Dr. Duke's Blog
Do you know any trading coaches who discuss the market candidly without any marketing hype? Dr. Duke publishes a weekly newsletter and shares the track records of his trading services. If you have questions about any of his services, Ask Dr. Duke.
Support Levels Broken
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- Written by Dr. Duke
The markets opened lower this morning and traded downward until around noon and then the bulls woke up and started buying, taking the markets back near the opening levels. SPX sliced through the 50 dma and dipped as low as $1319 before rebounding to close unchanged at $1329. RUT traded down and bounced off support at $815, closing down $3 at $820. All of this action occurred on higher trading volume levels with the S&P 500 stocks trading 3.1 billion shares, just below the 50 dma at 3.2B. Trading on the NYSE was up 10% and up 7% on NASDAQ. Many technical indicators are nearing oversold conditions, but the current bias appears to be downward. However, the fact that today's strong downward move didn't turn into a very ugly day has to be encouraging. Perhaps we have just expanded the lower band of our trading range?
Lower housing starts were reported for April (523k, down from 585k) and fewer building permits were issued in April (551k vs. 574k in March). Industrial production was flat for April, down from a 0.7% increase in March. Capacity utilization was almost flat at 76.9% in April vs. 77% in March. This economic data may have contributed to the weakness in the markets this morning. Some analysts believe the weakening of the dollar later in the day contributed to the market's rebound. But we may be reading tea leaves here, hoping to feel more confident that we have found the cause and effect relationship.
My June RUT iron condor at 690/700 and 900/910 stands at a P/L of +$1,716 with delta = -$14 and theta = +$60. This position remains delta neutral with a fair amount of safety margin to the upside (about 1.5 standard deviations) and a large amount of room on the downside (about 2.5 standard deviations). All in all, this is a difficult market to be trading now - unless you are delta neutral. But even then, the volatility can be a bit unnerving.
Sell-Off Down to Support Levels
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- Written by Dr. Duke
The equity markets sold off pretty strongly today, led by tech stocks. SPX closed down $8 at $1329, right at its support level at about $1330 - $1335, set in early April and mid-May. An open tomorrow farther down may be a very bearish sign for this market. RUT closed at $823, down $13. RUT is in a similar position as SPX on its chart having closed just below the lows set in early May and approaching the $815 low of mid-April. As in previous down sessions, trading volume remains anemic with 2.7 billion shares of the S&P 500 stocks. Trading on the NYSE was up 1% and was up 7% on NASDAQ. So we have traded to the bottom of the trading range; which way will it tip?
The NY Fed Empire Manufacturing Index plummeted to 11.9 for May from last month's 21.7. Otherwise, there were minimal economic data reports today.
My June iron condor on RUT stands at a P/L of +$1,276 with a position delta = -$9 and theta = +$84. This condor is well positioned as the market sits at this tipping point; the puts spreads are way down at 690/700. The 900/910 call spreads are now about 1.5 standard deviations OTM. So we watch to see if the bullish trend resumes or the correction deepens, but our condor is in good shape.
Broad Sell-Off on Lower Volume
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- Written by Dr. Duke
The markets opened basically flat this morning but quickly turned south when the dollar strengthened. SPX lost $11 to close at $1338 while RUT dropped $12 to close at $836. Trading volume was down across the board with 2.8 billion shares of the S&P 500 trading.Volume dropped 6% on the NYSE and dropped 13% on NASDAQ. The CPI increased 0.4%, in line with analysts' estimates. The University of Michigan Consumer Sentiment Survey reported an increase to 72.4 in May from April's 69.8. But traders seemed to ignore this economic data and just took their money off the table. Although the low volume suggests the institutions are largely sitting on the sidelines.
I applied my "Two Sigma" rule to the remaining spreads in my May iron condor on RUT. The 920/930 call spreads are over three standard deviations OTM while the 720/730 put spreads are over four standard deviations OTM. So I will allow both spreads to expire worthless and book an 8% gain for May. This brings the recommendations of the Flying With The Condor™service to a 19% gain for this year, handily beating the S&P 500 which is up a little over 6%. The June iron condor on RUT stands at a P/L of +$756 with position delta = -$53 and position theta = +$92.
Have a good weekend.
