Dr. Duke's Blog

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Written by Dr. Duke

Created: 13 October 2011

Concerns about Europe's banks once again dampened the stock markets. But trading revived late in the day and almost made it back to opening prices before succumbing to selling pressures. SPX closed down $4 at $1204 and RUT gave up $2 to close at $699.  Trading volume fell across the board with 3 billion shares of the S&P 500 changing hands; volume fell 16% on the NYSE and dropped 15% on NASDAQ. The price action on SPX today was encouraging to the bulls. The bears took SPX to $1191 before the bulls stepped in and pushed it back to the opening of the morning. So, one has to wonder if we are building support here for a break-out from this trading range of the past two months. The VIX rose a bit today but ended up closing near its open at 31%.

The unemployment claims data had virtually no impact on trading; for one thing the data are essentially unchanged and, secondly, everyone remains focused on Europe. Initial unemployment claims were 404k, unchanged from last week's 405k and continuing unemployment claims were down 55k to 3670k.

The Oct RUT iron condor position stands at a net loss of $304 with position delta = -$84 and position theta = +$319 (20 contracts). The 740/750 call spreads are under pressure and are keeping this position underwater at this point. The delta of the 740 calls is 10, so we are in pretty good shape as long as the markets don't break out strongly to the upside. The Nov position stands at a P/L of +$740 with delta = -$45 and theta = +$95. The 780/790 call spreads are about one standard deviation OTM.

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Written by Dr. Duke

Created: 12 October 2011

Encouraging news out of Europe helped push stocks higher today, but the rally ran out of steam in the afternoon as key resistance levels were hit. SPX closed at $1207, up $12 and RUT gained $11 to close at $700. Trading volume was up with 3.6 billion shares of the S&P 500 stocks trading today; trading volume was up 18% on the NYSE and was up 19% on NASDAQ. Take a look at the SPX chart; it is remarkable how the SPX price hit resistance at $1220 and pulled back. This is the high end of the trading range we have been in since early August. The question on everyone's mind is whether it can break through $1220 and spark a continued rally higher.

The VIX pulled back to the lower end of its recent range at 30%, but then pulled back to close at 31%. This makes the fourth time the VIX has dropped down to about 30% and then popped back upward as the market reversed back into the trading range.

The talking heads on CNBC appeared to be obsessed with the Dow closing in on its opening level for 2011 earlier today, but the S&P 500 is a much better measure of the overall market and we are far from the January opening of $1260. The SPX remains underwater by over 4% for 2011.

My Oct iron condor on RUT stands at a P/L of -$1104 with position delta = -$100 and theta = +$397. The Nov condor stands at a P/L of +$200 with delta = -$53 and theta = +$104 (both are 20 contract positions). The theta/delta ratios on both positions are strong, but the call spreads in both positions are beginning to be pressured as this rally continues. Unemployment claims come out in the morning. It will be interesting to see if we pull back into this trading range or seek new highs tomorrow.

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Written by Dr. Duke

Created: 11 October 2011

The markets took a breather today after that strong showing yesterday, trading basically sideways all day in lower volume. SPX closed at $1196, up $1 and RUT gained $4 to close at $689. Trading volume on the S&P 500 was flat at 3.0 billion shares; trading on the NYSE was up 3% and trading volume was up 5% on NASDAQ. An absence of economic data and no new rumors or news from Europe left the markets listless. SPX appeared to bounce off resistance at $1200; that level has been pretty strong resistance in the recent past. If it breaks through $1200, the next resistance is $1220 before we can possibly hope we have broken free of this trading range.

My Oct iron condor on RUT is close to break-even with a P/L of -$204 and delta = -$64 and theta = +$223. The Nov condor stands at a P/L of +$660 with position delta = -$35 and position theta = +$92 on 20 contracts.

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Written by Dr. Duke

Created: 10 October 2011

It seems like yesterday that everyone was in a panic about the European debt problem, but that has been solved now (do you hear the sarcasm?). Merkel and Sarkozy were reported to have pledged their support to a bank bail-out plan and that news seemed to be enough to send the bears running for cover. However, we know nothing about the plan that will eventually be approved and there are many possible pitfalls - so don't think everything is just wonderful and start buying everything in sight. But today's price action was strongly bullish, except for lower trading volume. SPX sliced right through the 50 dma at $1176 to close at $1195, up $39 on the day. Another bullish sign was SPX trading strongly in the last hour to close at the high of the day. RUT closed up $29 at $685. This is just below the 50 dma at $689. Trading in the S&P 500 was down to 3 billion shares, well below the 50 dma at 4.0B. Trading volume was down 24% on the NYSE and was down 25% on NASDAQ. There was no significant economic news today and nothing much is scheduled for tomorrow either. So the market will be especially sensitive to any news or rumors, because the traders who were buying last week and today will bail at the slightest provocation. The VIX dropped to 33% today but that is still historically high, so remain cautious. This is not your daddy's market!

