Dr. Duke's Blog

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Written by Dr. Duke

Created: 09 August 2024

The Standard and Poors 500 index (SPX) closed today at 5,344, up 25 points or 0.5%. SPX opened the week at 5,151, setting up a weekly gain of 3.7%. Trading volume spiked on Monday but then declined all week, ending the week at 2.1 billion shares, well below the 50-day moving average (dma) at 2.7 billion shares.

VIX, the volatility index for the S&P 500 options, gave us a wild ride this week, opening Monday at 23.4%, spiking to 66% and then steadily declining to today’s close at 20.4%. It certainly appears as though the market panicked on Monday and then steadily realized that nothing much had changed.

I track the Russell 2000 index with the IWM ETF, which closed today at 206, almost unchanged, down 0.4 points or -0.2%. IWM remains below its 50 dma.

The NASDAQ Composite index closed today at 16,745, up 85 points or 0.5%. NASDAQ opened the week at 15,713, setting up a strong weekly gain of 6.6%. After spiking higher on Monday, NASDAQ’s trading volume declined to the 50 dma for the rest of the week.

Many of us, including me, had not heard of the Sahm Rule before last Friday. Claudia Sahm is currently the chief economist with New Century Advisors and once held a senior position with the Federal Reserve Board. The rule attributed to her states that a recession is underway when the three-month average of the unemployment rate increases more than 0.50% in one year. On Monday, the signal triggered at 0.53% and the market panicked. The S&P 500 dropped 228 points or 4.3%.

In many ways, the market was set up for this dark prediction because most analysts were disappointed the FOMC did not reduce rates on July 31 and feared the Fed was leading us to a classic “hard landing”. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower last Friday and then repeated that performance again on Monday. The lows on Monday had the S&P 500 at -10%, NASDAQ at -16% and the Russell 2000 at -12%.

It would be premature to declare the market correction is over, but the recovery this week has been significant with the S&P 500 at +3.0%, NASDAQ at +3.4% and the Russell 2000 at +2.0%. The decline in trading volume is another positive sign.

I have found Investors Business Daily’s Follow Through Day methodology very helpful for determining when it is safe to begin reinvesting in the market after a correction. For the time being, we remain largely in cash. Corrections often retest the initial lows. It is prudent to not jump back in too quickly.



For now, I am watching for the Follow Through Day signal. Be patient.

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Written by Dr. Duke

Created: 02 August 2024

The Standard and Poors 500 index (SPX) closed today at 5,347, down 100 points or -1.8%. SPX opened the week at 5477, setting up a weekly loss of 2.4%. Trading volume ran above the 50-day moving average (dma) for the last four days of this week. SPX set its recent high at 5670 on 7/16 and today’s close results in a pullback of 5.7%.

VIX, the volatility index for the S&P 500 options, closed today at 23.4% with an intraday high of 29.7%. VIX opened the week at 16.6% and rose as high as 18.5% during the week but spiked up significantly today.

I track the Russell 2000 index with the IWM ETF, which closed today at 209, down 8 points or -3.5%. IWM set its most recent high at 225 on 7/16, leading to a pullback of 7.1% to date.

The NASDAQ Composite index closed today at 16,776, down 418 points or 
-2.4%. NASDAQ opened the week at 17,332, setting up a weekly loss of 3.2%. From NASDAQ’s opening high on 7/11, this index has now corrected by 10%. NASDAQ’s trading volume rose above the 50 dma for the last three days of this week.

Traders were hoping for a reduction of the federal discount rate at the FOMC meeting on July 30-31. Markets traded higher after the FOMC announcement on 1/31, but the mood changed after further reflection and the markets traded off significantly over the past two days. The S&P 500 stocks, the NASDAQ Composite stocks and the Russell 2000 small caps all gapped open lower today for large losses.

Trading analysts have traditionally referred to market declines as pullbacks until they reach ten percent, where the term, correction, is employed. 

The S&P 500 index broke down through its 50 dma today; the NASDAQ Composite broke through its 50 dma on Wednesday of last week, and the Russell 2000 index found support at its 50 dma today.

Corrections come in different sizes. The correction of February of 2018 was 12%; December 2018 was 20% and the correction in March 2020 was 35% (all measured with the S&P 500 index). It is impossible to predict the severity of this pullback.

