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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 22 October 2021

Last Updated: 22 October 2021

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The Standard and Poors index (SPX) set a new all-time high on Thursday at 4550 and then traded sideways today, closing at 4544, down almost five points on the day. SPX had a strong week, gaining 81 points or 1.8%. The lowest close in this most recent pull back was 4300 on October 4th. That computes to a 5.7% gain in fourteen trading sessions. It may be significant that this strong rise of the market this month has occurred with trading volume for the S&P 500 companies remained largely below the 50 day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 17.3% and closed Friday at 15.4%. Although volatility declined this week, this level of volatility remains moderately high. Traders remain cautious.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and that trading pattern continues. While the S&P 500 has been trading strongly higher since October 4th, up almost six percent, and set a new all-time high yesterday, IWM remains almost one percent below its recent high on September 2nd. The market’s high beta stocks are not leading this charge.

The NASDAQ Composite index managed a weekly gain of 1.7%, but the chart tells a different story. Today’s close at 15,090, down 126 points, took NASDAQ nearly back to Tuesday’s open. Monday’s strong gain was essentially the week’s gain. NASDAQ remains 284 points or 1.9% below its recent all-time high of 15,374 on September 7th. NASDAQ’s trading volume did manage to spike up above the 50 dma yesterday and today, although today was a down day, so that wasn’t reassuring.

I have been reeling from this market’s choppiness this year. It seems like the market twitches every few weeks, trips my stops and hands me a small loss. As I watched the stellar rise of the S&P 500 this week, it caused me to wonder about the long term trend and whether this market makes sense. Is this overall market trend consistent with the growth of the U.S. economy? Both the Producer Price Index and the Consumer Price Index are setting new records. On a recent driving vacation my wife and I took south, we frequently would stop at a fast food restaurant to take a break and get a snack and coffee. The dining room was usually closed because they only had enough staff to serve the drive through window. Even the Fed’s Beige Book mentioned staffing shortages as a common problem for businesses. And many businesses didn’t survive the economic shutdown. One fast food restaurant near our house is offering a hiring bonus of $500. The Fed is printing money every month and Congress is setting spending records. When interest rates finally start to rise, the bill to service our national debt will quickly become a significant burden. Remember Greece a few years ago?

Perhaps this explains the twitchy market this year. And it may explain why both the Russell 2000 and NASDAQ are not following the S&P 500 and setting new highs. My conclusions for this week are relatively unchanged. I am setting tight stops and taking profits early. This is not a healthy bull market and I remain very cautious.

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 24 September 2021

Last Updated: 24 September 2021

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The Standard and Poors index (SPX) incurred eight mini-corrections earlier this year with each one displaying a similar pattern: trading down over 3 to 4 trading sessions and then sharply turning higher and recovering the previous high in only 3 to 4 trading sessions. Last week we saw the ninth mini-correction but the pattern changed this time. In all of the previous pull backs, the market bounced back in short order. The “buy the dip” strategy had a near perfect track record. I expect some traders were testing the water last week as they saw SPX appearing to find support at the 50 day moving average (dma). SPX gave us a wicked surprise on Monday, gapping open downward about thirty points and then losing nearly one hundred points before recovering about half of that loss by the market’s close.

SPX began to strengthen Wednesday and closed today at 4455, up 7 points or +0.2%. Today’s close recorded a gain of 1.2% for the week and left the index about 91 points below the previous high. Trading volume spiked higher on Friday and Monday but settled down at or below the 50 dma for the balance of the week.

VIX, the volatility index for the S&P 500 options, spiked on Monday’s severe decline to almost 29% before pulling back a bit. VIX closed at 17.8% today and that remains a rather high level of volatility. Monday’s severe drop acquired the institutional traders’ attention.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months but followed the broad market higher this week, and closed today at 223.05, essentially unchanged from today’s open. But IWM posted a 2.9% gain for the week, the best of the broad market indices. IWM also managed to recover both its 50 and 200 day-moving-averages this week.

The NASDAQ Composite index closed today at 15048, down 5 points, but managed a nice gain of 2% for the week. NASDAQ’s trading volume was above average on Monday but dropped back under the 50 dma for the rest of the week.

I have been wondering when the buy the dip strategy might not work, and that has proven to be true thus far. But the market has been posting some nice gains over the past three trading sessions, so it may just take longer for the recovery this time.

The market remains wary of a possible inflationary spike, but Powell continues his attempts to calm the markets and write off the current price increases as an artifact of the disrupted supply chain. The market was reassured this week that the Fed doesn’t foresee a need to increase the federal discount rate until late in 2022. That appeared to be the principal factor behind the bullish trading for the past three days.

