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 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 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. Check the Track Record in the Downloads section for details.


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



Taking Profits and Waiting on Friday
Written by Dr. Duke   
Wednesday, 04 March 2015 15:50

 Traders continue to tread water with an eye toward Friday's jobs report. SPX closed down $9 at $2099, and RUT traded down $4 to $1231. SPX opened lower this morning and traded down to $2088 before bouncing around 11 am ET, and then traded sideways the rest of the day. Both today and yesterday's intraday lows strengthen the support level of $2090 on SPX. Also note the long lower shadows on yesterday and today's candlesticks - another indication that the bulls remain in control.

Traders were concerned about the market's reaction to the Beige Book (FOMC minutes from the last meeting). As it turned out, there was no reaction whatsoever. Trading volume continued to be flat with two billion shares of the S&P 500 trading. Trading volume on the NYSE rose 3%, but declined 8% on NASDAQ. Volatility rose a bit both yesterday and today, with the VIX closing at 14.3%.

The ISM services index came in at 56.9 for February, about even with last month's 56.7. ADP reported their private payroll number for February at 212 thousand jobs, down from January's 250 thousand. Does that foretell a weak jobs report Friday? Perhaps, but the correlation has been tenuous historically. But it will cause traders to stay on the sidelines until after the jobs report. The only probable activity tomorrow will be to take some vulnerable profits off the table.

 
The Bulls Run Again
Written by Dr. Duke   
Monday, 02 March 2015 17:07

Just when it seemed that the bulls might be taking a rest, they come roaring back. SPX gained $13 to close at $2117 and RUT closed at $1243, up $9. Volatility continues to contract with the VIX dropping about a third of a point to 13.0%. Trading volume remains anemic with 2.1 billion shares of the S&P 500 trading. Trading was up 2% on the NYSE and up less than one percent on NASDAQ.

Over 90% of the S&P 500 companies have reported fourth quarter earnings at this point and about 75% have beat the analysts' earnings estimates. Concern about the strong dollar hurting the earnings of the multinationals appears to have been overblown. The Greek debt problem is certainly not solved, but traders seem to have moved on.

The pattern appears to be: 1) the bulls push higher, 2) bears present a "sky is falling" scenario, 3) markets trade sideways while we worry, and then 4) the bulls push higher.

Will Friday's jobs report be the next focus of worry?

 
Flat Week
Written by Dr. Duke   
Friday, 27 February 2015 15:54

SPX opened the week at $2110 and closed today at $2106, down $6. It was slightly down, but in broad brush terms, it was a flat week. RUT lost $6 to close at $1233. The NASDAQ composite did the best of the major indexes, up about $11 for the week at $4964. Trading volume has been below average all week on SPX, ending the week at 2.1 billion shares. Trading volume was up 3% today on the NYSE, but unchanged on NASDAQ. The VIX opened the week at 15.1% and closed today at 13.6%, down 0.4 points today. So the market averages may be a bit flat, but traders aren't concerned. The bull market appears to be intact.

The second estimate of GDP for the fourth quarter came in at +2.2% today, down from the first estimate of +2.6%. Why can't we just get it right and report it once?

The Chicago PMI reported its lowest level since 2009 for February, 45.8, down from 59.4. Most analysts blamed the decline on the harsh winter and the West coast port strike. Pending home sales increased 1.7% in January, so the real estate market continues to be solid, but not too hot.

Stay warm and enjoy your weekend.

 
Slow and Steady
Written by Dr. Duke   
Wednesday, 25 February 2015 16:52

The markets continue to trade sideways to higher; today was one of the sideways days. But make no mistake; the bulls are in charge. SPX actually lost a couple of dollars to close at $2114, while RUT gained $1 to close at $1235. Trading volume was flat with two billion shares of the S&P 500 stocks trading; trading volume rose 3% on the NYSE and was essentially unchanged on NASDAQ (to be precise, up 0.2%). Volatility was also essentially flat with the VIX at 13.8%, up 0.2 points.

New home sales came in at an annualized rate of 481k for January, essentially flat with December's 482k. A few days ago, we saw existing home sales drop a bit for January, so this number is somewhat reassuring that a "meltdown" isn't occurring in real estate. And recall that the Case Schiller price index remains pretty high at 4.5%.