Following the Dollar
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- Written by Dr. Duke
The markets were weighed down at the open this morning by lower markets overseas as well as a stronger US dollar. But then the dollar turned over and the stock markets revived. SPX gained $7 to close at $1349 while RUT also gained $7 to close at $847. Trading volume was flat with three billion shares of the S&P 500 trading; volume was down 2% on the NYSE and down 1% on NASDAQ. Initial unemployment claims were reported as 434k this week, greater than expected, but down from last week. Continuing unemployment claims were flat at 3.8 billion. The Producer Price Index (PPI) increased 0.8%, a little higher than the 0.5% increase predicted by analysts.
My May iron condor on RUT is near its maximum profit with delta = +$2 and theta = +$63. Unless something dramatic happens, I will allow both the 920/930 call spreads and the 720/730 put spreads to expire worthless. The June iron condor on RUT stands at a P/L of -$44 with delta = -$79 and theta = +$103.
So now we watch to see if this market can sustain a trend one way or the other. It seems we have the Fed's QE II and a series of strong earnings reports pushing the markets upward, but many economic headwinds holding the markets down. For now, the tug of war is a dead heat.
Dollar's Strength Pulls Stocks Back
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- Written by Dr. Duke
The dollar rebounded today, pressuring the stock markets. SPX lost $15 to close at $1342. RUT again was more volatile than SPX, closing at $841, down $15 (greater percentage drop than SPX). Trading volume bumped up a bit at 3.0 billion shares of the S&P 500, but this remains below the 50 dma. Trading on the NYSE was up 16% and was up 12% on NASDAQ. The markets appear to be trapped in a trading range. The key levels to watch on SPX are $1330 on the downside and $1370 on the top side. If SPX breaks $1330 going down, we may see some real damage. However, if SPX can break-out above the previous high at $1370, the bulls may be off to the races again.
My May condor is coasting to the finish line with the remaining spreads at 920/930 and 720/730 likely to expire worthless. Both spreads are far OTM (greater than two to three standard deviations). The June iron condor on RUT stands at a P/L of +$136 with delta = -$56 and theta = +$107. The markets' indecision has been good to my condors. Tomorrow will feature the unemployment claims report and the PPI. A sizable increase in PPI could spook the markets. Many analysts are concerned about rising inflation and a big increase in PPI could cause some selling. Fortunately, my June put spreads are down at 690/700 on RUT - that should be safe (he said as the ice berg looms ahead).
The Bulls Regain Control
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- Written by Dr. Duke
The markets opened up strongly this morning, but even more impressively, the bulls added a few points in the last couple of hours of trading. The SPX is nearing its recent 52 week high at $1365; SPX closed today at $1357, up $11. RUT has also retaken its role as market leader, tacking on $13 to close at $856. Trading volume was up from yesterday's abysmal showing, but still remains at historic lows with 2.6 billion shares of the S&P 500 trading, well below the 50 dma. Trading volume was up 8% on the NYSE and up 23% on NASDAQ. The VIX pulled back under 16%.
Economic data was almost non-existent but wholesale inventories reported up 1.1% in March. That is a bullish sign for the economic recovery; it suggests businesses are forecasting increased demand. If we saw inventories building during a booming economy, that would suggest a slowing of demand.
My May RUT iron condor stands at a P/L of +$1,142 with position delta = +$2 and theta = +$48. The June condor is feeling the pressure of this most recent bullish run upward with a P/L of -$784 and delta = -$103 and theta = +$102. The delta of the 900 call is at 17 and the theta/delta ratio being approximately one to one shows the strain on the position. I will have to adjust soon. So my delta neutral positions are under stress and my bullish directional trades are happy as clams (I don't personally know any clams, but...).
Dollar's Decline Boosts Stocks
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- Written by Dr. Duke
The stock markets opened flat this morning and traded sideways until around noon when the dollar declined and stocks rose. The markets held those gains into the close. An absence of economic data appeared to cause many to stay on the sidelines. Trading volume was way off from Friday with only 2.2 billion shares of the S&P 500 changing hands. That was the lowest trading volume for the S&P 500 recorded in 2011. Trading volume was down 25% on the NYSE and down 19% on NASDAQ. The SPX closed up $6 at $1346 while RUT closed at $843, up $9. Economic data will continue to be in short supply until Thursday when unemployment claims and the PPI will be reported. That will be followed by the CPI and the University of Michigan Consumer Sentiment survey results on Friday.
I closed the remaining 890/900 call spreads in my May condor on RUT today. This position now consists of ten contracts of the 920/930 calls and twenty contracts of the 720/730 put spreads. At this point, it appears likely I will allow the remaining spreads to expire worthless. The current position is up about $1,100 with delta = -$1 and theta = +$21. If the remaining spreads expire worthless, the May condor will gain $1,272 or 7% on capital at risk. The Jun iron condor on RUT stands at a P/L of +$316 with delta = -$61 and theta = +$90. So we continue to trade what the market gives us while others attempt to predict the future...