My conclusions for this week are very similar to my mindset at the end of last week. The whipsawing of the markets over the last nine months is wearing me down. Much of the basic economic data are headed in the right direction, but inflation fears overwhelm everything. The strong gains of the Russell 2000 index this week were good news. But I remain very cautious.

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 17 October 2021

Last Updated: 17 October 2021

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The markets incurred another mini-correction of 5.2%, roughly over the month of September. This one was a bit more severe and longer lived than the earlier ones this year. The Standard and Poors index (SPX) closed Friday at 4471, up 33 points or 0.8% on the day. SPX had a very strong week, gaining 2%, recovering its 50 day moving average (dma), and gapping open higher on Thursday and Friday. We are a long ways from the last high set on 9/2, but it appears that the bulls are once again in control. Trading volume for the S&P 500 companies remained below the 50 dma all week but managed to move slightly above the average on Friday.

VIX, the volatility index for the S&P 500 options, opened the week at 20% and closed Friday at 16.3%. Historically, this level of volatility remains moderately high, although this has been the norm for 2021. Traders remain cautious.

I track the Russell 2000 index with the IWM ETF. The owners of Russell have priced everyone out of the Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months but followed the broad market higher this week and closed Friday at 225.16. However, that was a decline for the day when the S&P 500 motored strongly higher. On the other hand, IWM posted a 2.9% gain for the week, the best of the broad market indices. IWM has now recovered both its 50 and 200 day-moving-averages, but it is certainly not leading this bull market. That isn’t a good sign.

The NASDAQ Composite index wins the prize for the week with a 2.5% gain. NASDAQ closed Friday at 14,897, up 74 points or 0.5%. NASDAQ just managed to recover its 50 dma on Friday, so this index is still a bit wobbly. NASDAQ’s trading volume climbed steadily all week and finally recovered its 50 dma on Friday.

The choppiness of this market this year has worn me out. It seems like the market twitches every few weeks, tripping my stops and handing me a small loss. This is getting old. The increasing probability of an inflationary spike has the market on edge and this week’s CPI data exacerbated those fears.  Powell continues his attempts to calm the markets and write off the current price increases as an artifact of the disrupted supply chain. But the minutes from the last FOMC meeting came out this week and revealed that several members are beginning to question whether this inflation spike is really transient.

My conclusions for this week are relatively unchanged. The whipsawing of the markets over the last nine months is wearing me down. The decline of the Russell 2000 index Friday is a significant concern. This is not a healthy bull market and I remain very cautious.

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Written by Dr. Duke

Category: Dr. Duke's Blog

Created: 17 September 2021

Last Updated: 17 September 2021

Hits: 1678

The Standard and Poors index (SPX) made the ninth mini-correction this year last week but the pattern changed. In all of the previous pull backs, the market almost immediately bounced back. The “buy the dip” strategy had a near perfect track record. SPX continued to weaken this week and even sold off near the end of today’s market – an ugly end to two ugly weeks. SPX closed at 4433, down 41 points or 0.9%. Trading volume spiked today, due to quadruple witching.

VIX, the volatility index for the S&P 500 options, closed today at 21%. This was the peak of the weakness last Friday, but the mini-correction still has life in it.

I have plotted the prices of the IWM ETF below to track the Russell 2000 index. The owners of Russell have priced everyone out of Russell 2000 index and option data. That is why I plot the IWM prices. IWM has been extremely choppy for the past six months and has generally traded lower as we saw the broad market strengthen. That was the bearish advance signal for the past two weeks of trading. However, today was different. IWM closed at 222.48, up 0.29 or 0.1%. That is a small gain, but markedly different from the losses on the S&P 500 and NASDAQ. Perhaps there is hope for the bulls after all.

The NASDAQ Composite index closed today at 15044, down 137 points or nearly one percent. NASDAQ’s trading volume was above average through Wednesday but declined for the past two days.

We have now seen nine mini-corrections this year. Previous downturns only lasted a few days and then bounced back in a classic V pattern. I wondered whether the traders would come in to buy the dip one more time? The answer as of today is, “No, not yet.”

I think this week’s CPI report, documenting an increase of 5.3% over the past 12 months served to underscore inflation fears. The last two weeks of trading just reinforce my nervous attitude toward this market. Much of the basic economic data are headed in the right direction, but I think inflation fears overwhelm all else. The positive Russell 2000 prices today were essentially the only positive news this week.