Dr. Duke's Blog

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Written by Dr. Duke

Created: 24 June 2010

The markets opened weak this morning and traded steadily downward, although with many swings back and forth through the day. The SPX dropped $18 to close at $1074 and the RUT dropped $11 to close at $633. This was the fourth successive drop in RUT and SPX. Trading volume was up today; trading on the NYSE increased 11% and it increased 8% on NASDAQ. The S&P 500 stocks traded about 4.1 billion shares, still below the 50 dma, but up substantially from recent sessions.

The bearish mood on the street is evident from the reaction to the economic data released today. Initial unemployment claims decreased by 19k to 457k and continuing claims dropped 45k to 4.548 million. Durable goods orders fell 1.1% in May, which was less than predicted. NKE and BBBY met their earnings forecasts and BBY increased its dividend by 7%. There is nothing stellar about any of these reports, but it isn't terrible news either. Yet the markets continued to trade lower. Personally, I think the persistent negative, anti-business, and anti-capitalist drumbeat from Washington is wearing down the very individuals and institutions capable of building jobs and digging our economy out of this hole. But, I would welcome your dissent if you see it differently.

Now we wait and see if the indexes break through the lows set in early June; if so, then maybe a new bear market has begun.

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Written by Dr. Duke

Created: 23 June 2010

After choppy trading up and down, the major indexes closed near the unchanged marks; RUT closed down $2 at $644 after trading down to the 200 dma and then bouncing back upward. SPX closed at $1092, a loss of $3 on the day. Trading volume was flat on the NYSE, NASDAQ and flat to slightly increased in the S&P 500 stocks. A 2.2% decrease in new home sales was reported for May this morning; that didn't help the market's mood, but it wasn't really a surprise after yesterday's disappointing existing home sales report. Similarly, the FOMC meeting report in the afternoon didn't really contain anything new, so that was also a market non-event.

A look at the RUT and SPX price charts shows a classic doji candlestick on RUT and a close replica on SPX. These patterns confirm what we already know - this market is seeking direction; the bulls and bears are struggling for control. Both indexes have been pulled back to the middle of their Bollinger bands since hitting the top of the band on Monday. It is hard to predict what news or series of events will tip this market in one direction or the other. Or maybe the choppy trading we saw today will be typical of the summer?

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Written by Dr. Duke

Created: 22 June 2010

The markets opened modestly higher this morning, but, similar to yesterday, the indexes were pulled back into negative territory quickly and the pace downward accelerated in the afternoon. SPX decisively broke through support at the 200 dma ($1111) to close at $1095, losing $18 on the day. RUT traded similarly, dropping $14 to close at $646. Both RUT and SPX have been pulled back into the trading ranges defined over the past several weeks. For RUT, that range is roughly $610 to $670, and $1040 to $1105 on SPX. Trading volume continues to be either flat or declining as it has been over the last several trading sessions. Volume on the NYSE was up only 3% and was flat on NASDAQ. Trading in the S&P 500 stocks continues to run around 3.5 billion shares, well below the 50 dma at 5 billion shares.

Weak home sales (down over 2%) certainly didn't help the mood in the markets, but it appeared as though the markets were following the Euro as it traded lower this afternoon. News of so-called "savage austerity" measures for several government budgets in Europe appeared to worry traders - although one could argue those measures will be beneficial in the long term. The home sales data also started much more serious discussions of the possibility of a "double dip" in real estate bleeding over into the economy. In general, the mood on the street appears pretty gloomy. All news is being viewed from a pessimistic bias. Trading may be confined within the range of the past few weeks for a while.

When I was evaluating my positions after the close yesterday, I was surprised to see how much of the potential profit for the July iron condor was available. This morning, I closed the RUT July 520/530 750/760 iron condor for $0.20 on each side, resulting in a net gain of $2,140, 73% of the maximum profit available at July expiration. This $2,140 gain represented a 13% gain on capital at risk. I may consider opening my August condors a little earlier than normal to take advantage of the current sideways trading range.

