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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 Condor™ service each day in this blog. If you have questions about any of the trades, Ask Dr. Duke.

The November 2014 position in the Flying With The Condor™ account survived the downturn in October very nicely and was closed with a 13% gain. We also dodged the flash crash on August 24th by going to cash the previous week. The Flying With The Condor™ service ended 2015 up 40%, handily beating the S&P 500 Index. Check the Track Record in the Downloads section for details.


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

 

What can I say? Scary? Roller coaster? Volatile? Impossible to rationalize? I have run out of words to describe this market.

The markets dealt us another one of those days, plunging like there was no bottom, but then recovering much of the loss in the last hour of trading. One of the lessons I am learning is not to panic early; wait until late in the day to hedge positions. Of course, I still closed several stock positions this morning, but I waited to see if hedging my condor put spreads on SPX and RUT was necessary.

SPX lost $27 when the dust settled, closing at $1853. SPX hit a low earlier today at $1828, very close to the low hit intraday on January 20th. RUT traded similarly, closing at $956, down $16. Today's intraday low on RUT was $956, very close to the January 20th intraday low. The price action in the markets certainly looks like a retesting of correction lows, but the constant drumbeat of "end of days" commentary is disconcerting. The implied volatility on SPX, the VIX, rose to 26% today - hardly panic levels. Normally, I would interpret this volatility as suggesting that the large institutional players aren't that concerned. But that doesn't match any of the financial commentary.

Trading volume was mixed with increased volume of the S&P 500 stocks trading at 3.9 billion shares vs. the 50 dma at 2.8B. Trading on the NYSE was down 8%, but higher by 12% on NASDAQ.

What is a trader to do? In short, hide. I still have a few positions open, but I am mostly in cash. I thought we were seeing the bounce January 20th, and I ventured out and took a hit. I will be far more cautious about getting back in the market.

There wasn't any significant economic data out today. Oil prices were down modestly. It's unclear what drove the intense selling this morning. Speculation of an imminent recession here in the states was common as were the usual worries about China.

Take two aspirin and go to bed. I'm going to study my thesaurus. You millenials will have to Google that.

The weak jobs report this morning seemed to trigger a strong sell-off in the markets, even though the jobs report wasn't that bad. Economists were predicting a weaker number at +190k, and it came in at +151k. The unemployment rate dropped to 4.9% and hourly wages improved, so that was encouraging. But look at the big picture of the jobs numbers:

 Jobs data

Today's number was less than the last three reports, but in line with the two previous reports which were lower than the 200k+ reports last summer. Looking at the longer term picture leaves us concluding that the creation of jobs is roughly flat, so why the extreme market reaction this time? This is just one more data point for the general psychological state of the market - nervous, pessimistic, and obsessed with the Fed. I even read once again today of the Fed's plans to raise interest rates four times this year - have we not debunked that nonsense yet?

Another data point is the reaction to LNKD's earnings report. Market analysts appear to be consistently pleased with the results, but the market focused management guidance that they would be developing some projects with longer time frames that would ultimately make LNKD a stronger company. The result was a bloodbath. LNKD traded down $84 or 44% off of Thursday's close, and this bled over into the tech sector in general. Again, it seems the "sky is falling" crowd is in control.

SPX lost $35 to close at $1880 and RUT closed down $29 at $986. Trading volume was slightly lower for the S&P 500 at 3.4 billion shares. Trading volume declined 5% on the NYSE, but increased 14% on NASDAQ, reflecting the tech sector massacre.

Support roughly in the neighborhood of the August flash crash continues to hold for SPX; in fact, today's close was about $10 above the flash crash lows and about $20 above the lows set January 20th. RUT closed at support set at its recent low of January 20th. I can't see the future any more clearly than you, but the price action so far remains consistent with the choppy retesting of support after the lows of the correction. This period of back and forth trading lasted about a month after the August flash crash.

It's hard, but try to put this craziness behind you and enjoy your weekend. Reflect on what's really important.

Well, here we are again with one more extremely volatile day in the markets. SPX opened at $1907, traded down $35 and then reversed course and traded up by $41 to close at $1913, up $10 on the day. RUT traded similarly, closing at $1010, up one dollar. Volatility contracted a bit with the VIX closing down three tenths of a point at 21.7%. Trading volume popped up with 3.6 billion shares of the S&P 500 stocks trading today. Trading volume rose 16% on the NYSE and increased 13% on NASDAQ.

ADP reported an increase of 205 thousand private payroll jobs. This is an encouraging sign for Friday's jobs report. The ISM services index declined in January to 53.5 from last month's 55.8. But numbers over 50 denote expansion. Services are doing better than manufacturing, which is contracting.