My Oct iron condor on RUT stands at -$804 with position delta = -$60 and position theta = +$294 (20 contracts). The Oct 560/570 put spreads are over two standard deviations OTM while the 740/750 call spreads are only one standard deviation OTM. My Nov iron condor on RUT stands at +$860 with position delta = -$33 and position theta = +$78 (20 contracts).

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Written by Dr. Duke

Created: 07 October 2011

The jobs report buoyed the markets at the open this morning, but it didn't take long for Europe's debt problems to bring us back down. Moody's downgraded Spain and Italy's debt and that tanked our markets. It is interesting when you think about it; five years ago, Italy could have fallen into the ocean and our markets wouldn't have noticed. But any news out of Europe these days is scrutinized very carefully - and, when in doubt, traders sell on the news. SPX lost $10 to close at $1155 and RUT closed at $656, down $18. It was a volatile day of trading as SPX traded down as low as $1150 in early afternoon trade, and then,  in the last hour of trading, ran up to $1169, near the day's high, and then collapsed back to the close at $1155. Many analysts were watching to see if SPX could break through the 50 dma at $1178, but it didn't even get close.

Trading volume dropped back a bit with 3.7 billion shares of the S&P 500 trading. Trading on the NYSE was up 3% and trading volume was down 7% on NASDAQ. My Oct iron condor on RUT stands at a P/L = -$1164 with position delta = -$2 and position theta = +$281. This condor is perfectly positioned with respect to price at this point with a large positive theta starting to ramp up. The Nov position stands at a P/L of +$300 with delta = -$16 and theta = +$100.

Have a great weekend.

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Written by Dr. Duke

Created: 07 October 2011

Markets traded higher once again yesterday (I'm late with my blog due to hosting my trading group last evening). SPX closed up $21 at $1165 and RUT gained $16 to close at $674. Trading volume dropped to just below the 50 dma on the S&P 500. But it is worthwhile to not that volume increased as the markets set new lows and bounced upward a couple of days ago - a bullish sign. The 50 dma at $1181 is the next hurdle for the markets. Breaking through that level easily would be another bullish sign. Otherwise, the default position one must take is that this market is trapped in a sideways trading range, and you could make the case for a downward trend that began in April. The market's reaction to the jobs report will be interesting, but will probably be muted unless a surprise number, higher or lower, is reported. In many ways, this market is being held hostage to news from Europe and the bad news is that I don't see any short term resolution to that crisis.

My RUT Oct iron condor stands at a P/L of -$1404 with position delta = -$37 and position theta = +$256. The RUT Nov iron condor stands at a P/L of +$60 with position delta = -$29 and position theta = +$101.

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Written by Dr. Duke

Created: 05 October 2011

The markets appeared to do their best to trade down today, but finally traded upward for significant gains. SPX gained $20 to close at $1144 and RUT closed at $658, up $9 on the day. Trading volume dropped down a bit from yesterday with 4.2 billion shares of the S&P 500, but this remains above the 50 dma at 4.0B. Trading volume on the NYSE was down 28% and similarly, trading was down 18% on NASDAQ. The VIX dropped to 38% today, approximately in the middle of its range of 30% to 48% since early August. SPX broke through resistance at $1120 yesterday and tested that earlier today before trading higher. A lot of damage has been done since early August; the SPX chart is strongly trending downward at this point. It will require a break above the 50 dma at $1184 before anyone can even begin to hope for a bullish trend.

The ISM Services Index reported at 53.0 for September, down slightly from the August value of 53.3. This was the classic, "not bad news, but not good news either" report. It seems to support the idea that the economy isn't worsening rapidly, but it certainly isn't roaring back to life either. ADP reported 91 thousand new private payroll jobs, which isn't a bad number, but again, nothing to write home about either. This may be a precursor to Friday's Non-Farms Payroll Report.

I closed the Oct 500/510 put spreads on my Oct iron condor on RUT and also opened the Oct 740/750 call spreads. I will look for an opportunity tomorrow to roll my put spreads upward. My Nov iron condor on RUT stands at 490/500 and 780/790 with a P/L of +$440 with position delta = -$49 and position theta = +$137.