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Written by Dr. Duke

Created: 21 June 2010

The markets opened very strongly this morning on news that China might allow its currency to float more freely on the world markets. But it was a short-lived rally. After running as high as $1131, the SPX pulled back to close down $4 at $1113. Similarly, RUT appeared to be finally breaking above resistance at $670 and traded up to $677 before pulling back to $660, down $7 on the day. It appeared that the strength of the U.S. dollar versus the Euro pulled the U.S. stock markets back from their gains. Trading volume was down across the board with a 30% drop on the NYSE and a 4% drop on NASDAQ. Trading in the S&P 500 stocks dropped to 3.5 billion shares, well below the 50 dma at 5 billion shares. The SPX traded down through the 200 dma at $1111, but recovered to remain in the tight trading range of the past several sessions. The Russell 2000 Index (RUT) also remains in a tight trading range, unable to break through $670 to the upside.

My July iron condor on RUT stands at a P/L of +$2,480, delta = +$9, and theta = +$37. I will be looking for an opportunity to close this position and confirm most of the potential profit for July.

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Written by Dr. Duke

Created: 18 June 2010

The market continues to chop back and forth, seeking direction. Trading volume was up today, but nothing like was expected for a quadruple witching Friday. Trading volume ran up 33% on NYSE, and 11% on NASDAQ, but only 3.9 billion shares of the S&P 500 stocks traded, marginally up from yesterday and way below the 50 dma at 5 billion shares. The last three candlesticks on the SPX chart have been variations on the doji, the classic signal of market indecision. RUT closed up $1 at $667 and the SPX raised $1 to close at $1118. SPX has solidly held its support, but it has not pushed forward either. RUT has been unable to break through resistance at $670. RUT's settlement price is $669, so my June condor spreads will expire worthless. The July spread is well positioned with a P/L of +$1,980, delta = -$11 and theta = +$78.

So the watch continues. Will the bull market resume or will we tip over to a new bear market? Traders appear to be more and more skeptical of our economic recovery, so some poor economic news next week might have serious consequences in the stock market.

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Written by Dr. Duke

Created: 17 June 2010

Today's batch of economic data caused many economists to begin to worry that the economic recovery has hit a wall. The Consumer Price Index was the only good news of the day with a 0.2% decrease. New unemployment claims increased by twelve thousand to 472k; many economists were expecting 450k. Continuing unemployment claims also rose by 88k to 4.57 million. Then the Philadelphia Fed Index came in at 8.0, a big drop from last month's reading of 21.4. The major indexes spent most of the day in negative territory, but managed to recover most of the losses by the close. RUT closed unchanged at $666 while the SPX rose by $1 to close at $1116. RUT has been unable to break through resistance at $670 whereas SPX has been stalled since breaking through the 200 dma. The price charts suggest a high level of indecision on the part of the traders with neither the bulls nor the bears being able to sustain a run; the low levels of trading volume underscore that observation. Trading on the NYSE dropped 1% and dropped 7% on NASDAQ. Trading in the S&P 500 was flat at 3.5 billion shares, well below the 50 dma.

For all intents, my June 590/600 710/720 iron condor on RUT is at its end; I will allow the options to expire worthless. The gain is $1,336 or 8.1% on capital at risk. The July condor is in an excellent position with a P/L of +$1,760, delta = -$20 and theta = +$84. 

No significant economic news is due tomorrow, but we have quadruple options expiration, so the trading may be choppy and likely at higher volume. Of course, any kind of overnight news from Greece, Spain, North Korea and others may trip this market. Stocks are cheap by most any measure, but the economic recovery is beginning to be in doubt.

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Written by Dr. Duke

Created: 16 June 2010

It was a wild ride in the markets today; after opening down, the markets recovered quickly but then traded back and forth all day, ending the day with minor losses. RUT traded as high as $672 and closed down $3 at $666; SPX closed unchanged at $1115 after trading from $1107 to $1119 during the day. Trading volume remains low with a 2% increase on the NYSE, and flat on NASDAQ. Trading in the S&P 500 stocks dropped to 3.5 billion shares, well below the 50 dma at 5 billion shares. RUT does not seem to be able to break out of its recent trading range from $615 to $670.

The economic news today was not reassuring for the bulls. Housing starts for May came in at 593k, well below the 680k expected by analysts. Similarly, building permits came in below expectations at 574k. The PPI declined 0.3% and capacity utilization rose to 74.7 from 73.7. Top that off with weak earnings forecasts from Nokia and FedEx and it was hard for the bulls to hold any momentum. On the other hand, the bears have not been able to hold any of the intraday declines.