Stocks Recover On Low Volume
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- Written by Dr. Duke
All of the major stock indexes were up today, but trading volume declined from yesterday across the board. The jobs reports surprised analysts with 244k new non-farm jobs; analysts were expecting 185k. This drove the markets strongly upward, but the bulls couldn't hold the highs. SPX traded as high as $1354 before pulling back to close at $1340, preserving a gain of $5. RUT closed up $4 at $833. 3.2 billion shares of the S&P 500 stocks traded today, down from yesterday and below the 50 dma. Trading on the NYSE was down 8% and volume was down 9% on NASDAQ.
It is interesting to look at the SPX chart in candlestick format. Today's candlestick has a large upper shadow, underscoring that the bulls were unable to hold the highs; however the past three days have large lower shadows, showing that the bears could not hold the lows. So the market is certainly weak, but neither the bulls nor the bears have been able to make a decisive case for their viewpoints. Today's low trading volume reinforces this conclusion.
My May iron condor on RUT at 720/730 and 890/900 and 920/930 stands at a P/L of +$1,092 with delta = -$3 and theta = +$56. The June iron condor on RUT at 690/700 and 900/910 stands at a P/L of +$216 with a delta = -$56 and theta = +$91. Next Friday I will decide which of the May spreads I will close using my two standard deviation rule. If the market clearly resumes its up trend, then I will roll my June put spreads upward.
Enjoy your weekend.
Another Weak Day
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- Written by Dr. Duke
Disappointing economic data sent the markets lower this morning. The major indexes recovered some of the losses before closing down for the day. SPX traded as low as $1341 before closing at $1347, down $9 on the day. RUT was once again weaker than the broad large cap indexes, losing $11 to close at $833. Trading volume was flat to down with 3.4 billion shares of the S&P 500 trading, down from yesterday and just above the 50 dma at 3.3B shares. Trading was up 5% on the NYSE and unchanged on NASDAQ.
The news of Portugal's bail-out took European markets down this morning and that might have set the tone for the opening of the US markets. But the economic data here didn't help. ADP reported 179 thousand new private payroll jobs, but analysts were expecting 200k. And the ISM services index dropped to 52.8 for April from March's 57.3.
Today's move downward took my May iron condor on RUT back to a delta neutral posture with a P/L of +$1,092 and delta = -$5 with theta = +$51. My RUT condor for June stands at a P/L of +$536 with delta = -$48 and theta = +$65. The market's recent weakness doesn't appear to have an obvious cause and effect. Perhaps the long awaited reaction to the end of the Fed's quantitative easing program is beginning?
It is fascinating to compare my directional trading portfolios to my delta neutral trading portfolios. When the market is trending strongly, the directional portfolio does well and the delta neutral trades struggle to minimize their losses. And now my directional trades are struggling and my delta neutral trades are flourishing. It makes a good case for diversifying your strategies.
Pullback Continues on Higher Volume
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- Written by Dr. Duke
The markets largely traded sideways and slightly downward this morning, but selling pressure took the markets steadily lower most of the afternoon. But the bulls came in and picked up some bargains around 3 pm ET, helping the markets close off of their lows for the day. SPX closed at $1357, down $5, after hitting a low at $1350 earlier in the afternoon. RUT dropped even harder for the second day, closing down $11 at $844. RUT led the markets all of last year, seemed to falter in early 2011, but then again led in this latest bull run upward, but now the RUT is leading in the decline.
There wasn't much economic news today and no news that I know of to account for the markets selling off. Factory orders were up 3% for March, a big improvement over the 0.7% increase in February; but that news didn't seem to affect the markets. Trading volume was up across the board with 3.5 billion shares of the S&P 500 trading; volume was also up 11% on the NYSE and up 7% on NASDAQ.
This pull back by RUT was welcome relief for my iron condor positions. The May condor now stands at a P/L of +$852 with delta= -$25 and theta = +$65. The June condor stands at a P/L of -$1044 with delta = -$77 and theta = +$92. I removed the hedges from this position today; those adjustments cost me $184 but have kept me in the position with an opportunity to salvage a gain down the road. However, as you can see from the theta/delta ratio, this position isn't out of the woods yet.
The fact that SPX hit $1350 and bounced today is somewhat encouraging. It suggests that significant bullish support remains for this market. But we'll see. The only thing certain about this market is its uncertainty.