January 20th was a significant day in the markets when the major indexes traded down to new lows, but then recovered significantly into the close. Those lows continue to hold today. RUT's intraday low today at $989 is very close to its intraday low on 1/20. SPX behaved similarly, hitting $1872 as the low today before recovering significantly. But SPX's intraday low on 1/20 was quite a bit lower at $1812. Was this the retest of the correction lows? Remember the trading following the August flash crash. We thrashed about for almost a month before resuming a bullish trend. However, the economic data may not justify a strong bullish trend this year. Perhaps the recovery from the correction is just for a sideways market, at least until the election.

The linkage of the stock market to oil prices appears to be weakening. Oil prices were up all day today, while the stock market traded down most of the day, recovering in late afternoon trading.

In the meantime, lay on the couch and get your feelings out. Tomorrow is another day on the roller coaster.

SPX opened lower today and then accelerated even lower as oil prices fell. SPX closed down $36 at $1903, while RUT gave up $24 to close at $1009. SPX traded as low as $1897, but bounced during the last 45 minutes of trading. Significantly, oil prices didn't bounce. Perhaps this oil/stocks correlation is weakening, as it should. The glut in oil supplies is driving down the price of oil. That grossly overstates the slowdown in the global economy as suggested by lower demand for oil. Big oil has survived very low oil prices in the past; it isn't clear to me why this time is different. Virtually everyone else benefits from lower oil prices. However, the market for doomsday pundits is very strong. We need an ETF to trade them. I don't see the basis for the beginning of a bear market, but I could be wrong. I think it is more likely that we are in the test/retest cycle that is common immediately following the bottom of a correction (see the month of trading following August 24th last year).

Trading volume popped up today with 3.1 billion shares of the S&P 500 trading. Trading volume rose 4% on the NYSE and increased 13% on NASDAQ.

Volatility rose with the VIX closing up a little over two points at 22%.

One bullish data point I saw mentioned today: as we neared the close, it was reported that over 600k shares were queued up for close of market buy orders. That sounds like some traders are betting on the bounce. For the record, I considered buying SPX calls at the close, but thought better of it. That's too close to gambling for my style. Now watch it gap up higher in the morning...

Investors Business Daily declared Friday that the uptrend has resumed. I am inclined to agree, but I remain wary (old scars). SPX had a huge day Friday, so the bears were looking to take it back today, but it didn't happen. SPX opened at $1937, traded down as far as $1920, and then recovered to close at $1939, down one dollar on the day. This resulted in another of those candlesticks with a long lower shadow, a bullish sign. RUT had a similar day, closing down $3 at $1032. Volatility contracted just a bit, closing down 0.3 points at 19.9%. VIX has only been under 20% one other day this year. Trading volume fell off from Friday with 2.8 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 10% and trading on NASDAQ was also down 10%.

Construction spending for December increased 0.1%, not great, but better than November's 0.6% decline. The ISM manufacturing index came in at 48.2 for January, up slightly from 48.0. Recall that numbers on this survey less than 50 represent contraction, not expansion.

ADP's private payrolls and the ISM services report are due on Wednesday, and the jobs report will be issued Friday morning before the open.

I think we have seen the worst of the correction, but I don't see much to fuel the bulls for a strong rally, so we may be in for some choppy sideways trading for a while.

There have been several signs that we may have been settling into support and ready to bounce since the big intraday dip on January 20th. Today's price action appeared to be the follow through we were expecting. But remember that markets tend to come back and test the lows before truly heading higher, so be cautious. SPX had a huge 47 point day, closing at $1940. RUT followed the lead with a gain of $32 to close at $1035. Volatility contracted with the VIX losing over two points to 20.1%. There was probably a lot of short covering and trading volume bounced higher with 3.8 billion shares of the S&P 500 stocks trading today. Trading on the NYSE increased 16% and trading on NASDAQ rose 13%.

The first estimate of fourth quarter GDP was reported this morning at +0.7%, resulting in a full year gain of 1.7% - tepid, but far from a recessionary value. Analysts pointed to the Bank of Japan's negative interest rates for starting this rally, but the market action was somewhat muted this morning and accelerated as the day wore on. About half of today's increase came after noon.

I took the opportunity to add to my March put spreads on SPX, but I would still recommend caution. The price action of the past few days has pushed SPX above the middle of the Bollinger bands. You wouldn't know it from all of the negative commentary, but the markets have recovered quite a bit.

I think I liked the old Greenspan days better when the market was basically left to figure out things on its own. Bernanke and now Yellen are trying to be more transparent, and market analysts are behaving like spoiled children wanting more candy. This morning, oil prices rose, and the markets followed suit. After studying the FOMC announcement, the market decided the door was left open to further rate hikes and the tantrums began. SPX lost $21 to close at $1883 and RUT closed down $15 to $1003. That leaves both indexes close to the support level that has appeared to be developing over the past few trading sessions. Volatility rose about six tenths of a point to 23% - moderately high, but not too high.