If we just study the price charts, we see that SPX broke out of the consolidation triangle pattern back on February 5th and has been trading higher ever since. Now it slows a bit, but the bullish trend is very much intact. It is the classic stair step progression of a bullish trend. Even Greece couldn't derail the bulls. And Yellen promises more easy money, so what's not to like? Farmers are loaded with common sense wisdom; I am reminded of their saying, "Make hay while the sun shines."

 
Good News?
Written by Dr. Duke   
Tuesday, 24 February 2015 17:28

Janet Yellen testified before the Senate Banking Committee today, and appeared to be reluctant to commit to raising interest rates too soon. Markets took that as good news and traded higher. But is it good news? It suggests the FOMC chair still doesn't feel confident about the unemployment picture and has concerns about a deflationary spiral similar to what Japan has suffered through the past several years. Most Fed watchers are predicting the first interest rate hikes in September.

SPX traded up $6 to $2115, but RUT was less enthusiastic, closing at $1234, only up $2. Volatility continued its contraction with the VIX falling almost a full point to 13.7%. SPX and RUT both set new all-time highs. The NASDAQ composite also traded higher, but remains about eighty points below its all-time high.

The Case Schiller housing price index published its December numbers today, +4.5%, up from November's +4.3%. The Conference Board's consumer sentiment survey came in at 96.4 for February, down from the exuberant 103.8. Are gas prices that core to consumer expectations? Maybe.

The bulls remain firmly in charge, although the charts seem to suggest some slowing of the charge higher. In any case, being bearish is very contrarian at this point.

 
Waiting On Yellen
Written by Dr. Duke   
Monday, 23 February 2015 18:15

Traders were largely on the sidelines today, probably waiting on Yellen's testimony before Congress. And it wasn't too surprising to see some pull back after such a strong day on Friday. SPX closed down $1 at $2110 and RUT was unchanged at $1232.

Trading volume was flat to down with 1.9 billion shares of the S&P 500 stocks trading; the 50 dma = 2.25B. Trading volume declined 7% on the NYSE and was flat on NASDAQ. Lower trading volume is normal after expiration Friday, but it is also consistent with traders taking a pause while waiting on Yellen's remarks. The market is anxiously looking for clues about when the Fed may begin to raise interest rates.

Volatility rose slightly with the VIX closing at 14.6%, up 0.3 points.

Existing home sales for January came in at an annualized rate of 4.82 million, down from December's 5.07 million.

I think it is safe to continue to play the bullish trend, but the higher the markets move, the more likely a correction becomes. Don't play without a safety net.

 
Pop!
Written by Dr. Duke   
Friday, 20 February 2015 19:52

The news out of Europe appears to be getting better with at least a temporary solution, and the markets responded accordingly. The Greek debt problem hasn't been solved, but who cares? Politicians are kicking the can down the road. SPX opened down this morning but started climbing at 10 am ET and never stopped. SPX closed at $2110, up $12, within a few cents of its intraday high. Many analysts had suggested $2100 would give resistance, but SPX motored through that level without hesitation. RUT followed suit, but not quite so strongly, closing up $4 at $1232. The VIX declined one full point to 14.3%. Today was expiration Friday, so we usually see some increased trading volume, but it wasn't significant with 2.1 billion shares of the S&P stocks, still below the 50 dma. Trading on the NYSE increased 2% and trading increased 11% on NASDAQ.

SPX settled at $2094.87 and RUT settled at $1228.33. This confirmed the closing of our February RUT 1070/1080 put spreads, resulting in an 18% gain.

For those of you that trade SPX and VIX options, be sure you note the new trading hours beginning in March. Those options will trade five days per week from 2:00 am CT until 8:15 am CT. Trading in the new hours will begin for VIX options on March 2nd, and begins March 9th for SPX. Check the CBOE web site for more information.

Enjoy your weekend.

