Dr. Duke's Blog

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Written by Dr. Duke

Created: 22 March 2024

The Standard and Poors 500 index (SPX) closed today at 5234, down 7 points or -0.1%. SPX opened the week at 5155, gaining 1.5% this week. Today’s weakness may have resulted from the FOMC chairman’s speech today. Many traders naively expect Powell to give them a schedule for rate cuts. Trading volume ran well below the 50-day moving average (dma) for the entire week.

VIX, the volatility index for the S&P 500 options, closed today at 13.1% after opening the week at 14.8%.

I track the Russell 2000 index with the IWM ETF, which closed today at 205.1, down almost three points on the day but ended the week with a 1.3% gain. IWM remains near its recent highs set this week around 208 to 209, but remains below its all-time high of 237 from 2021.

The NASDAQ Composite index closed today at 16,429, up 27 points or +0.2%. NASDAQ opened the week at 16,155 for a weekly gain of 1.7%. NASDAQ’s trading volume followed the same pattern as SPX, running well below the 50 dma all week.

The S&P 500 stocks rallied strongly on Wednesday after the FOMC failed to lower the discount rate. That may seem surprising, but the Fed’s reluctance to raise rates higher was a relief for traders. Ever since the December meeting of the FOMC, the institutional traders have been convinced that rates would be declining as early as the first quarter of this year. The FOMC has published the predictions from the committee members of many economic data points with the report issued after every meeting. Traders did not pay much attention to the so-called “dot plot” in the past. After all, what confidence do we have that anyone knows the rate of inflation, interest rates, unemployment and other data for the next four quarters? However, I have noted several authors referring to that dot plot as the Fed’s projection of future interest rates.



The implied volatility of the S&P index, as measured by VIX, declined this week, closing at 13.1%. In the current era of high inflation and extreme U.S. debt levels, the lowest VIX levels seem to be in the range of 12-13%.
The bull run we have witnessed since last November has been strong, but volatility remains relatively high. The other unusual characteristic of this market is the extremely low trading volume. The S&P 500 index and NASDAQ Composite have been trading with volume generally below the 50 dma this year with only a few exceptions. Trading volume ran below average this week on both broad market indices.

I keep a close eye on the Russell 2000 index, as measured by IWM, because the small and mid-cap stocks normally lead bull markets. 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 a warning us to not get too far out on our skis in this market.

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Written by Dr. Duke

Created: 09 March 2024

The Standard and Poors 500 index (SPX) closed today at 5124, down 34 points or -0.7%. SPX opened the week at 5131, setting up a weekly loss of 0.1%. Today’s loss appeared to start with this morning’s jobs report. Trading volume has declined all week and has been below the 50-day moving average (dma) for the last two days.

VIX, the volatility index for the S&P 500 options, closed today at 14.7%. VIX opened the week at 13.5% but rose steadily as the market softened and traders looked for protection.

I track the Russell 2000 index with the IWM ETF, which closed today at 207, down a tenth of a point on the day and unchanged for the week. IWM remains above the previous high from 2023 that it broke last week. But IWM remains below its all-time high of 237 from 2021.

The NASDAQ Composite index closed today at 16,085, down 188 points or -1.2%. NASDAQ opened the week at 16,264, for a weekly loss of -1.1%. NASDAQ’s trading volume followed the same pattern as SPX, hitting a high on Tuesday and declining the rest of the week.

Today’s decline in the markets was triggered by the jobs report coming in better than expected. It may seem odd that good news hurts the market, but in this case, good news causes the large institutional traders to worry that strong job growth will convince the FOMC that the economy is too hot to lower interest rates anytime soon. Ever since the December meeting of the FOMC, the large traders have been convinced that rates would be declining as early as the first quarter of this year. However, one of the committee members offered the opinion earlier this week that rates might not decline until the fourth quarter of this year, if at all.



