Dr. Duke's Blog

Details

Written by Dr. Duke

Created: 14 April 2010

Intel's earnings announcement set the bulls on a rampage today, closing all major indexes at new 52 week highs. RUT ran over $14 to close at $721. SPX closed at a new high of $1,211 with an increase of over $13. The Fed's Beige Book kept the rally going this afternoon with its observations of increased economic activity across a broad spectrum of the economy. Intel's move led an increase in trading volume on NASDAQ of 20%; NYSE increased 8% while the S&P 500 trading volume surged to nearly five billion shares, well above its 50 day moving average at under four billion shares.

Today's increase in the Russell 2000 Index (RUT) represented a 1.5 standard deviation move - a huge move for one day. My weak April condor position was destroyed by this move. I closed the double calendar for a $910 loss and then closed the 720/730 call spreads; ironically, I could have closed those calls yesterday for a small debit on the order of $0.10 - $0.20. Assuming that the 630/640 put spreads expire worthless, the April iron condor closes with a $3,745 loss. Ouch! Now you see why options coaches and teachers don't trade in public.

Our May RUT iron condor required an initial adjustment today, but will require major adjustments soon if this upward momentum continues.

Details

Written by Dr. Duke

Created: 13 April 2010

Alcoa's earnings report disappointed many traders last night and reinforced the fears of some that the economic recovery is fragile at best. But by mid-morning, the market started recovering its losses and closed the day with modest gains. RUT closed up $2 at $707 while the SPX gained $1 to close at $1197. Trading volume was up significantly across the board with an 11% increase on the NYSE, a 24% increase on NASDAQ and trading on the S&P 500 rose back up to hit its 50 day moving average. Today's market action demonstrates the underlying bullish strength of this market when the bears take the market down and the bulls can bring it all the way back in the same session. Today's market rise was partially in anticipation of an expected positive earnings report from Intel after the close (earnings were up significantly and INTC is up about $1 in after market trading). JP Morgan Chase reports tomorrow morning before the open and the CPI reports will be out in the morning; the Fed's beige book comes out tomorrow afternoon. All of these news events are potentially market moving, but it is hard to predict the direction.

My April RUT iron condor is limping into the final lap with a P/L of -$849, delta = -$237 and theta = +$727. With such a large position theta, each day makes a large difference in this position's P/L. The double calendar I added to this position isn't helping much at this point, with RUT's IV down a couple of points and RUT at the upper breakeven for the double calendar. The May condor stands at a P/L of +$600, delta = -$77 and theta = +$85.

Details

Written by Dr. Duke

Created: 12 April 2010

Slow trading with modest gains characterized today's session; trading volume remained flat to lower. Traders remain wary of global debit issues, persistent high unemployment, and many overbought technical indicators - but the market just keeps grinding out more advances. Earnings reports begin this week and traders will be watching them closely for clues. But it is difficult to predict the market's response; good reports may encourage more buying or it could trigger a round of profit taking. However, weak business results and pessimistic forecasts could begin a pullback. The market has been nearly balanced now for several weeks; it is hard to predict what news may trigger a move. The CPI report Wednesday will be scrutinized for signs of inflation; but that would be a surprise at this point. I just took a quick look at Alcoa's earnings report - doesn't look like good news to me. But maybe the market will be happy with "slightly better".

My April iron condor stands at a P/L of -$979, delta = -$240 and theta = +$600 and May stands at a P/L of +$400, delta = -$81 and theta = +$90. I will be closing the embedded double calendar in the April position Wednesday or Thursday.

Details

Written by Dr. Duke

Created: 09 April 2010

Choppy, sideways trade characterized most of today's trading until the last half hour when the bulls pushed the market to new 52 week highs. RUT closed at $703, up $3, while the SPX closed up almost $8 at $1194. However, trading volume was down across the board; trading on the NYSE was down 8% and trading was down 9% on NASDAQ. Trading on the S&P 500 dropped below yesterday's volume which was below the 50 day moving average. So we have another day of higher highs on lower volume. All the books and experts tell us that's a bearish sign... but it keeps moving up. Another example of why it is wise to trade what you see rather than what you expect.

My April condor stands at a P/L of -$1355 with a delta of -$230 and a theta of +$445. while the May condor stands at +$220, delta = -$74 and theta = +$92.