Trading volume rose with 3.1 billion shares of the S&P 500 stocks trading. Volume rose 10% on the NYSE and rose 12% on NASDAQ.

New home sales increased to an annualized rate of 544k for December.

The Fed announcement left interest rates unchanged, and said future rate hikes would be small and would depend on the data (same old story). New language spoke to market volatility and global economic conditions and said the FOMC will be monitoring those issues closely - duh. It should be obvious that the urban legend circulating about four rate hikes in 2016 is toast given market conditions since the first of the year plus some mediocre economic numbers on top as dressing. But the Fed didn't explicitly make any promises and the market didn't like that. We'll see if that mood continues tomorrow. Maybe a good night's sleep will help.

Oil prices rose today on rumors that OPEC may be near the point of reducing oil production, and stock market prices rose with the oil prices. Let me recap: we were told a few months ago that lower oil prices were forecasting reduced economic activity (reduced oil demand) and the risk of a global recession. But today, the markets traded higher on the back of higher oil prices on the basis that OPEC might reduce the oil glut on the market - what about declining oil demand signaling declining economic output and recession? This is one more illustration that the markets often move in irrational ways, or, at least, that the market analysts don't have explanations that appear to hold water.

SPX gained $27 to close at $1904 and RUT closed up $21 at $1018. The VIX pulled back by 1.6 points to 22.6%. Trading volume was close to flat on the day with 2.7 billion shares of the S&P 500 trading (almost back to the 50 dma). Trading volume declined 1% on the NYSE, but rose 3% on NASDAQ.

The Case Schiller housing price survey came in at an annualized +5.8% for November, up from October's 5.5%. The Conference Board's consumer sentiment survey reported 98.1 for January, up from the previous month's 96.3.

Tomorrow brings the FOMC announcement and I am sure the market will be parsing every word, but who knows what strange interpretation may move the market? My cynicism is showing...

The largest potential market mover comes on Friday with the 4th quarter GDP report. After all of the recent hand wringing about global recession, that report will be pivotal.

 

I have wondered when the rigid linkage between oil prices and the U.S. stock market would weaken, but it isn't happening yet. The contraction of China's economy is certainly a major factor in a decline in demand for oil, but one can't ignore the flooding of oil supplies in the markets by OPEC, Iran, and ISIS. The conventional wisdom appears to assume the U.S. economy is either in or about to enter another recession. The economic data don't support that conclusion.

So oil prices dropped Friday, and the stock markets rose. Today, they gave back those gains as oil prices fell. SPX closed down $30 at $1877 and RUT fell $23 to $997. Volatility rose almost two points with the VIX closing at 24.2%.

Trading volume continued to decline with 2.8 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE dropped 15% and volume declined 11% on NASDAQ.

No significant economic data were released today. The FOMC meeting begins tomorrow and will end with an announcement on Wednesday. Hopefully, that announcement will put to bed this continued drum beat of four interest rate increases coming this year. The most significant economic data will be released Friday with the first estimate of fourth quarter GDP growth and the Chicago PMI.

We remain on the edge of our seats, wondering if we have seen the lows of this correction. From a technical standpoint, giving back Friday's gains is not a good sign. But it is normal to have a lot of choppy sideways trading for several sessions following the low. Take a look at the charts after the August flash crash. It took over a month to "get over" that correction and feel confident the markets were back on track.

I hesitate to suggest we have finally seen a bottom to the market ugliness this year, but many signs suggest just that. SPX gained $38 to close at $1907 and RUT gained $23 to close at $1021. That was a 2.3% gain for RUT as compared to 2.0% for SPX; that may seem insignificant, but RUT has rarely outperformed SPX, not only this year, but throughout most of 2015. SPX gapped open higher at the open and remained pretty steady throughout the day. Trading volume dropped off with 3.2 billion shares of the S&P 500 stocks trading. Trading volume was down 4% on the NYSE and down 14% on NASDAQ.

The large lower shadows on the SPX and RUT candlesticks Wednesday was a strong signal, but yesterday brought a weak follow through. Today's close on SPX is well above the August flash crash lows, but much more damage was done to RUT. The small cal index remains below even the October 2014 correction low.

The elephant in the room is the price of oil. Oil traded up today and I think that was the principal confidence builder for the bulls. I believe that relationship is over done, but ignore it at your peril. Others pointed to the report of existing home sales for December, coming in at 5.76 million, a large increase over November's 4.76 million.

The big question is whether this market continues higher next week. We have a Fed meeting next week - good or bad? This market is impossible to predict with any certainty. But many are trying...