The only trades that remain open in my accounts are in the Conservative Income service and my long-term portfolio. Outside of those accounts, it is interesting that my only gains this week were for three earnings announcement trades in the trading group and two trades in the Zero DTE trading service. The irony is that those trades represent the riskier trades of my repertoire. What they have in common is a very short duration. 



I think this is a good time to be largely in cash.

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Written by Dr. Duke

Created: 19 July 2024

The Standard and Poors 500 index (SPX) closed today at 5505, down 40 points or 0.7%. Today’s performance capped off a weekly decline of 2.4%. Trading volume jumped above the 50-day moving average (dma) on Wednesday but then declined the rest of the week.

VIX, the volatility index for the S&P 500 options, opened today at 16.4%, spiked up to 17.2% and moved as low as 10.6% before closing at 16.5%, up almost four percent for the day. VIX opened the week at 12.8% and increased 29% this week. Traders are spooked.

I track the Russell 2000 index with the IWM ETF, which closed today at 216.8, down 1.1 points or 0.5%. IWM opened the week at 214.8 for a weekly loss of 0.9%. IWM started a very strong recovery last week that continued through Tuesday this week before succumbing to the pull back of the blue chips.

The NASDAQ Composite index closed today at 17,727, down 144 points 
or 0.8%. NASDAQ opened the week at 18,486 for a weekly loss of 4.1%. NASDAQ set new all-time highs last week and touched that level on Monday but declined the rest of the week. Trading volume ran below the 50 dma all week with the exception of Monday’s spike and declined significantly today. That may be the result of the global IT outage; many brokers were out of business much of the day.

The broad market indices have traded in a largely bullish trend since early May, but this week brought a decisive change of direction, although I am unsure what triggered the shift. The Russell 2000 was the oddity over much of this period since it was clearly not participating in the rally. However, that all changed on July 11th when IWM gapped open over two percent. IWM gapped open higher over the next four trading sessions. After trying to set a new all-time high on Tuesday, it declined into the close and traded lower the rest of the week.

Russell stood out this week with a gain of 0.9%. The S&P 500 lost 2.4% while NASDAQ brought up the rear with a loss of 4.1%.

The commonly accepted standard for calling a correction is a decline greater than ten percent. Lesser declines are called pull backs. NASDAQ is the winner in the downward race with a decline of 5.1% from its most recent high. SPX has declined 2.9% and the Russell 2000 has lost 3.5%. A relatively small group of high-tech stocks has dominated the bullish run this year, and the small caps were late to the game. Perhaps it isn’t too surprising that the NASDAQ with its high-tech dominance is leading the pull back, just as it led the rise.

I think it is premature to be thinking about corrections, but this week, at a minimum, is worthy of our paying closer attention.

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Written by Dr. Duke

Created: 05 July 2024

The Standard and Poors 500 index (SPX) closed today at 5567, up 30 points or +0.5%. Today’s performance capped off a strong week at +1.8%. Trading volume ran below the 50-day moving average (dma) all week, with the exception of Monday.

VIX, the volatility index for the S&P 500 options, opened the week at 13.0% and declined the rest of the week to close today at 12.5%.

I track the Russell 2000 index with the IWM ETF, which closed today at 201, down one point or -1.5%. IWM opened the week at 204 for a weekly loss of 1.5%. IWM continues to trade a very choppy and non-directional pattern.

The NASDAQ Composite index closed today at 18,353, up 164 points 
or 0.9%. NASDAQ opened the week at 17,774 for a weekly gain of 3.3%. NASDAQ set new all-time highs for each of the past three days. Trading volume ran below the 50 dma all week with the exception of Monday’s spike.

The broad market indices have traded in a sideways channel since June 12th, but that changed markedly this week with nearly a 2% gain for the S&P 500 and the NASDAQ Composite was up over 3%. But the IWM chart, representing the small cap stocks of the Russell 2000, is downright ugly, trading without any direction.

This underscores the below average trading volume of the large blue-chip stocks. To have the strong gains we saw this week post with weak trading volume suggests that the large institutional players are largely on the sidelines.