Details

Written by Dr. Duke

Created: 08 April 2010

The initial jobless claims data this morning was a little discouraging with another increase to 460k from last week's 442k, but the continuing claims total decreased from 4.681 to 4.550 million. The markets opened up weakly but then slowly climbed throughout the day to end nearly unchanged or with small gains. RUT closed unchanged at $700 after trading as low as $692. SPX gained $4 to close at $1186 after trading as low as $1175. This is actually a very bullish sign; it shows that whenever the prices drop very much at all, there are plenty of buyers that view those prices as bargains. So while there isn't sufficient incentive to buy strongly and drive the market higher, there isn't a strong bearish case either. Trading volume dropped across the board today with a 10% drop on the NYSE, and an 18% drop on NASDAQ. Trading on the S&P 500 stocks dropped back below its 50 day moving average. Minimal economic news is expected tomorrow but earnings announcements from the blue chips start next week with Alcoa on Monday and Intel on Tuesday. Those reports may push this market one way or the other.

My Apr condor is winding down and now stands at a P/L of -$625, delta = -$155 and theta = +$296. May's position stands at P/L of +$660, delta = -$58 and theta = +$74.

Details

Written by Dr. Duke

Created: 07 April 2010

The markets traded largely sideways this morning with many traders waiting on the treasury auction for clues; when strong demand for the treasury bonds resulted, stocks rallied briefly, but then began to falter. Some of the losses were erased in the last thirty minutes of trading. RUT matched yesterday's high of $703 but could not hold it, closing at $699, a loss of $2. SPX reached within $2 of yesterday's high before closing down $7 at $1182. Many of the talking heads attributed today's weakness to the financial difficulties in Greece, but I doubt that explanation. I think there is simply insufficient good news to propel this market higher; however, we have not had any bad news either. Hence we are caught in a narrow trading range. Trading volume was up 21% on NYSE and flat on NASDAQ; but it rebounded to above the 50 day moving average on the S&P 500. So we have increased volume on a down day - a bearish signal.

Today's candlestick on RUT was a classic Harami - a weak trend reversal signal. This particular harami is known as a Harami Cross, where the body of the candlestick is very small - essentially a doji. The psychology behind this pattern makes sense: a strong up day followed by a day of indecision - RUT traded up to yesterday's high and then down to a low and rebounded to close near the middle of its intraday range. At a minimum, we have a consolidating sideways trend, waiting for some news to drive the market one way or the other. If you want to learn more about candlesticks, read Japanese Candlestick Charting Techniques by Steve Nison; it is an excellent book.

Volatility rose a bit today and that, together with the price action, helped my embedded double calendar back to breakeven. In total, the April position now stands at -$841 with delta = -$129 and theta = +$288. May's iron condor is showing a gain of $520, with delta = -$58 and theta = +$81.

Details

Written by Dr. Duke

Created: 06 April 2010

The S&P futures were lower this morning, but the markets quickly shrugged off that early weakness and rose to set new 52 week highs today; but trading was mostly sideways and gradually upward. The markets were waiting on the FOMC minutes to be released, but then traded weakly upward on that news. Trading volume was muted: up 7% on the NYSE, flat on NASDAQ, and still below the 50 day moving average on the S&P 500. The VIX dropped to 16.2%, approximately as low as it was in late March, but you have to go back to May of 2008 to see similar lows. RUT closed up less than $4 at $701 while the SPX closed at $1189, up $2; these are both 52 week highs. It appears that the bulls don't have sufficient conviction to chase the market higher, but no one is jumping out either. Every technical analyst is screaming overbought, but it doesn't phase the traders; they may not be buying in volume, but they are buying.

My condors are getting pushed into a corner by this slow relentless push upward. April now stands at a P/L of -$1,955 with a position delta of -$210 and theta = +$321. The double calendar I have embedded in this condor is right at its upper breakeven and now stands about $350 underwater. The May condor has surrendered some of its gains and stands at +$280, with a position delta of -$72 and theta = +$82. The fact that theta and delta are similar in absolute value shows the stress on this position. So we wait and see if the bulls can put another positive gain on the books tomorrow.