 
The Slow Grind Higher
Written by Dr. Duke   
Thursday, 19 February 2015 20:38

Markets continue to steadily move higher, albeit on weak trading volume. SPX closed at $2097, down $2. What, not another all-time high? RUT was flat at $1228. The NASDAQ composite is nearing a break of the all-time high from back in the dot com era. Volatility continues to slowly contract (with one eye on Greece, I think) with the VIX closing at 15.3%, down 0.2 points. Take a look at the candlesticks for the last three days of trading on SPX. Each day SPX has pulled back to $2090, but then bounced to close higher. These long lower shadows of the candlesticks are confirming support at $2090. The markets aren't running full out to the upside, but there is slow, steady bullish pressure.

New unemployment claims dropped down to 283k from last week's 304k, but the number of continuing unemployment claims rose from 2.367 million to 2.425 million. We have been seeing a series of small ups and small downs in this data for several months; the good news is the stability; the bad news is that unemployment seems so stubborn in this recession. What's different this time?

The Philadelphia survey of manufacturing dropped from 6.3 in January to 5.2 for February.

I allowed my RUT Feb 1070/1080 puts to go into expiration to expire worthless. They are over 12 standard deviations OTM; assuming the world doesn't end tonight, this will close the Feb position for a gain of 18%. The March condor on RUT at 1020/1030 and 1290/1300 stands at break-even.

It is interesting to watch the Greek/Euro Zone debt debate. Our national debt now stands at 74% of GDP. It was 34% in 2007. When the Greeks first required a bail-out, their debt was about 110% of their GDP.

 
Still Higher
Written by Dr. Duke   
Wednesday, 18 February 2015 16:33

The bulls are still in charge. SPX closed slightly down less than a dollar, but holds at the all-time high of $2100. RUT continued to pile on with another all-time high, closing at $1228, up $3. The VIX opened higher this morning at 16.7%, but steadily declined to a close at 15.5%. As we observed last evening, the bulls are cautious and trading volume remains low and declining with 2.0 billion shares of the S&P 500 trading. Trading volume declined 4% on the NYSE and coincidentally, trading volume also declined 4% on NASDAQ.

The FOMC released the minutes from the last meeting this afternoon, but it didn't appear to have much effect on the markets. Most of the analysis I saw after the close blamed the weaker close of today's market on the Fed minutes, but if one takes a look at the one minute chart, he will see that the market rallied after the minutes were released. It is fair to say that markets were largely trading sideways before the announcement and SPX gained modestly after the announcement. The main news from the announcement is that the FOMC may begin to raise interest rates later than many believed, perhaps into the third or fourth quarter this year.

Housing starts for January came in at 1065 thousand, slightly less than December's 1087k. Building permits followed suit with 1053k, down slightly from 1060k. The PPI declined 0.8% in January, somewhat more than December's 0.3% decline. Capacity utilization was flat at 79.4%.

So we will watch as the market continues this slow grind higher. Unless Europe implodes, or something similar happens, it appears that the bulls will carry the market higher yet. Maybe I just jinxed that rally...

 
New Highs
Written by Dr. Duke   
Tuesday, 17 February 2015 17:25

For the second day in succession, the S&P 500 Index set a new closing all time high. Today SPX closed at $2100, only up $3, but that was enough for the record. RUT increased $2 to close at $1225. It is interesting to note that SPX set a high on Friday and the VIX dropped dramatically to 14.7%, back in the range of volatility in November and December after the correction was over. Today, VIX gapped open higher at 15.9% and closed essentially unchanged at 15.8%. I suppose the Greek debt negotiations have traders a bit on edge, but they are still buying stocks. The bulls are in charge. But the bulls are cautious. Trading volume remains sluggish with only 2.1 billion shares of the S&P 500 stocks trading; the 50 dma = 2.3 B. Trading volume declined 5% on the NYSE and dropped 9% on NASDAQ. Setting new all-time highs on lower volume isn't the most bullish scenario.

I sold new call spreads to complete the March iron condor position on RUT. I had closed those calls Friday for fear of a big spurt on Tuesday morning if Greece had reached an agreement over the weekend and then global markets traded up while ours were closed Monday. As it tuned out, that wasn't necessary, but with today's rise in volatility, I saved about $35 per contract by closing the old spreads Friday. Fortunately my March put spreads at 1020/1030 are about three standard deviations OTM, and I am not going to roll them upward. I think a sudden correction is too probable with Greece and Ukraine bubbling.

So we continue to trade bullishly with one eye peeled for some problem coming at us from Europe or wherever.

 
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