The implied volatility of the S&P index, as measured by VIX, didn’t rise very much this week, closing at 14.7%. A modest amount of protection is being purchased.

I continue to miss one significant characteristic of a strong bull market, i.e., increased trading volume. The S&P 500 index and NASDAQ Composite have been trading with volume generally below the 50 dma this year with only a few exceptions. Trading volume declined this week on both broad market indices.

The strongest sign of a continued bull market may be inferred from the Russell 2000 index, as measured by IWM. While SPX and NASDAQ took a haircut this week, IWM ended the week unchanged. On the other hand, IWM remains well below its all-time high from 2021. SPX and NASDAQ slipped below last week’s all-time highs today.

I am not ready to throw in the towel on the bull market yet, but we certainly took a warning shot across the bow today.

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Written by Dr. Duke

Created: 01 March 2024

The Standard and Poors 500 index (SPX) closed today at 5137, up 41 points or 0.8%. SPX opened the week at 5093, setting up a weekly gain of 0.8%. Today’s strong showing made up for earlier losses this week. Trading volume ran below the 50-day moving average (dma) all week with the exception of Thursday; I don’t know why it spiked then.

VIX, the volatility index for the S&P 500 options, closed today at 13.1%. VIX opened the week at 14.2% but steadily declined the rest of the week.

I track the Russell 2000 index with the IWM ETF, which closed today at 206, up two points on the day (+1.1%) and up three percent for the week. IWM broke the previous high for 2023 at 205 today, but it remains well below its all-time high of 237 from 2021.

The NASDAQ Composite index closed today at 16,275, up 183 points or 1.1%. NASDAQ opened the week at 16,014, for a weekly gain of 1.6%. NASDAQ remains shy of its all-time high from 2021, 16,212. NASDAQ’s trading volume ran at or slightly below the 50 dma all week with the exception of Thursday. What happened on Thursday?

I think the last two years in the market have conditioned me to expect the worst. Since this bull run began in November, I remained pessimistic, expecting a correction. But every time the market pulled back a bit, traders bought the dip and off we went. I tend to evaluate the market on the basis of the economic data, which have been mediocre at best. Every time I see a grocery bill or the cost of a meal at a familiar restaurant, the rate of inflation is impressive – and somehow is much higher than the 3% that is reported by the government.



With all of this bullish price action, one might expect implied volatility to be dropping, but the decline hasn’t been significant. VIX only lost one percentage point this week, closing today at 13.1%. Historically, that is higher than past bull markets. The large institutions may be a bit concerned, but the market steadily pulls ahead.



The Russell 2000 index, as measured by IWM, has been slow to jump on the bulls' wagon. IWM has also been much more volatile that the other broad market indices. IWM has gapped open either higher or lower nine times in February.

One bullish signal is missing in all of this bullish price action and that is higher trading volume. Both the S&P 500 index and NASDAQ have been trading with volume at or below the 50 dma this year with only a few exceptions.

The S&P 500 set a new all-time high today. I was watching the one-minute chart today, and SPX just motored higher all day. I kept expecting a last-minute sell-off as traders took profits, but it didn’t happen. That was a strong bullish signal, especially for a Friday afternoon.

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Written by Dr. Duke

Created: 16 February 2024

The Standard and Poors 500 index (SPX) closed today at 5006, down 24 points or 0.5%. SPX opened the week at 5027, setting up a weekly loss of 0.4%. Trading volume ran below the 50-day moving average (dma) most of the week; even when the CPI report disappointed the market on Tuesday and SPX took a tumble, trading volume didn’t spike higher. The bulls managed to push the S&P 500 stocks back to Monday’s levels by the end of trading on Thursday. That is an impressive recovery.

VIX, the volatility index for the S&P 500 options, opened the week at 13.5% and closed today at 14.2%. VIX nearly reached 18% on Tuesday but steadily declined the rest of the week to its close today at 14.2%.

