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Do you know any trading coaches who publish the results of their trades daily? Dr. Duke posts the trading track records of his Flying With The Condor™, Conservative Income, Dr. Duke's Trading Group, and The No Hype Zone Newsletter services in the free downloads section of this web site. If you have questions about any of the trades, Ask Dr. Duke.

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

 

Today was certainly not the way anyone would like to start the new year. China's stock market collapsed overnight and the dominos fell across the globe. SPX closed at $2013, down $31 and RUT lost $27 to close at $1109. SPX had traded down to $1990 by about 11 am ET and wandered sideways from there. But a surge in the last thirty minutes of trading brought SPX back to $2013. This keeps the index within the sideways range it has been trading within since the recovery from the August flash crash. RUT has been trading weaker than SPX for many months and today's close is near the August flash crash lows, whereas SPX remains about 140 points above the flash crash low. Trading volume jumped markedly after the low holiday trading with 2.8 billion shares of the S&P 500 stocks trading. Volume popped up 55% on the NYSE and was up 52% on NASDAQ. Volatility popped up over two points with the VIX closing at 20.7%. The only somewhat reassuring sign in the markets today was the recovery in the last few minutes of trading.

The price volatility of this market continues to whip traders back and forth. Investors Business Daily's market indicator moved to Confirmed Uptrend on 12/30/15 but whipped back to Market in Correction today. IBD's market indicator normally allows investors to be on the right side of longer term market trends, but that hasn't been the case for the past year or more, as prices whip back and forth almost daily.

The market was primarily reacting to China's market collapse, but U.S. economic data didn't help. The ISM manufacturing index came in at 48.2 for December, down from 48.6. Values in this index less than 50 denote contraction as opposed to expansion. Construction spending decreased 0.4% for November, going negative after the small, but positive, 0.3% increase in October.

I closed our January iron condor for the Flying With The Condor™ service on January 31st for a 13% gain. The February position is up 4% so 2016 is off to a good start. The Flying With The Condor™ service ended 2015 with a net gain of 40%, as compared to a -0.7% loss in the S&P 500 Index.

So much for the Santa Claus rally...

2015 is going into the record books as the toughest year for traders in 37 years. The best performing asset class of 2015 is stocks, and they were only up 2% for the year, including dividends. By comparison, stock market investors were toasted in 2008, but bonds were up 22%. The average hedge fund this year is down 4%. Bill Ackman of Pershing Square Capital has told his investors the fund's returns for 2015 will be the worst since its founding in 2004. Warren Buffet's Berkshire Hathaway stock is down 11% for the year. To find a year with worse returns, one has to go back to 1937, when the best performing asset class was three month treasury bills at +0.3%.

2015 was the year for non-directional trading. Our Flying With The Condor™ trading service was up over 40% for 2015. Non-directional trading systems outperform when the market is largely trading sideways, turn in smaller, but positive, returns when the market is trending higher, and outperform bear markets with smaller losses. Historically, markets trend strongly higher or lower only about 25% of the time, so non-directional traders have an edge.

SPX closed today at $2044, down $19, while RUT lost $14 to close at $1136. Volatility rose a bit with the VIX at 18.2%, up about 0.9 points. Trading volume of the S&P 500 stocks came in at 1.5 billion shares, well below the 50 dma of 2.4 billion shares. Everyone has taken off for the holidays.

For 2015, the S&P 500 index opened at $2059 and closed at $2044, down 0.7%. The Russell 2000 Index opened the year at $1210 and closed at $1136, down 6.1%. NASDAQ was the only major index in positive territory, opening at $4760 and closing at $5007, up 5.2%.

My subscribers to the Flying With The Condor™ service were fortunate to be with me this year. That 40% gain helped offset some of these other poor performing sectors.

I hope you spent a wonderful Christmas with family and friends. Char and I visited close friends in Florida over Christmas and plan to spend this evening with a small group of close friends here at home. Thank you for trusting me with this responsibility this year. I wish you a new year in 2016 filled with happiness and prosperity. Best wishes.

A few days ago, it seemed all traders were concerned about was the FOMC (a bit of an exaggeration), but now every twitch of the spot oil prices is telegraphed into the stock market. SPX went into free fall this afternoon, dropping $36 to close at $2006. RUT dropped $14 to $1121. Volatility rose again with the VIX closing at 20.4%, up 1.4 points. Trading volume was higher, as one would expect on expiration Friday. Trading volume rose 69% on the NYSE and increased 27% on NASDAQ.

The fear is that falling commodity prices are an indication of global economic weakness. This is in stark contrast to the positive assessment of our economy from the FOMC this week. Is that why the markets rallied so strongly on Wednesday, but then sold off yesterday and today?

RUT continues to trade more weakly than SPX. After this week's see saw in prices, RUT is only 1.6% off of the August flash crash lows. However, SPX would have to drop almost 7% to get back to those lows. RUT's weakness is not a positive signal.

