- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1662
The markets opened weakly this morning with SPX losing about $5 before recovering to close at $1486 for a gain of $5 on the day. Virtually all of that gain came in the last 45 minutes of trading today. RUT closed at $893, up $2. After yesterday's break-out on SPX, today's strong close was even more bullish, but virtually any measure tells us this market is overbought. It has surprised me that the debt ceiling and spending debates have not taken a toll on this market. Apparently, traders are taking all of the rhetoric with a grain of salt. VIX actually fell a bit further today, closing at 12.5%. This is a record low; you have to go back to the summer of 2007 to find lower values of the VIX. This low level of VIX further confirms the complacency of the large institutional traders - they are not concerned about the political battles.
RUT settled at $889.72 today and SPX settled at $1481.36. Hopefully, none of you carried positions into expiration that were anywhere near those values. I recommend my Two Sigma Rule: close any spread on the Friday before expiration week that is less than two standard deviations OTM. The difference between the Thursday close and the settlement price on RUT last year averaged $4.46. Since one standard deviation a week out is typically around $6 to $9, this is a conservative rule.
My Feb condor on RUT stands at a net gain of $600 or +4% with delta = -$191 and theta = +$141 (20 contracts).
Next week is going to be exciting. GOOG, AAPL, IBM, ISRG and others all report earnings next week. There will be many opportunities for some speculative trades if that's your bag. As long as you don't bet the farm, a little speculation can be fun. The exchanges will be closed Monday. Enjoy the long weekend.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1646
Markets continue to trade sideways as the debt ceiling debate heats up. SPX closed unchanged at $1473 while RUT lost $2 to close at $882. VIX dropped a touch to 13.4%. So traders aren't fleeing for the exits, but they aren't buying either.
The Fed's Beige Book was released today with nothing new - the economy is slowing recovering; I think we have heard that somewhere.
The CPI data for Dec was released with 0.0% change. Industrial production came in for Dec up 0.3% and capacity utilization was flat at 78.8%. All in all, the same news we have been hearing: slow and steady, nearly flat, low or no economic growth.
I watched an interview today with a Boston College professor of economics, Lawrence Kotlikoff. He proposes looking at the government's debt based on a balance sheet like we would use for a business: assets and one side and liabilities on the other. He uses CBO numbers for the next ten years of tax revenue (assets) and the next ten years of government obligations (social security payments, etc.). On that basis, he says our deficit is 211 trillion dollars not sixteen. On that basis, the professor claims we are in worse shape than Greece. I'm not an economist, so I don't know the pros and cons of this approach, but even the traditional economic reporting I see isn't pretty. Bernie Madoff was a piker compared to our politicians.
My Feb condor stands at a net gain of $980 (7%) with delta = -$102 and theta = +$147.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1570
The markets are holding right at resistance. In fact, given the onslaught of political posturing and refusal to negotiate about the debt ceiling, the market is holding up surprisingly well. I suppose the conclusion is that traders don't yet take the rhetoric seriously. SPX closed at 41471, down $1 and RUT also lost $1 to close at $880. VIX remained flat at 13.5%. Trading volume was mixed with a drop in the trading of the S&P 500 stocks to 2.2 billion shares and a drop of7% on the NYSE. But trading on NASDAQ increased 5%. Maybe that was the furious trading in AAPL on the reports of iPhone 5 sales falling off.
Today didn't bring any economic data for the markets to pore over. Tomorrow we get retail sales and the PPI.
My Feb iron condor on RUT at 820/830 and 910/920 stands at a P/L of +$440 or +3% with delta = -$82 and theta = +$140 on 20 contracts.
It seems like we have moved from one death watch (fiscal cliff) to another (debt ceiling). Fun, fun...
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 2062
The markets traded underwater all day, but surged in the last hour of trading to make a small gain on the day. SPX closed higher by $2 at $1472 and RUT gained $5 to close at $885. VIX remains flat at 13.5%. Trading volume remains weak with 2.4 billion shares of the S&P 500 stocks trading, remaining below the 50 dma. Volume rose 4% on the NYSE but was flat on NASDAQ.
Retail sales came in at an increase of 0.5%, an improvement over the previous month's 0.3% increase. The PPI dropped 0.2% in December. The Empire State manufacturing survey was again in negative territory for Dec with a -0.2% reading. This was better than the previous month's -0.8%, but this is the sixth month in succession of contraction in this survey of manufacturing.
The most interesting news of the day was Germany's announcement that they are moving their gold reserves back to Germany; some will come out of the New York Federal Reserve Bank, and some will come out of France's central bank. What does this say about trust between the global banks? Maybe things are worse in Europe than we thought? Maybe Germany is worrying about our government's solvency?
There certainly is plenty to worry about... In the meantime, my Feb iron condor remains in the black. I positioned this one a little tighter than normal, so I can afford to close it early for a reasonable gain. I don't want to be exposed to this market for too long these days.
- Details
- Written by Dr. Duke
- Category: Dr. Duke's Blog
- Hits: 1624
For the last several sessions, traders have been taking
a “wait and see” view of the markets. SPX has bumped up against resistance
around $1465 for several days. This morning, that pattern reappeared,
with SPX opening, trading up to about $1469, and then pulling back to $1461. But
then the surprise: the markets strengthened around 2:30 ET and started trading
upward to close at $1472, up $11 and finally breaking the highs set in 2012. So we are left with the question I posed above: Is this break-out for real? Trading volume remains at the 50 day moving average, so that is one data point arguing against the break-out. Can the markets break out with the backdrop of the debt ceiling debate? Maybe they can; it doesn't have to make sense.
New unemployment claims rose slightly this week to 371k, underscoring
the fact that our country’s economic recovery is weak at best. This is a
fragile economy. The debate about the prospects of another recession continue.
The Russell 2000 Index (RUT) has generally followed SPX by trading
sideways the past few sessions, and closed up $2 at $881 today. RUT has been
trading stronger than SPX in that it broke its own 2012 highs in mid-December.
But today, RUT appeared to lag behind SPX.
Earnings announcements will probably determine the short term market direction until the debt ceiling talks begin to get serious. American Express announced layoffs today of 5,400 employees; AXP announces earnings January 17. Some of the major banks report next week.