I track the Russell 2000 index with the IWM ETF, which closed today at 202, down three points on the day (-1.4%) and up one percent for the week. IWM matched its December high at 205 on Thursday but pulled back a bit today. These are high beta stocks and you can see that with the extreme downward move on Tuesday and then an equally strong move over the next two days.

The NASDAQ Composite index closed today at 15,776, down 131 points or 0.8%. NASDAQ opened the week at 15,980, for a weekly loss of 1.3%. NASDAQ declined significantly on Tuesday and could not recover all of that loss this week. NASDAQ’s trading volume ran below the 50 dma all week with the exception of Thursday. Surprisingly, when the market dropped so far on Tuesday, NASDAQ’s trading volume barely reached the 50 dma.

The strength of this bullish run since early November is a sight to behold. The CPI report on Tuesday morning triggered a strong sell-off, but the immediate bullish response was remarkable. By today’s close, the market had nearly recovered all of Tuesday’s losses. The inconsistency of the strong recovery was average to below average trading volume on both the S&P 500 and the NASDAQ Composite.

VIX nearly hit 18% on Tuesday but it was short-lived. The institutions and large funds have gotten over their disappointment that a reduction in interest rates isn’t imminent.

The relative weakness of the Russell 2000 index continued through the end of January, but even Russell is on board with the bulls. Yesterday’s close in IWM was nearly at the high from 2024. This recovery is a strong endorsement of this bull market.

I find myself thinking that this market has gone too high too fast, but the trading in the Russell 2000 and the rapid recovery after Tuesday’s sell-off has convinced me of the bullish strength underlying this market. I am jumping on board and will make hay while the sun shines - but I am keeping a close lookout for rain clouds.

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Written by Dr. Duke

Created: 02 February 2024

The Standard and Poors 500 index (SPX) closed today at 4959, up 52 points or 1.1%. SPX opened the week at 4893, setting up a weekly gain of 1.3%. Trading volume ran above the 50-day moving average (dma) most of the week. After a disappointment on Wednesday that rates were not likely to be raised by the FOMC at the next meeting, the bulls got over it and opened today's trading with a gap opening and a very strong showing.

VIX, the volatility index for the S&P 500 options, closed today at 13.9%. Even with the market’s large pullback on Wednesday, VIX didn’t exceed 14.5%. The bulls didn’t even blink.

I track the Russell 2000 index with the IWM ETF, which closed today at 194, down a full point on the day (-0.5%) and down one percent for the week. IWM remains 5.4 percent below its December high at 205. These are the high beta stocks that should be leading a true “risk on” bullish run.

The NASDAQ Composite index closed today at 15,629, up 267 points or +1.7%. NASDAQ opened the week at 15,455, setting up a weekly gain of 1.1%. NASDAQ really tanked on Wednesday, making it difficult to fully overcome that loss this week. NASDAQ’s trading volume ran below the 50 dma all week with the exception of Wednesday. NASDAQ remains well below its all-time high of 16,121.

The odds on the street were for no change in the discount rate by the Fed on Wednesday, so the market was essentially wandering sideways until Powell was asked if the rates would be lowered at the next meeting in March. That led to a seventy nine point decline on Wednesday. But something changed the next day as traders made up most of that loss. Then SPX gapped open this morning and just ran strongly into the close.

The lack of a strong increase in VIX on Wednesday’s loss was the clue. The institutions and large funds were not concerned about Powell’s comment and the bulls drove the market higher. 

I continue to worry about the relative weakness of the Russell 2000 index. These are the high beta stocks that tend to lead strong bull markets. The weak trading volume on the NASDAQ Composite is another cautionary signal. Trading in the S&P 500 stocks rose this week, but not as much as one would expect in a strong bull market.

I am booking gains in this bull market but I am cautiously watching for signs of a correction. This just seems too good to be true.