When I read the articles from the market analysts, they all seem to be waiting for signals from the FOMC about coming interest rate reductions. Weak trading volume suggests the large institutions are far from being “all in”. When we see the Russell 2000 come to life, that will be the signal that the institutional traders are beginning to load up on some risk. Until then, we will continue to see the strong price volatility we have seen in June. No one wants to lose the gains of the past few months and they are nervous that the end is coming.

Be careful out there.

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Written by Dr. Duke

Created: 08 June 2024

The Standard and Poors 500 index (SPX) closed today at 5347, down 6 points or +0.1%. However, SPX was up nearly one percent for the week. SPX set a new all-time high on Wednesday, and the index chopped sideways the balance of the week. Trading volume declined steadily all week, remaining below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 13.1% and spiked up to 14.3% on Monday, but declined the rest of the week to close today at 12.2%. This level of volatility is moderately high for a bullish market; this market is nervous and ready to sell to preserve gains on any pretext.

I track the Russell 2000 index with the IWM ETF, which closed today at 201.2, down 2.3 points or -1.1%. IWM opened the week at 207.5 for a weekly loss of 3.0%. IWM broke down through its 50 dma today. SPX and NASDAQ are setting new market highs, but the Russell 2000 index is declining.

The NASDAQ Composite index closed today at 17,133, down 40 points or -0.2%. NASDAQ opened the week at 16,866 for a weekly gain of 1.6 percent. Trading volume ran below the 50 dma all week, similar to the S&P 500 index.

The market continues to be obsessed with real or imagined signals from Powell and the other members of the FOMC. Nearly all of the large moves in the market this year, higher or lower, have been triggered by perceptions of the Fed’s plans for interest rates. The street sees rate reductions as a return to easy money, economic expansion and a strong stock market. That promise is always appealing. The CME FedWatch now rates the probability of a rate reduction in the FOMC meeting in September at 71%. That estimate is up from 47% the previous week. That appeared to trigger Wednesday’s strong move higher. This bullish move is being led by a small number of high-tech stocks. While the S&P 500 and the NASDAQ were setting new all-time highs, the small cap stocks of the Russell 2000 index broke down through the 50 dma.

This bull market is fragile. If the large players were really confident, we would see strong buying of the high beta stocks of the Russell 2000. This market is riding on the backs of the so-called Magnificent Seven. That is probably the explanation of the below average and declining trading volume on SPX and NASDAQ.

It doesn’t make sense to sit on the sidelines but keep the fragility of this market in mind. Keep a close watch on your positions.

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Written by Dr. Duke

Created: 24 May 2024

The Standard and Poors 500 index (SPX) closed today at 5305, up 37 points or +0.7%. SPX was unchanged for the week. SPX set a new all-time high on Tuesday, but the index lost all of that and more on Thursday. Trading volume continues to run well below the 50 day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 12.3%, spiked as high as 13.4 on Thursday, but closed today at 11.9%. Even Thursday’s spike on the VIX was less than I would have expected for that sudden sell-off.

I track the Russell 2000 index with the IWM ETF, which closed today at 205, up 2.2 points or 1.1%. IWM opened the week at 208 for a weekly loss of 1.4%. IWM really took it on the chin on Thursday, almost reaching its 50 dma. Even today’s bullish move higher barely recovered half of yesterday’s loss. The Russell 2000 isn’t leading the bulls.

The NASDAQ Composite index closed today at 16,921, up 185 points or +1.1%. NASDAQ opened the week at 16,702 for a weekly gain of 1.3 percent. Trading volume ran above the 50 dma all week, in contrast to the S&P 500 index.

The current market appears to be largely driven by comments from Powell or one of the other members of the FOMC. Toward the end of 2023, many Wall Street analysts convinced themselves that the Fed would be reducing interest rates this year, starting in the first quarter. All of the large and sudden moves in the broad market indices this year have been driven by comments or rumors that rate reductions were not imminent. The scare this week came from comments of one of the FOMC members that a rate increase might be in order if inflation isn’t curtailed soon. The street sees rate reductions as a return to easy money, economic expansion and a strong stock market. That promise is always appealing.

May has been a strong month in spite of Thursday’s temper tantrum. But this market remains very volatile and twitchy. It doesn’t take much to tip it one way or the other. Neutral to bullish trades are still working but keep the stops close.

