know for sure how the market has reacted to the FOMC announcement until tomorrow. Everyone will be studying those tea leaves this evening.

Breaking Through Resistance
Written by Dr. Duke   
Tuesday, 28 October 2014 14:27

With the FOMC announcement coming out tomorrow, one might have expected some slow sideways trading today, but the bulls were out in force. SPX broke through the 50 dma at $1967 and resistance at $1970 and didn't look back. It closed at $1985, up $23 on the day. RUT was also on a tear, trading up $32 to $1149. RUT broke through both the 50 dma and the 200 dma today, but still has a long ways to go to return to the September highs. Trading up another twelve points to $1161 would at least get RUT even on the year. By contrast, SPX is up 7.5% for the year.

Volatility continues to come in with the VIX falling to 14.5%. Trading volume moved higher, supporting the bullish nature of this market, with 2.1 billion shares of the S&P 500 trading today. Trading volume was up 4% on the NYSE, but surged 23% on NASDAQ. Was that a result of the big surge in TSLA today? Day traders must love that stock!

Durable goods orders decreased 1.3% in September, but that was a big improvement from last month's 18% drop. The Case Schiller housing price index dropped 0.2% in September, down from the 0.7% gain of August. The consumer sentiment survey from the Conference Board for October reported a value of 94.5, up from 89.0. There aren't any disasterous numbers here, but nothing that might generate today's strong rally either.

I sold an iron condor at plus and minus one standard deviation on BIDU as a play on its earnings announcement today, and so far at least, that looks like a winner. My November iron condor on SPX only consists of the 1810/1820 put spreads; I closed the call spreads a couple of weeks ago. This position is gaining value each day as the bulls push the markets higher. Assuming those spreads expire worthless (probability of 99% as of today's close), the November position will conclude with a 14% gain - not bad after that plunge on October 15th. My December iron condor only consists of the 1810/1820 put spreads, but that position is up 8% at today's close. I am waiting for this market to slow a bit before entering the call spreads to complete the condor.

So we await the FOMC announcement tomorrow. Presumably, QE will be pronounced officially over and the same language will be used about interest rates only rising well into 2015. I expect the market to collectively yawn, but...

Taking a Breather
Written by Dr. Duke   
Monday, 27 October 2014 14:38

After such a huge run last week, it wasn't too surprising to see the markets tread water a bit today. SPX lost $3 to close at $1962, and RUT declined $1 to close at $1117. SPX opened weakly this morning and traded as low as $1951 before recovering to close near its high for the day. That trading action tells me the bulls are still in charge of this market. Volatility was unchanged today, with the VIX closing at 16.0%. Trading volume was mixed with an 8% rise on the NYSE, but an 11% decline on NASDAQ. The trading volume on the S&P 500 stocks was not yet available as I write this a bit earlier than usual (I have an appointment shortly).

The only economic data today was pending home sales, up 0.3% in September, an improvement over the one percent decline in August. Durable goods orders and the Case Schiller housing price reports will be issued tomorrow, and we get the FOMC announcement Wednesday afternoon.

My November iron condor on SPX stands at a net gain of 7% with the Nov 1810/1820 put spreads remaining open. I closed the call spraeds when the market hit its lows week before last. Our maximum return on the November condor is 13%, and that looks pretty safe at this point. I took that opportunity of a low market to open the SPX Dec 1810/1820 put spreads; that position stands at a net gain of 4%. I will be entering the call spreads to complete the December position soon.

We may see another slow day in the markets tomorrow as traders wait to hear from the Fed. Presumably, QE ends this month. But maybe the FOMC will surprise us with something. Or traders will spook themselves based on a minor word change in the announcement. Stay tuned.

The Bulls Come Roaring Back
Written by Dr. Duke   
Thursday, 23 October 2014 14:50

The Canadian terrorism scare didn't last long. The bulls were buying with both hands as the market opened this morning. Apparently, the "buy the dip" strategy is on again. SPX gained $24 today, closing at $1951. RUT gained $20 to close at $1116. This puts SPX solidly above its 200 dma at $1908; the bulls are once again in charge of this market. SPX spurted upward at the open this morning and traded somewhat higher in the early afternoon, but then pulled back to close near where it was about an hour after the open. The VIX dropped off another point and a third to close at 16.5%. Trading volume was down with 2.2 billion shares of the S&P 500 stocks trading today. Trading volume was unchanged on the NYSE and down 2% on NASDAQ.

The report of initial unemployment claims came in at 283k, up from last week's 266k. Continuing claims fell by thirty eight thousand to 2.35 million.

As volatility unwinds and SPX trades higher, the put spreads remaining in my November iron condor position are moving into the black once again, now up about 5%. If the bulls slow down, I might add some new call spreads, but that doesn't look likely.