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Written by Dr. Duke

Created: 26 January 2024

The Standard and Poors 500 index (SPX) closed today at 4891, almost unchanged with a decrease of three points or -0.07%. SPX opened the week at 4853, setting up a weekly gain of 0.8%. Trading volume ran at or slightly above the 50-day moving average (dma) this week. Today’s trading volume came in below the 50 day moving average (dma). The S&P 500 index appears to be slowing a bit after strong gains over the past two weeks.

VIX, the volatility index for the S&P 500 options, closed today at 13.3%. VIX opened the week at 13.8%, declined to a low on Wednesday of 12.4% and rose over the last three trading sessions. The slight rise over the last few days probably reflects some concern that this bullish run is slowing.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 196, unchanged for the day and up less than one percent for the week. This is a much weaker chart than SPX or NASDAQ. IWM remains four percent below its December high at 205. These are the high beta stocks that should be leading a true “risk on” bullish run.

The NASDAQ Composite index closed today at 15,455, down 55 points or -0.4%. NASDAQ opened the week at 15,393, setting up a slight weekly gain of 0.4%. NASDAQ’s trading volume was slightly above the 50 dma on Monday and ran below that average the rest of the week. NASDAQ remains well below its all-time high of 16,121.

Traders appear to have finally accepted that the Fed will not be reducing interest rates at this coming meeting January 30-31. The trading action after the FOMC announcement on 1/31 may be volatile.

The S&P 500 continues to set new all-time highs, but NASDAQ remains about four percent below its all-time high. And the Russell 2000, as measured by IWM, remains over four percent below its high from December. 

The relative weakness of the Russell 2000 index is a significant cautionary signal; these are the high beta stocks that tend to lead strong bull markets.

The weak trading volume on both the S&P 500 and the NASDAQ Composite is another cautionary signal.

A less quantitative concern is the frequency of significant market corrections in the markets after an extremely strong run higher. In fact, that is why we use the term, correction. The idea is that the market went too high, too quickly. It is helpful to remind ourselves that the S&P 500 has not only set a new all-time high; this index has also risen 19% in only three months.

Don’t misunderstand. I am not sitting on the sidelines touting the coming crash. I am playing this market, but I am cautious and very particular in evaluating the opportunities.

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Written by Dr. Duke

Created: 19 January 2024

The Standard and Poors 500 index (SPX) closed today at 4840, up 59 points or 1.2%. SPX opened this holiday shortened week at 4772, setting up a weekly gain of 1.4%, with most of that gain coming today. Trading volume ran at or slightly above the 50-day moving average (dma) this week. Today’s trading volume seems somewhat weak for a gap opening higher this morning and such a strong gain.

VIX, the volatility index for the S&P 500 options, opened the week at 14.1%, 
rose on Wednesday’s decline, but then dropped yesterday and today to close 
at 13.3%.

I track the Russell 2000 index with the IWM ETF, which closed today at 192, unchanged for the week. This is a much weaker chart than SPX or NASDAQ. IWM hit its December high at 205 on 12/27 but remains over six percent below that high. These are the high beta stocks that should be leading a true “risk on” bullish run.

The NASDAQ Composite index closed today at 15,311, up 255 points or 1.7%. Surprisingly, this remains well below NASDAQ’s all-time high at 16,212, set on 11/22/2021. NASDAQ opened the week at 14,564, setting up a strong weekly gain of 2.7%. Nasdaq gapped open higher the last two mornings, but the trading volume remained rather low, similar to the S&P 500.

The market continues to view any and all positive economic data as supporting the Fed decreasing the discount rate. That makes me very wary of the trading action after the FOMC announcement on 1/31 because I don't see that happening. The Fed has been very clear about reaching two percent inflation rates before lowering the discount rate.

The S&P 500 set a new all-time high today, but NASDAQ remains about six percent below its all-time high. And the Russell 2000, as measured by IWM, remains over six percent below its high from December. 