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Written by Dr. Duke

Created: 17 May 2024

The Standard and Poors 500 index (SPX) closed today at 5303, up six points or +0.1%. SPX opened the week at 5233, gaining 1.3% for the week. SPX set a new all-time high on Wednesday, but trading volume has remained below the 
50 day moving average (dma) for the past two weeks.

VIX, the volatility index for the S&P 500 options, opened the week at 13.3% but declined all week, closing today at 12%. Normally a declining VIX would accompany a bullish move higher, but below average trading volume doesn’t fit that scenario.

I track the Russell 2000 index with the IWM ETF, which closed today at 208, nearly flat on the day, up 0.07%. IWM opened the week at 206 for a weekly gain of one percent. Normally, the Russell 2000 leads bull markets. Russell is off its high as the S&P 500 hits an all-time high?

The NASDAQ Composite index closed today at 16,686, up 12 points or +0.07%. NASDAQ opened the week at 16,400 for a weekly gain of 1.7 percent. Trading volume spiked well above the 50 dma on Tuesday and stayed high all week.

The old adage, “sell in May and go away” doesn’t seem to fit this year. The S&P 500 stocks are up 5.4% in May. But traders remain skittish, spiking up or down on the latest comments from Powell or one of the other members of the FOMC. Many of the comments appear to be pushing interest rate cuts later in the year, a far cry from three cuts in 2024 that was once the prediction, or the dream, of many on Wall Street.

May has been a great month for the bulls so far, but I have trouble believing the economy is on a solid foundation. I have always attempted to rationally analyze the market, which I suppose reflects my training in the sciences. But I often find myself trading what the market gives me, not what I think the market should be doing. Whether I think our economy is great right now doesn’t really matter. The bulls are running. I am on the train.

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Written by Dr. Duke

Created: 03 May 2024

The Standard and Poors 500 index (SPX) closed today at 5128, up 64 points or +1.3%. SPX opened the week at 5114, gaining 0.3% for the week. The FOMC meeting, announcement and press conference on Wednesday encouraged traders and the market spiked on Wednesday and continued higher yesterday and today. SPX gapped open by 59 points this morning and recovered the index’s 50-day moving average (dma). Trading volume moved higher this week, but barely made it to the 50 dma today.

VIX, the volatility index for the S&P 500 options, closed today at 13.5%, down over one point or -8%. VIX opened the week at 14.8% but spiked as high as 16% during the week.

I track the Russell 2000 index with the IWM ETF, which closed today at 201.9, up two points on the day or one percent. IWM opened the week at 198 and gained 2% this week.

The NASDAQ Composite index closed today at 16,156, up 315 points or +2%. NASDAQ gapped open higher this morning by 306 points, almost 2%.  NASDAQ opened the week at 16,007 for a weekly gain of one percent. Trading volume barely reached the 50 dma earlier this week, and steadily declined after Wednesday, closing 25% below the 50 dma today.

The markets have been very nervous for several weeks, fearing a hard landing for the economy if the Fed continued to raise the discount rate. Many analysts were hoping for a rate reduction but that didn’t happen. However, during the press conference, Powell suggested more rate hikes may not be necessary, although he also cast doubt on any reductions until inflation has clearly declined. That message seemed to resonate with the market, spiking on Wednesday afternoon, although it couldn’t hold those highs. But after sleeping on the news, traders turned in a solid gain on Thursday and then the markets gapped open strongly this morning.

The S&P 500, NASDAQ and the Russell 2000 indices all recovered their 50 day moving averages today.

I ventured out yesterday and today with some bullish trades, but I still have a lot of cash on the sidelines. Be careful out there. Election years are usually bullish, but the economy is fragile, and the federal debt is out of control. Traders are nervous.

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Written by Dr. Duke

Created: 19 April 2024

April 15th is always a day of mourning, but that mood was contagious this week! The Standard and Poors 500 index (SPX) closed today at 4967, down 44 points or -0.9%. SPX opened the week at 5150, losing 3.7% just this week. The S&P 500 index is now down 5.7% from its high earlier this year. Trading volume finally exceeded the 50-day moving average (dma) today.

