- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1520
The markets appear to have broken through the upper resistance levels to set new highs today; I will feel more confident about that statement if we hold these prices tomorrow. SPX closed up $13 at $1886, eclipsing earlier closes this year at $1878 and even the intraday highs around $1884. RUT followed suit with a large increase of $16 to close at $1189, but remains far from its earlier highs around $1209. Much more damage was done to RUT from March 24th to the 27th. RUT fell completely out of its consolidation trading range whereas SPX managed to hold support levels.
Volatility continues to fall with the VIX losing almost a full point to close at 13.1%.
Part of the market's enthusiasm probably came from the ISM manufacturing survey that rose in March to 53.7 from 53.2 and construction spending increasing 0.1% in February versus January's 0.2% drop. These aren't huge numbers by any means, but the sum effect of recent comments from Yellen and assurances that the Fed has the market's back are being taken as very bullish. It is hard to argue with that viewpoint. When I drive around my area and see the large number of vacant storefronts and evaluate the "real" unemployment data, I believe that tells a different story. We may be able to argue about the underlying economics, but I can't ignore the obvious bullish nature of this market.
The Apr 1100/1110 put spreads I entered on 3/24 have boosted my April iron condor to a gain of $3,440 or +22% on the capital now at risk (I closed the Apr 1270/1280 call spreads on 3/24). I opened my May position with the 1060/1070 put spreads on 3/28 and that position is now up 7%, so May is off to a good start. The question now is whether this market will ever pause long enough for me to sell May call spreads.
So now we continue to watch to see if this bull can continue. I may be skeptical, but I have to play what I see.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1739
The markets have been like a ultra-fast hockey match and my neck is getting tired trying to follow it back and forth. That is a little facetious because many of my trades benefit from this sideways trading range. SPX has looked pretty solid lately, but RUT's decline was a bit worrisome. But the markets were happy with Yellen's comments today and so all is well - but, really, did you learn anything new? All we can do is watch for a break-out in either direction and trade accordingly. SPX gained $15 today, closing at $1872. All of that gain was accomplished in the first thirty minutes of trading; then SPX just chopped sideways for the rest of the day. But RUT applied some big-time salve today, regaining $21 of recent declines, closing at $1173.
Volatility dropped off a bit (but it never rose very much) with the VIX closing at 13.9%, down a half point.
Now that we have Yellen's testimony behind us, we are looking forward to Friday's jobs report. But it is becoming clear (to me at least) that this market is most likely going to find a reason to trade higher regardless of the actual data in the jobs report. I can hear the cynics out there saying that this is exactly the way the market behaves just before it goes over the cliff. Maybe, but I don't think the economy is that bad. I don't think it is good by any means. And I am amazed at how the media have all donned rose colored glasses since Obama entered office. Remember the continuous stream of negative news stories about three dollar gasoline when Bush was in office?
I think this is an excellent environment for the classic diagonal bull call spread. And if you add a put, I think it is pretty safe from the possible correction event.
The bottom line: watch for SPX to break $1840 on the way down or breaking $1885 to make new all-time highs. In the meantime, play sideways to slightly bullish trades.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1833
Positive durable orders data this morning set the market off to the upside. When I first looked at my screens this morning, it was a rare moment: every Asian index was green, every European index was green and all of the U.S. futures were green. But that only lasted until about 1:00 pm ET, then a slow decline began. Late in the afternoon, it looked like the tide was turning back upward, but then the bottom fell out and SPX and RUT both closed at their lows for the day. SPX lost $13 to close at $1853, while RUT fared much worse, closing at $1155, losing $23 on the day.
For all of that carnage in the small caps, the VIX only increased about one point to 14.9%. The VIX is based on SPX options, so the sell off was in the small caps - classic risk off behavior. SPX also closed at its low for the day, but didn't come close to breaking support at $1850, whereas RUT broke support at $1165 and broke through the 50 dma at $1163, closing $8 lower at $1155.
A somewhat contrary indicator for all of this downward price action was trading volume; only 2.3 billion shares of the S&P 500 stocks traded today, still below the 50 dma at 2.4B. However, trading on the NYSE increased by 10% and trading volume increased 8% on NASDAQ.
The early market action was driven largely by the positive durable orders report which increased 2.2% in February, a big change from January's 1.3% drop. However, if you subtracted defense and aircraft, core business equipment spending dropped 1.3% in February.
The conventional wisdom tied the market losses to Western countries making noise about increasing the sanctions against Russia over Crimea and the Ukraine. The Ukraine bogeyman keeps spooking this market. But today, there was an absence of bulls coming in to buy the dip. Will they show up tomorrow, or is it time to start clearing out trades? The last Putin scare took SPX down to $1840 and RUT to $1173, so RUT has already set a lower low...
I will be watching those futures in the morning very carefully.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1577
The broad markets continue to basically trade sideways. SPX toyed with support at $1840, but bounced back and closed at $1849, down $4 on the day. RUT also lost $4, closing at $1151. But RUT has traded much weaker than SPX. RUT has sliced down through $1182, the high set in January, then through $1165, the high from December, and finally broke through the 50 dma at $1163. Today's candlestick on RUT had moderately large upper and lower shadows, suggesting some indecision between the bulls and bears. As long as support holds on the broader market as represented by $1840 in SPX, this may be a sign that RUT is beginning to find a bottom.
Trading volume was up a bit, but mixed today with 2.5 billion shares of the S&P 500 stocks trading. Trading also rose in the NYSE by 8%, but trading volume declined 7% on NASDAQ.
Initial unemployment claims dropped by ten thousand to 311k and continuing claims decreased by 53 thousand, so that is encouraging. The third estimate of fourth quarter GDP came in a little higher at 2.6% (why can't we wait until we get it right and announce it once?). Pending home sales dropped 0.8% in February, a further decline from January's -0.2%.
The situation in the Ukraine doesn't appear to be improving, so I suppose that could push the markets lower. But if the stalemate continues, the markets may simply move on - hard to predict.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1863
The markets bounced back today, but it wasn't rip roaring. SPX gained $8 to close at $1866 while RUT closed unchanged at $1178. Volatility continued to drop with the VIX losing a little over one point to close at 14.0%.
Trading volume fell off from yesterday's average volume reading with 2.2 billion shares of the S&P 500 stocks trading. Trading volume dropped 7% on both the NYSE and NASDAQ.
The Case Schiller home sales price index came in at an annualized rate of +13.2% for January, down only slightly from the previous month's +13.4%. The Conference Board's consumer confidence survey for March came out at 82.3, up markedly from the February number of 78.3.
The markets opened strongly this morning with SPX trading as high as $1872 in the first hour, but then gave all of that back by noon, recovering in the afternoon to close modestly up for the day. RUT traded similarly but traded much lower by noon, so the afternoon recovery just brought RUT back to even for the close. SPX is trading within a narrow consolidation range of $1840 to $1880. A break-out above $1880 or down below $1840 would be a significant signal for traders. Recent candlesticks on SPX have long shadows, meaning that as bulls pushed prices higher, the bears pulled them back down, and as bears pushed prices lower, the bulls came in and pulled the prices up before the close. It is hard to tell which way this market may go, but the bulls and bears appear to remain pretty well balanced to date.