The Russell 2000 normally leads strong bull markets; these are the high beta, “risk on” stocks the large funds play when they see the opportunity to “pile on”. The relatively weak trading volume on both the S&P 500 and the NASDAQ Composite should caution us to not get too carried away with bullish euphoria. Given the extreme debt levels and current political dysfunction in our country, there is a non-zero probability of a significant market correction in our future.

Pick your winners carefully. Remain cautious.

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Written by Dr. Duke

Created: 12 January 2024

The Standard and Poors 500 index (SPX) closed today at 4784, essentially flat, up less than four points or 0.08%. SPX opened the week at 4704, setting up a weekly gain of 1.7%, recovering last week’s losses. Trading volume ran just below the 50-day moving average (dma) all week. This level of trading volume seems lackluster for a bullish week of recovery.

VIX, the volatility index for the S&P 500 options, opened the week at 14.0% and steadily declined all week to close at 12.7%.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 193. This is a much weaker chart than SPX or NASDAQ. IWM opened the week at 193, so while SPX and NASDAQ were recovering last week’s losses, IWM was unchanged. IWM hit its December high at 205 on 12/27 but remains 5.9% below that high. That is not a bullish sign.

The NASDAQ Composite index closed Friday at 14,973, up three points or 0.02%. NASDAQ opened the week at 14,564, setting up a strong weekly gain of 2.8%. With the exception of Monday, trading volume ran below the 50 dma all week.

Traders concluded after the December FOMC meeting that the Fed was planning to begin reducing interest rates during the first quarter. Then the CPI came out this week with an increase of the annual rate of +3.2% up to +3.4%. The initial response was a large decline on Thursday, but the market recovered intraday.

The Santa Claus rally, developed by Yale Hirsch of the The Stock Trader’s Almanac, follows the trading of the last five days in December together with the first two trading days in January. Santa Claus didn't visit Wall Street this year, declining 1.1%. The Stock Trader’s Almanac also follows the First Five Days of January and the January Barometer for the full month of January. The First Five Days indicator also failed this year with a decline of 0.4%. Now we wait on the January Barometer to give us a clue for the nature of this year's market. The strongest bullish signal occurs when all three January indicators are positive. When we see a positive gain for the entire month of January, we have an 84% track record of this preceding a bullish year.

Another Stock Trader’s Almanac measure to watch is whether the December lows are broken during the first quarter; when that happens, the probability of a bearish year increases.

The S&P 500 has now recovered all of last week’s losses and set a new high. NASDAQ has recovered much of its losses but remains below the previous highs. The Russell 2000 isn’t even close to recovering its recent losses. I am not feeling very confident that the bulls can carry this market. Be cautious.

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Written by Dr. Duke

Created: 06 January 2024

The Standard and Poors 500 index (SPX) closed Friday at 4697, up nine points or 0.2%, but down one percent for the first week of the new year. Trading volume ran at or just below the 50-day moving average (dma) all week. The bullish run from early November hit its high on 12/28 at 4793 and has now declined two percent from that high.

VIX, the volatility index for the S&P 500 options, opened the new year at 13.2% and closed at 13.4% Friday after spiking as high as 14.6% earlier on Friday.
 
I track the Russell 2000 index with the IWM ETF, which closed yesterday at 193, down less than one point on Friday, but down 3.1% for the first week of the new year. IWM hit its high in the most recent bullish move at 205 on 12/27 and is now down nearly six percent from that high. IWM broke support at 196 and closed just above the next support level around 192.

The NASDAQ Composite index closed Friday at 14,524, up 14 points or 0.09%. NASDAQ opened the week at 14,874, setting up a weekly loss of 2.4%. Trading volume ran slightly above the 50 dma all week. NASDAQ closed near support on Friday and the next support level is near the 50 dma at 14,162.