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Written by Dr. Duke

Created: 04 October 2011

I am running out of superlatives to describe this market. Yesterday was very ugly; based on the extent of that down move, I was expecting a bit of a bounce this morning, but no, it just wasn't quite as ugly. By noon, the market moved into positive territory, but then slowly sank, nearly to the lows of the day. Then around 3:15 pm EDT, the SPX ran from its low at $1080 to the close at $1124 in 45 minutes - wow! SPX gained $25 on the day, closing at $1124; RUT was even stronger, gaining $39 to close at $649. RUT stayed in positive territory most of the day and traded up about $40 in the last 45 minutes of the day. Why? I am unsure anyone knows. Even the talking heads on CNBC, who always seem to have an answer, appeared befuddled. The bottom line is that the extreme volatility of this market is downright frightening. Trading volume spiked upward again today with 5.1 billion shares of the S&P 500 stocks trading; volume was up 25% on the NYSE and was up 19% on NASDAQ.

Traders were expecting Apple to announce the iPhone5 today, but instead received an improved iPhone 4s. Thus, Apple shares were punished. Is this a buying opportunity for AAPL? Tomorrow will be interesting.

A bigger question is whether we have seen the bottom of this market decline. Today's spike upward on increased volume is certainly a bullish sign, but this market turns on a dime (or a rumor). Buying this market would be an aggressive speculation.

My Oct RUT condor with its put spreads at 500/510 stands at a net loss of $1204 with delta = +$14 and theta = +$67. If we have a few more positive days, perhaps I can get the call spreads back in place to complete this position.

Until we get some calming news out of Europe, it is hard to imagine this market settling down. VIX is still high, at 41%. I don't see an end to this volatility for some time. The jobs report Friday could be a significant market-moving event, or it could be ignored depending on what news is coming out of Europe.

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Written by Dr. Duke

Created: 03 October 2011

More negative news from Europe sent traders to hit the sell button. It strengthened the US dollar and that also pushed the equity markets lower. SPX lost $32 to close at $1099 and RUT closed at $610, down $35. Trading volume in the S&P 500 stocks spiked upward with 4.4 billion shares trading; this is above the 50 dma of 3.9B. Trading volume on the NYSE increased 11% and trading on NASDAQ jumped up 25%. We had positive economic news this morning with the ISM manufacturing index coming in at 51.6 for September, up  a small amount from August's 50.6. Construction spending was up 1.4% in August, as compared to a decline of 1.4% in July. But these data points were widely ignored. Every major market index booked losses. Many stocks hit 52 week lows.

Today's action broke the support levels that were set in the August crash and had been repeatedly tested, so this was significant. SPX broke through $1200 to close at $1099, and it closed at the low of the day - very bearish. RUT was even more bearish, closing at $610, well below the August lows at $650. For a couple of months we have been wondering if this was a correction in a bull market or the beginning of a bear market. Today's action strongly suggests the latter.

My Oct condor is unchanged with my holding only the 500/510 put spreads. I am still looking for the opportunity to re-position the call spreads.

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Written by Dr. Duke

Created: 30 September 2011

This is becoming all too familiar. Trading in Asia and Europe seemed to set the stage for our markets as they opened weakly and never made it into positive territory all day. SPX closed at $1131, down $29 while RUT gave up $19 to close at $644. This places RUT right at the lower end of the trading range of the past two months. SPX is close the lower end of the range at $1120. Next week will tell the tale: either the markets strengthen and bounce back upward, or break through support to make new lows and confirm a bear market trend. From my perspective, mediocre to poor economic news abounds, but it doesn't seem to me that much of anything has significantly changed from two months ago - D.C. has deteriorated into a Hatfield and McCoys soap opera, the European Union is in disarray about the sovereign debt crisis; but we knew that two months ago. It seems the general mood of traders has simply turned pessimistic. The Chicago PMI came in at 60.4 today, up from August's 56.5 and the University of Michigan's consumer sentiment survey came in at 59.4 for September, a small improvement from the previous 57.8. But traders ignored this data and sold the market. Even more disheartening, the markets sold off strongly in the last hour of trading. Trading volume declined from yesterday with 3.5 billion shares of the S&P 500 trading, below the 50 dma at 3.9B; but trading volume was up 6% on the NYSE, and down 11% on NASDAQ.

My October iron condor on RUT continues to limp along as a 500/510 put spread. I closed the call spreads and have been waiting for the market to strengthen so I could re-position the call spreads and eventually roll up the put spreads. But so far, I have been trapped. Fortunately, the put spreads remain over two standard deviations OTM, but I am starting to run out of time.

Next week should be interesting, but now we turn our attention to our families, chores around the house and healthy recreation. Have a great weekend.