Maybe it's time to start working that list of bullish stock candidates?

Maybe Not
Written by Dr. Duke   
Wednesday, 22 October 2014 15:31

Yesterday, I titled my blog, "Is It Safe To Come Out Now?", and today I answer myself (I talk to myself all the time). One could blame today's weakness on the terrorist attacks in Canada. But some analysts were expecting a continuation of the bearish down trend or were at least expecting a test of the support levels before heading higher. Today's drop satisfies both groups. SPX opened and traded higher this morning until the terrorist news hit the wires. SPX closed the day down $14 at $1927. RUT traded down $16 to $1097. The VIX lost about two and a half points yesterday, but gained almost two points back today. It remains a nervous market. Trading volume was flat to slightly down with 2.4 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 1% and trading volume on NASDAQ was unchanged.

The Consumer Price Index (CPI) reported a slight increase of 0.1% for September, up from the 0.2% decline in August.

Both the SPX and RUT traded higher this morning before the terrorist attack news hit, so I am less concerned about this pull back. RUT's price action formed a bearish engulfing candlestick, known as an outside day in bar charts. By itself, that is a bearish reversal signal, but requires confirmation.

The bottom line is this: this recent market weakness is purely technical in nature. The markets became a bit frothy and now that is being corrected. The economic data and the earnings announcements thus far are not painting a bearish picture. I continue to think that traders are very nervous because of the Fed involvement in the markets; it is unprecedented and therefore makes traders nervous. It is hard to predict the future when you have no history with which to judge the present situation. That Fed presence and its unwinding, coupled with institutions sitting on gains from the last two years, make for an itchy trigger finger.

Is It Safe To Come Out Now?
Written by Dr. Duke   
Tuesday, 21 October 2014 14:22

The bulls were clearly in charge today, with the S&P 500 Index gaining $37 to close at $1941.28. To make it even more positive, SPX opened $5 higher this morning at $1909 from yesterday's close at $1904. We call this a gap up, and it is generally regarded as very bullish. Trading volume was also higher today with 2.5 billion shares of the S&P 500 stocks trading. Trading volume rose 14% on the NYSE, but was only up a modest 2% on NASDAQ. Unlike recent months, RUT has also jumped on this bull's bandwagon, gaining $18 to close at $1113. Volatility contracted again today with the VIX losing two and a half points to close at 16.1%. So all signs are indicating a return to the bull market trend. What a turnaround from last Wednesday!

Today was another light day for economic data. Existing home sales came in at an annualized rate of 5.17 million for September, up from last month's 5.05M. The Consumer Price Index (CPI) reports tomorrow, but that normally isn't a market moving event.

As I wrote yesterday, traders expect prices to retest a support level after bouncing, so I have been concerned that the markets might take another plunge before resuming the bullish trend. The markets have simply headed straight up since last Wednesday - a remarkable run. Maybe we have seen the end of this correction. However, I remain on alert. I still smell the singed hair from last week. My hedges worked, but that was still scary.

Why Am I So Nervous?
Written by Dr. Duke   
Monday, 20 October 2014 17:30

SPX has now traded higher for three consecutive days following the severe downdraft last Wednesday. SPX closed today at $1904, up $17. RUT also traded higher, gaining $13 to close at $1095. VIX is now back down to 18.6%, losing over three points today. But I remain nervous. This market has been trading nervously for the past two years. Look back at the number of sudden drops over a week of trading sessions, only to be followed by a recovery straight up over just a few days. At least we had the fiscal cliff concerns in January of last year. I'm not sure what is causing this market to be so nervous. But the fact of the matter is that it doesn't take much to start a selling spree. So I am cautious.

Trading volume fell off from expiration Friday, but that decline is also evidence of some calming after last week's panic. Trading in the S&P 500 stocks dropped to 2.1 billion shares. Trading declined 26% on the NYSE and dropped 24% on NASDAQ.

My November iron condor on SPX is back to break-even and will continue to move into the black as volatility contracts. Those puts are now $80 OTM, but I still worry. One of the things that concerns me is a retest of support. Normally, when a stock or index declines and then appears to bounce back higher, it trades back down and tests that support level before trading higher. But it is true that the SPX hasn't displayed that behavior with the rapid pull backs of the past couple of years. So maybe it will just trade higher and not look back. One thing's for sure - this isn't a time to take my eye off the ball.