The strong bull market since early November was primarily based on traders’ expectations for the FOMC to lower interest rates in 2024. The so-called dot plots of the committee members that accompanied the Fed announcement in December were forecasting two to three rate cuts in 2024. Since then, the enthusiasm has faded steadily. The release of the minutes from the last FOMC meeting this week threw cold water on any rate cuts early in 2024. Committee discussion was hopeful that further hikes would not be necessary, but several committee members were concerned that the inflation rate may not be fully constrained. That took the steam out of the bulls’ sails and contributed to the bearish trading to start the new year.

The Santa Claus rally, coined by Yale Hirsch in 1972 (founder of the Stock Trader’s Almanac), describes a common bullish trend for the last five trading days in December and the first two trading days in January. The Santa Claus rally took a pass this year, declining 1.1%.

The Stock Trader’s Almanac also follows the First Five Days of January and the January Barometer for the full month of January. All three measures comprise the January Trifecta; when all three are positive, the S&P 500 has been positive for the year over 90% of the time. The Santa Claus rally failed, and the First Five Days is looking like a second failure, with four days done and the market down one percent. The track record of the January Barometer by itself boasts an accuracy of 84%.

Friday’s intraday trading was generally more bearish with highs set early and most of the subsequent trading trending lower. But the market managed a positive finish for the day. I am left with a mixed review for the 2024 market.

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Written by Dr. Duke

Created: 16 December 2023

The Standard and Poors 500 index (SPX) posted a record-breaking day on Wednesday after the FOMC announcement, but settled a bit on Thursday and Friday, closing yesterday at 4719, essentially unchanged. SPX opened the week at 4593, setting up a 2.7% gain for the week. Trading volume spiked up to 5.6 billion shares yesterday, partly due to quadruple witching, but trading volume was up to 3.8 billon shares on Thursday, with the 50-day moving average (dma) at 2.5 billion shares. Many large traders were taking profits.

VIX, the volatility index for the S&P 500 options, opened the week at 13.1% and declined to close at 12.3% yesterday, although VIX did move as high as 12.7% on Thursday. VIX has not been this low since the beginning of 2020.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 197, down almost two points, just under one percent. IWM opened the week at 187, setting up a strong weekly gain of 5.3%. IWM gapped open over three percent on Thursday morning.

The NASDAQ Composite index was slightly more bullish than the S&P 500 this week, closing up Friday at 14,814, up 52 points or 0.4%. NASDAQ opened the week at 14,340, setting up a weekly gain of 3.3%. Trading volume ran above the 50 dma all week and was pushed higher today by quadruple witching, but trading volume on NASDAQ was over eight billion shares both Thursday and Friday.

The market has been on a strong run since October 30th, nearly straight up with several gap openings. Traders were apprehensive as the FOMC announcement neared but traded strongly higher on the announcement. The pause in rate hikes was widely anticipated, but the key data were the so-called dot plots of the committee members, which were forecasting two to three rate cuts in 2024. The end result was a huge day in the markets on Wednesday, but that was followed by profit taking on Thursday and Friday as the excitement faded.

It is helpful to step back and study the big picture for a moment. I may be alone, but I have been beaten up by this market over the past two years. It wears on you and can lead to a pessimistic outlook.

The S&P 500 and the NASDAQ Composite both hit their all-time highs in late 2021 and remain about 2% and 9%, respectively, below those highs. The Russell 2000 is about 20% below its high in November 2021. It may have been choppy, but a large amount of market repair has occurred this year. The slowdown for the bulls over the last two trading sessions may reflect a sobering effect after the Fed excitement upon reflection on some of the strong headwinds facing the market. We have now had two warnings of possible downgrades to our treasury bond debt. We are in a very similar situation to what Greece faced about eight years ago with our debt levels being much higher than our GDP. Congress appears to be completely unaware of this situation. In view of the upcoming election, I don’t expect anyone to touch this third rail and we may reasonably expect a continuation of the bull market into 2024. But I am watching my financial assets carefully.