Details

Written by Dr. Duke

Created: 05 April 2010

Good economic news Friday and today encouraged the bulls to drive the markets higher today, setting 52 week highs on both RUT and SPX. Friday's jobs report showed a gain of 162k jobs in March, with only 48k of those due to hiring for the census. This was the largest growth in private jobs since May, 2007. The unemployment rate remains at 9.7%. But the ISM Service index reported out at 55.4 this morning, its highest level since 2006. As the market opened this morning, the remaining question was whether much of this good news was already priced into the market. But the markets just moved up stronger toward the end of the trading day; this is a very bullish pattern since one might expect a little profit taking toward the end of the session after such a strong run. On the other hand, all of this strong upward price run was accomplished in lower trading volume; trading on the NYSE was down 3%, down 10% on NASDAQ and  trading volume for the S&P 500 fell even farther below its 50 day moving average than it was on Thursday. So, we have a higher high on lower volume - not reassuring. RUT closed up almost $14 at $698 and SPX closed at $1187, a gain of over $9.

My April iron condor on RUT stands at a P/L of -$1,515, delta = -$149 and theta = +$288. May stands at +$420, delta = -$68 and theta = +$82. If this bull run continues, I will have to make some adjustments this week.

Details

Written by Dr. Duke

Created: 01 April 2010

The markets jumped up at the open but then began a slow decline that lasted until the last hour of trading this afternoon. Then the bulls came in and closed the major indexes for modest gains on the day. The SPX has been trading in the range between $1170 and $1190 and today was no exception, closing at $1178 after hitting a low of $1171 and trading as high as $1181. RUT closed at $684, up over $5 today. Trading volume was mixed with a 14% decline on the NYSE, and a 15% increase on NASDAQ. Trading volume for the S&P 500 declined again today; this is the lowest trading volume for the S&P 500 since March 8. The economic news was generally pretty positive today, but that apparently wasn't enough to drive the markets higher with the unemployment numbers anticipated tomorrow. Initial unemployment claims for last week dropped 6k to 439k while the continuing unemployment claims were essentially flat at 4.662M. The ISM manufacturing index reported out at 59.6, much better than expected and the best reading in five years. It appears that the strong run upward for the markets recently causes traders to believe most of the recent good news is already priced into the market.

My April condor position continues to trim its losses as we move closer to expiration; I added some ATM calendars today to boost the theta decay. The position now stands at a P/L of -$1,315, delta = +$10 and theta = +$207. The May position is in the black at +$360, delta = -$29 and theta = +$76.

Now the big question for the weekend: how will the market respond on Monday morning to tomorrow's unemployment numbers? Given the very balanced bull/bear tussle of the past several sessions, it will require some significant news to push this market one way or the other.

Details

Written by Dr. Duke

Created: 31 March 2010

The markets traded flat to modestly higher through most of the day, but then surrendered all of the gains and then some during the last hour of trading. A weaker dollar didn't appear to help the markets today. The ADP private payroll report showed a loss of 23k jobs in March; even though this was the smallest loss in some time, many traders were expecting to see some positive growth in jobs. And it fueled speculation about the government's jobs report Friday. Many are predicting those numbers to show some uptick due to the hiring of census workers, but today's ADP report is causing some traders to be pessimistic about the private sector's job growth. The Chicago PMI dropped to 58.8 in March from 62.6 in February, so that didn't help the mood. RUT traded as high as $688 in today's session, but then fell to $679 at the close, for a loss of almost $5 on the day. The SPX traded in a narrow range, closing down $4 to $1169. RUT and SPX have been trading in a very narrow range over the past seven sessions. Whenever the bulls have pushed prices higher, the bears have pulled them back, but the bears have also been unsuccessful in holding lower prices. Trading volume was surprisingly low, given the expected surge in end of the quarter trading. Trading on the NYSE was up 5% but down 1% on the NASDAQ. Trading volume for the S&P 500 rose from yesterday but remains below the 50 day moving average.

Today's move down on RUT pushed my April iron condor to a nearly perfectly delta neutral position, which is good since this trade is limping along at this point from the damage done earlier in March. The P/L stands at -$1,445, delta = -$3 and theta = +$159; the May position stands at +$440, delta = -$15 and theta = +$69.