SPX settled at $2029.72. The 2160/2170 call spreads in our December position expired worthless. This resulted in a 8% loss for December, but ends the year for the Flying With The Condor™ service at +40%.

I track the difference between the Thursday close and the settlement price for SPX. The average change this year was $9.60, but August and September were big months with changes over $20. This was the origin of my developing the Two Sigma Rule for closing spreads on the Friday before expiration week. This has proven to be a conservative measure for deciding whether to close spreads early or to allow them to go into expiration to expire worthless.

The FOMC announced a quarter point interest rate hike but said the rate of increase would be very gradual. This was the first interest rate hike since June 2006. This was well received by the markets, as SPX rose $30 to close at $2073. RUT lagged a bit, as usual this year, closing up $17 at $1149. Trading volume was pretty flat with 2.7 billion shares of the S&P 500 trading. Trading volume rose 5% on the NYSE, but fell 8% on NASDAQ. Volatility continued to contract with the VIX dropping three points to 18%.

Housing starts came in at an annualized number of 1.173 million for November, up from last month's 1.062 million. Building permits reported at 1.289 million for November, up from 1.161 million. Industrial production declined 0.6% in November, down from -0.4%. Capacity utilization was roughly flat at 77.0% in November, as compared to October at 77.5%.

IBD moved from Market in Correction to Market in Confirmed Uptrend. This was a record turnaround for this indicator.

The FOMC announcement created a lot of discussion and debate. The Fed has sang the "dependent on the data" song for a long time, and now, with inflation reported at roughly zero, versus the Fed target of 2%, and employment looking tepid (labor force participation at record lows, etc.), the Fed triggers the rate hike. Maybe some politics going on here? Incumbents can point to the Fed saying the economy is fine.

As everyone begins to think about the FOMC announcement tomorrow, the market traded strongly higher today. SPX gained $21 to close at $2043. And RUT fully participated for a change, up $16 at $1132. Volatility contracted nearly two points with the VIX at 21%. Trading volume fell off a bit with 2.7 billion shares of the S&P 500 stocks trading. Trading dropped 10% on the NYSE and declined 6% on NASDAQ.

The CPI reported flat for December, down from +0.2% last month. The Empire manufacturing survey from the NY Fed improved a bit for December but remained negative at -4.6, up from -10.7.

Everyone is obsessing about the FOMC announcement and a possible interest rate hike tomorrow afternoon. Today's strong market was surprising to me. Has the fear of a global economic slowdown been alleviated somehow? Do we know what the Fed will do tomorrow? For that matter, do we know how the market will react?

If you have any December index options that are anywhere near the money, you might consider closing them. There may be some wild swings in the market and implied volatility for the next two days. I closed the 1940/1950 put spreads in our December SPX condor today. Assuming the 2160/2170 call spreads expire worthless, this condor is closed for a loss of $64 per contract or -8%. We hedged the position three times and rolled spreads twice - a busy month! This brings the Flying With The Condor™ trade alert service to +40% for 2015. Since SPX is down about 1% for the year, that is a superb performance. Our SPX Jan iron condor positioned at 1850/1860 and 2210/2220 stands at a net gain of 8% and is perfectly delta neutral.

Get your chips and snacks out for the Fed watch...

The slide in oil prices paused today, or bounced if you are an optimist. Many analysts attribute the market bounce to that hope of a bottoming of oil prices. SPX gained $10 to close at $2022, but RUT continues to be more negative, closing down $8 at $1116. Volatility pulled back almost two points with the VIX closing at 22.7%. Trading volume rose with 2.9 billion shares of the S&P 500 stocks trading. Trading volume rose 8% on the NYSE but dropped 2% on NASDAQ.

Have we now entered the waiting period for the FOMC announcement on Wednesday? Maybe.

Has the recent sell-off been principally driven by the prospects of slower economic growth, evidenced by lower demand for oil? I am inclined to think so. But part of the sell-off could be anticipation of a rate hike by the Fed this week.

That leaves us with the $64,000 question (how many of you remember that TV show?): how will the market react to a rate hike or possibly continuation of the current near-zero interest rates? I have more questions than answers. This is a spooky market, so limit your risk. Don't bet on a direction.

Oil prices traded lower again today. That coupled with an anemic retail sales number spooked traders. SPX lost $40 to close at $2012. RUT traded down $25 to close at $1124. All of this downward pressure on stock prices spiked trading volume with 2.8 billion shares of the S&P 500 trading today. Trading volume rose 16% on the NYSE and also increased 18% on NASDAQ. Volatility bumped up five points with the VIX at 24.3%.