My June RUT condor stands at a P/L of +$1,176 with delta = -$2 and theta = +$462. July is also in good shape with a P/L of +$1,440, delta = -$22 and theta = +$103.

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Written by Dr. Duke

Created: 15 June 2010

The markets opened strong this morning and steadily traded upward all day. The RUT and SPX have both reached critical areas on their respective price charts. SPX broke through the 200 day moving average (dma) at $1108 and closed at $1115. During much of May, the SPX traded in the range of $1100 to $1175. Today's close places the SPX right at the bottom of that range; tomorrow's price action will show whether it has truly entered a new trading range or whether it pulls back into the range of $1040 to $1105 of the past few weeks. The RUT chart is somewhat different in that RUT is well above its 200 dma at $634 and it has not yet broken out of its current range of $615 to $670. But RUT is similar to SPX in that it is sitting at the edge of the trading range - will it break out or pull back?

Trading volume continues to be rather weak and this does not bode well for a continued advance. Trading volume was up 2% on the NYSE and up 18% on NASDAQ, but the S&P 500 stocks traded about 3.8 billion shares, well below the 50 dma of 5 billion shares. I interpret this as a lack of conviction by the broad market that this rally has legs.

In the meantime, my condor positions are in excellent shape. The June 590/600 and 710/720 RUT iron condor stands at a P/L of +$1,096, delta = -$20 and theta = +$285.  Normally, I wouldn't be in a condor position during expiration week, but the extreme volatility of the past few weeks has forced me to leave this trade open to salvage a gain. The put spreads are well outside of two standard deviations and the calls are just inside of two standard deviations, so this trade is well positioned.

My July 520/530 and 750/760 condor stands at a P/L of +$1540, delta = -$26 and theta = +$88. This position is in excellent shape; if this rally continues, I will consider closing this position to lock in our current gains.

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Written by Dr. Duke

Created: 14 June 2010

Sorry to be late with the blog, but my web site had some back room problems this afternoon and I could not get into the admin pages.

This morning the SPX appeared determined to break through the 200 day moving average at $1108, but just fell short at $1106. From about noon on, the markets slowly traded downward, giving back virtually all of the early gains. RUT was unique among the major indexes in that it retained some positive gains, closing up $3 at $652. SPX traded up to $1106 and then gave it all back, closing down $2 at $1090. Moody's downgraded Greece debt this afternoon and that didn't help, but the market was already trading down. Trading volume remains low, which argues against the substance of any possible bullish break-out like this morning's run upward. Trading volume was up 10% on the NYSE, but flat on NASDAQ and also flat on the S&P 500 stocks. The market appears to be holding in this basing pattern.

My iron condor positions are sitting pretty with the June iron condors on RUT standing at a P/L of +$756 with position delta = +$16 and theta = +$368. The July position stands at a P/L of +$1,180 with position delta = -$5 and theta = +$96. But I expect today's market volatility will continue this week, so it would be a mistake to assume these trades are safe.

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Written by Dr. Duke

Created: 11 June 2010

The markets traded up again today on conflicting economic news, and the major indexes closed at the their highs for the day, just like yesterday. This action would normally be seen as very bullish, but trading volume dropped dramatically today with a 22% drop on the NYSE and a 16% drop on NASDAQ. Only 3.5 billion shares of the S&P 500 stocks traded today, down from 4.2 billion yesterday and well below the 50 day moving average at five billion shares. This makes me wonder about the strength of this rally. Economic news was mixed with retail sales disappointing by dropping 1.2%, but the University of Michigan Consumer Confidence Survey came in at a two year high.

RUT closed up $9 at $649 while the SPX closed at $1092, for a gain of $5. Both indexes are now just above the midpoints of their recent consolidation ranges. Today's rally in RUT pushed both my June and July iron condors into positive territory. The June position now stands at a P/L of +$256 with position delta of +$50 and theta = +$247; July stands at a P/L of +$1140 with position delta of +$6 and theta = +$78. So now we wait to see what Monday brings; this market is very susceptible to headline risk at this point. So the weekend could bring some surprises. The decreasing trading volume of the last two days concerns me; this seems like a rally that lacks conviction.