VIX, the volatility index for the S&P 500 options, closed today at 18.7% after spiking intraday at 21.3%. VIX opened the week at 16.9%. I think it is fair to say that the complacency of the large institutional traders is turning into serious concern.

I track the Russell 2000 index with the IWM ETF, which closed today at 193.14, and actually gained less than a point on the day – the only broad market index to do so today. IWM ended the week with a 3.1% loss.

The NASDAQ Composite index closed today at 15,282, down 320 points or 
-2.1%. NASDAQ opened the week at 16,276 for a weekly loss of 6.1%. Trading volume has followed the same pattern as SPX this year, running well below average. NASDAQ’s trading volume managed to hit the 50 dma today.

The broad market indices have been trending sideways since around the middle of March, but that changed dramatically this week. The S&P 500 lost almost 4% this week; NASDAQ lost 6% and the Russell 2000 was down 3%. The large institutional traders appear to be sitting on the sidelines, judging from their trading volume which has been running below the 50 dma for about the last six weeks. The S&P 500 and NASDAQ broke that trend today, breaking out above the 50 dma.

 The standard terminology for declaring a market correction is s decline of 10% or more. By that measure, we are not yet in correction, but this week is getting our attention. Since their peaks earlier this year, the S&P 500 is down 5.7%, NASDAQ is down 7.6%, the Russell 2000 Index is down 8.8% and the Dow Jones Industrial Average is down 7.0%. I don’t normally follow the Dow simply because of the small number of stocks represented there (30), but I included it for a complete picture of the carnage.

However, there may be a sign of light at the end of the proverbial tunnel. The DJIA and the Russell 2000 were the only indices to turn in positive gains in today’s trading session. That is particularly interesting in the case of Russell. Those are the small to mid-cap, high beta stocks. They normally lead bear markets downward and bull markets upward. The Russell 2000 Index is down 8.8% from its peak on March 28th, leading the declines of all of these market indices. But it may have broken the downward trend. We’ll see. For now, I think I will remain in my bunker.

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Written by Dr. Duke

Created: 05 April 2024

The Standard and Poors 500 index (SPX) closed today at 5204, up 57 points or 1.1%. SPX opened the week at 5258, losing one percent for the week. Yesterday’s tumble was severe and may have been triggered by the interviews of two FOMC members who doubted that rate cuts were coming soon, if at all, this year. That spooked the market, although SPX did recover about half of the losses today. Trading volume just did reach the 50-day moving average (dma) yesterday but ran well below average for the rest of the week.

VIX, the volatility index for the S&P 500 options, closed today at 16.0%, down 0.3 points or 2%. VIX hit highs of 16.9% yesterday and 16.8% today, after opening the week at 13.6%.

I track the Russell 2000 index with the IWM ETF, which closed today at 204.5, down less than one point on the day, but IWM ended the week with a 3% loss. IWM remains well below last week’s highs and below its all-time high of 237 from 2021.

The NASDAQ Composite index closed today at 16,249, up 199 points or +1.2%. NASDAQ opened the week at 16,397 for a weekly loss of one percent. Trading volume followed the same pattern as SPX, running well below average all week with the exception of yesterday when it barely exceeded the 50 dma. Today’s trading volume on NASDAQ was very low. I am unsure why.

The broad market indices have been trending sideways in a tight channel for the last several trading sessions. But this market is apparently very nervous, judging from yesterday’s severe decline. The relatively high levels of VIX suggested as much recently, failing to decline very far in spite of a pretty strong run since November. The large institutional traders appear to be sitting on the sidelines, judging from the trading volume. Even in yesterday’s debacle, volume was running at or below the 50 dma. 

I noted the relative weakness of the Russell 2000 index about two weeks ago. “IWM has been pretty weak for the past 2-3 weeks, even while the broad market indices have continued to advance. A weak Russell 2000 together with below average trading volume are warning us not to get too far out on our skis in this market.”

Yesterday’s midday collapse is ample evidence of this nervous market. SPX managed to recover about half of yesterday’s losses in trading this morning. However, even those advances were timid.

The tentative nature of this market results in higher option premiums, so those of you that like to sell options for income are probably profiting, but many stocks are somewhat schizophrenic: up today and down tomorrow. It makes for a nervous ride.