Lower oil prices are a two edged sword. The energy companies are hurt but the higher cost oil production operations like oil shale and tar sands are devastated. But these low oil prices result in lower gasoline prices for consumers, which can be a boon to consumer spending. But consumers are hunkering down. Retail sales rose 0.2% in November, especially lethargic for this time of the year. A bigger concern is lower commodity prices in general may be signaling declining demand. Does this suggest a global recession on the horizon?

The Producer Price Index (PPI) reported +0.3% for November, up from the -0.4% of October. Retail sales increased 0.2% for November, up from +0.1% for October. The University of Michigan consumer sentiment survey reported a small increase for December, up from 91.3 to 91.8.

The most bearish observation for the technical analysis of the SPX chart was the breaking of support at $2020. Up until the last hour of trading, that support level from mid-November appeared to hold, but the markets traded lower for the last hour of trading. The only bright spot was a slight recovery so SPX didn't close at its low for the day, but it was close.

Now the spotlight is even more intensely focused on the FOMC announcement and their decision on interest rates. It had been a foregone conclusion that the Fed would begin the process of raising interest rates this month. Now it isn't as clear.

I don't think many of us traders will have a relaxed weekend. I reduced much of my risk today, but...

Trading volume fell off today, perhaps beginning a "wait and see" trend into the Fed announcement next week. SPX gained $5 to close at $2052 and RUT gained $3 to close at $1149. But volatility didn't contract much; the VIX closed at 19.3%, down 0.3 points. The bulls are being held back by the bears quite effectively. SPX had traded up to $2068 in the afternoon, but then was pulled down into the close at $2052. Trading volume declined with 2.2 billion shares of the S&P 500 trading. Trading volume declined 17% on the NYSE and declined 12% on NASDAQ.

Has the generally bearish tone of trading the past couple of weeks suggested that an interest rate hike by the Fed will be traded downward in the markets? Perhaps so. But one could also argue that the market sell-off is already baked into the current market prices because everyone seems to assume the rate hike is a done deal. This FOMC announcement is unquestionably the most anticipated announcement in Fed history (at least during my history). We may see some extreme spikes and whipsaws next Wednesday afternoon. And expiration week often has a wide range of implied volatility swings anyway, so next week may be a record breaker.

Initial unemployment claims reported at 282k, up from last week's 269k. Continuing unemployment claims rose 82 thousand to 2.243 million.

The December SPX condor in my Flying With The Condor™ service stands roughly at break-even with position delta = $1.57 per contract; the probability of both spreads expiring worthless is 96%. The spike in volatility this week has hurt the P/L of my positions. The January SPX position stands at +5% with 35 days to expiration. I will decide tomorrow whether to close the December positions or allow them to go through the weekend. In no case will the December condors remain open past Tuesday.

The Fed watch begins...

I didn't expect any sustained trend in the markets until we get past the FOMC announcement next week, but this week's trading has been steadily downward. The S&P 500 has lost 2% of its value in the past three days. SPX closed today at $2048, down $16 and RUT lost $14 to close at $1146. The VIX moved up two points to close at 19.6%. RUT broke through its 50 dma yesterday and SPX broke its 50 dma today. RUT found support at $1140 in October and November, so I am watching to see if that level holds once again. The analogous support level on the SPX chart is $2020. SPX traded over a wide range today, trading as high as $2080 by about 10:30 am ET, but then trending downward until early afternoon.

There wasn't any significant economic data reported today. Oil prices, fears of a global recession, and anticipated interest rate hikes seem to dominate traders' concerns. Bernanke was surprised by the market's swift reaction when he mentioned raising interest rates a couple of years ago. I still find it a bit surprising if a 25 basis point interest rate hike will send this market over the cliff. At a minimum, we can expect some significant market volatility next week. But when I look at the market's price action since last Thursday, I have to wonder, "more volatility?"

I think it will be prudent to look closely at your positions and decide whether you want to carry them into the FOMC announcement.

Worldwide markets declined today with concerns that lower commodity prices were signaling weakening economies around the world. When coupled with news of a slowing economy in China, a bleak picture emerged. SPX closed down $13 at $2064 and RUT lost $5 to close at $1159. Trading volume in the S&P 500 rose slightly from yesterday to 2.6 billion shares. Trading increased 5% on the NYSE, but decreased 2% on NASDAQ. Volatility spiked higher with the VIX closing up nearly two points to 17.6%.

SPX dropped as far as $2052 this morning but then recovered and chopped sideways into the close. It appeared as though SPX found support at its 50 dma at $2049. RUT didn't decline as much as SPX, so one could take that as a positive sign. But RUT definitively broke through its 50 dma and didn't recover that level in today's trading.

Traders are still obsessed with the Fed announcement next week, although the consensus appears to be that they will start to raise interest rates at this meeting. Is this recent market weakness a result of that expectation?

In summary, the market is limping along weakly, but the bulls are still buying the dips. It seems unlikely that a strong trend in either direction will materialize until after the Fed announcement next week.