Is the Correction Over?
Written by Dr. Duke   
Friday, 17 October 2014 16:22

The S&P futures were up double digits in positive territory as I checked them first thing this morning - almost the opposite of Wednesday morning. SPX tacked on $24 to close at $1887, but RUT lost $4 to close at $1082. Hmmm... That worries me a bit. RUT started this bounce back earlier this week. Maybe we aren't out of the woods just yet. Take a look back at the fall of 2011 on your favorite charting service (I like StockCharts.com). SPX hit bottom on August 8th with a close of $1119; for the next 3 days, SPX traded up and down, repeatedly testing that support level. Then it rose and one might have concluded all was well. But it retested support with a close at $1124 on August 19th. And, then a month later on September 22nd, it closed at $1130. On October 3rd, SPX dipped down and closed at $1099 before it finally began its climb higher. Wednesday's plunge was scary, and we are all anxious to say the boogyman is gone, but he may be awaiting a sequel - remember Michael in Halloween? My point is simply this; don't let your guard down.

Volatility backed off by over three points with the VIX closing at 22%, but that is still a relatively high number. Trading volume also fell off a bit with 2.9 billion shares of the S&P 500 stocks trading today - again, volume pulled back, but it is still well above average. Trading volume dropped 12% on the NYSE and decreased 14% on NASDAQ.

Housing starts came in at annualized rates of 1017k for September and building permits matched that with 1018k. The University of Michigan consumer sentiment survey reported at 86.4 for October, up a bit from last month's 84.6.

I am glad to see this week end, and I doubt that I am alone. Enjoy your weekend and rejuvenate. This correction may have some life left in it. But there is no need worrying about that until Monday.

When Does a Correction Become a Crash?
Written by Dr. Duke   
Wednesday, 15 October 2014 14:48

The S&P futures were down about $30 when I first looked at them this morning. SPX opened at $1874, which was surprisingly only a couple of dollars lower than yesterday's close, but then the wild ride began. SPX dropped about $36 in the next few minutes, appeared to recover but then began a slow decline to its low for the day at $1821 around 1:30 pm ET. The buying dominated the rest of the day's trading with SPX closing at $1862, down $15. It is surprising to see that SPX only lost $15 when all of the dust settled. RUT actually closed with a gain of $11 at $1072. RUT's chart seems to suggest it is forming a bottom around $1050; you have to go back to the pull back in October of 2013 to match that price. RUT's weakness led this market down. Is RUT leading the bounce?

As expected in a market like we had today, VIX spiked up over 31%, but settled down to close at 26.2%. Trading volume shot through the roof with over four billion shares of the S&P 500 trading today. Trading volume rose 25% on the NYSE and rose 24% on NASDAQ. Is this a sign of the classic "capitulation"?

The minutes from the last FOMC meeting were released this afternoon. Maybe that led to the buying we saw after 2 pm ET. Retail sales declined 0.3% in September , a big change from the 0.6% increase in August. PPI was flat last month and reported a decline of 0.1% for September. The Empire manufacturing survey came in at 6.2 for October, a dramatic shift downward from last month's 27.5 - this almost looks like a data error.

At the bottom of the market this afternoon, my put hedges were doing their job and my SPX Nov condor position was at break-even. But we have some spurious prices posted at the close for SPX, so don't be surprised if your broker statement looks a bit weird. My Nov SPX condor is positioned at 1810/1820 and 2090/2100. The SPX Nov 2090 calls were posted with a closing ask price of $9.60. So my call spread is being shown as losing $370 per contract! That short call is $228 OTM!!

What a day!

Signs of Hope?
Written by Dr. Duke   
Tuesday, 14 October 2014 15:20

After yesterday afternoon's severe sell-off, I was surprised to see SPX open in positive ground this morning and then trade up as high as $1899 by noon today, but then the bears came back and started driving it lower. It looked like another repeat of yesterday's trading action. SPX hit its low for the day just thirty minutes before the close. But unlike yesterday, SPX bounced weakly during those last few minutes and avoided another close at the lows of the day. SPX closed at $1878, for a gain of $3. RUT traded more strongly, gaining $12 to close at $1062. The VIX dropped off almost two points to 22.8%. We are far from being out of the woods, but there were some encouraging signs in the trading action today.

Trading volume increased a bit today with 3.0 billion shares of the S&P 500 trading today. Trading volume rose 6% on the NYSE and increased 1% on NASDAQ.

There were no significant economic reports today, but the reasonably positive earnings announcements from the big banks (JPM, C, and WFC) were thought to have contributed to the morning's bullish price action. Goldman Sachs will report Thursday evening.

I was annoyed to see the market bounce back so strongly this morning since I had hedged my November position late yesterday. But that is the nature of the trading game. I compromised and removed half of my hedging options. I was pleased with that compromise as the market traded off this afternoon. These hedge options are costing me money, but hopefully they will allow me to salvage some gains from the November condor position on SPX. I have begun to nibble (emphasis on nibble) at some bullish trades today. Logic tells me we should be near the bottom - but logic is overrated in this game.

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