- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1661
The bulls continued their buying spree today, primarily fueled by Microsoft and Amazon earnings reported last evening. SPX hit a new all time high, closing at $1760, up $8. But RUT was trading much weaker all day and managed to recover somewhat in the afternoon to close down $1 at $1118. The VIX declined a tenth of a point to 13.1%. Trading volume dropped off with 2.2 billion shares of the S&P 500 stocks trading. Trading also dropped 4% on the NYSE but volume increased 10% on NASDAQ.
SPX chopped sideways and somewhat lower all morning, but then strengthened to close the day on a nice gain. But small and mid-cap stocks, as measured by the Russell 2000 Index, weren't leading the big cap stocks as they have all year. RUT traded in the red all day, but managed to recover most of that loss by the close. If you are following the talking heads, purported gurus are coming out of the woodwork to warn of an impending crash. And it is true that the markets are high and overbought by many measures. One interesting plot showed total stock margin is nearing its all time high; at the beginning of the last two major bear markets of 2000 and 2008, margin had peaked as traders enthusiastically went "all in". But, it is also true that markets can trend longer up or down than considered rational by market analysts. The take away for most of us is simply to be cautious as we chase stocks higher.
My November iron condor on SPX stands at a net P/L of -$3660 or -18% with position delta = -$70 and position theta = +$171 on 20 contracts. Time decay is ramping up for this position and will erase much of these losses, assuming the index doesn't trend too strongly. But this trade will be a small loser, even in the best scenario. My adjustments and hedging to date have chewed up all of the potential profit.
Have a nice weekend.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1728
The markets pulled back a bit today, causing many bears to wonder if finally their predictions are coming true. But I'm not so sure. SPX closed down $8 at $1746 and RUT closed at $1111 for a loss of $5 on the day. SPX hit its low around 11am ET this morning at $1741 and then recovered to the close at $1746. RUT's candlestick is the classic hanging man which often signals weakness at the top of a trend. Coming after yesterday's doji, this is one more sign of the trend weakening. However, look at the VIX, closing at 13.4%, up just one tenth of a percentage point. That tells me that market participants are not concerned about this move, so I wouldn't put on the bear suit just yet. This bullish trend has been proceeding nonstop for almost a year now, so it is tempting to start imagining the end around the corner. Plus, it is hard to see any really good economic news to build one's confidence. The best I can do is remind myself that the Fed is holding this market up and I should therefore be bullish. That seems to be the working hypothesis to date, with emphasis on "working". Whether it feels good or not, it is working. The corrections have been frequent and volatile, but the bullish trend is intact.
An additional piece of data supporting the slowing market case is the flat to declining trading volume today, with 2.5 billion shares of the S&P 500 stocks trading. Trading on the NYSE dropped 4%, but trading on NASDAQ increased 2%. But I would also point out that today's market declines were modest and yet volume remained low. Therefore, it wasn't a case of traders heading for the exits.
Unemployment claims are out tomorrow and Friday brings consumer sentiment and durable goods orders. It will be interesting to see how the market handles those reports. Will bad news continue to be seen as good news, i.e., meaning the Fed will continue filling the punch bowl?
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1761
Markets took a pause today, but the bulls remain very much in control of this market. The bears are left trying to argue that the markets are over valued. That is always a tough argument. Consider Tesla. By most any financial measure the stock has been and continues to be over valued, but it continues to trade higher. Tesla is showing a little weakness lately, but it remains over $170/share. The bulls took a little bit of a pause today, but the bull trend remains strong. SPX closed unchanged at $1745 and RUT dropped $2 to close at $1112. Volatility is flat with VIX closing at 13.2%, unchanged on the day. Trading volume dropped back with two billion shares of the S&P 500 trading. Volume on the NYSE decreased 23% and trading dropped 9% on NASDAQ.
New home sales came in at 5.29 million for September, down a bit from the previous report of 5.39 million units. It is one more report of the real estate market holding its own, if not rising.
My Nov iron condor on SPX at 1650/1660 and 1800/1810 has been hedged once and repositioned, so it is currently underwater with a P/L of -$3,260 or -16% with position delta = -$27 and position theta = +$126 on 20 contracts.
My trading group entered the following trade on Netflix today with the diagonal call spread, Jan14/Nov $350/$400. I also bought the Nov $300 put just in case the earnings announcement went south. That gave us a position where we were only exposed to a loss of 2-3% if NFLX fell out of bed, but we still have a bullish position if the stock continues its run. As I write this blog, NFLX is trading around $390, so I will sell the put protection tomorrow and allow the spread to profit as NFLX trades upward. Check out Dr. Duke's Trading Group if you would like to learn more about using options conservatively.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1756
The markets continued to trade higher today and the euphoria continues (unless you own NFLX). SPX gained $10 to close at $1755 and RUT gained $3 to close at $1116. Volatility remained flat with VIX closing unchanged at 13.3%. Trading volume jumped upward with 2.5 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE surged upward 13% and trading on the NASDAQ was up 6%. New market highs are becoming routine events in this marketplace. It makes me uneasy. RUT set a new high with its intraday high of $1122, but it closed almost precisely at its opening price, setting up the classic doji candlestick. The doji is the sign of a marketplace nearly perfectly balanced between the buyers and sellers; candlestick analysts view this as a sign of indecision, and possibly a change in direction.
The September jobs report was issued today, a couple of weeks late due to the government shutdown. It reported a drop in new jobs to 148 thousand and a slight drop in unemployment from 7.3% to 7.2%. Most analysts had expected closer to 180k new jobs. The previous month's reports were revised with August moving up to 193k from 169k. But July was revised downward to 89k from 104k. So the report was similar to recent ones: not too bad, but not very good either. But many view these weak reports as positive news in that the Fed isn't as likely to remove its stimulus programs. That is probably a short sighted viewpoint, but we'll see.
As you probably have guessed, my NFLX earnings trade didn't work as planned. The put helped, but wasn't sufficient to save me. I adjusted the trade this morning, but NFLX just continued to fall all day, so I closed for a loss this afternoon. The CEO's comments on the conference call that the stock price had traded too high apparently were taken to heart.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1712
SPX jumped $23 to close at $1722 and RUT gained $13 to close at $1092. This was a new all time high for RUT and SPX is only a few dollars off of a new all time high as well. Trading volume jumped up to 2.3 billion shares of the S&P 500. Trading on the NYSE increased 7% and but trading on NASDAQ only increased 1%. Volatility collapsed almost four points to close at 14.7%.
This market appears to be set on continuing to make new highs. This sets off my personal alarms, but we have to respect the tape. Trade small and hedge yourself appropriately.
