Dr. Duke's Blog

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Written by Dr. Duke

Created: 19 November 2013

The markets opened down this morning and chopped sideways until early afternoon when they moved into the red and stayed there. SPX traded down $4 and closed at $1788, while RUT lost $6, closing at $1101. This pattern of RUT trading weaker than SPX is continuing. Trading volume was flat to lower with 2.1 billion shares of the S&P 500 stocks trading. Trading volume was down 2% on the NYSE and decreased 5% on NASDAQ.

Volatility moved up a bit again today with the VIX closing at 13.4%, up about one third of a point.

No economic data were reported today. Tomorrow brings retail sales, existing home sales and the CPI.

My Dec iron condor stands at a net P/L of +$1,800 or +13% with position delta = -$38 and position theta = +$136 (20 contracts). 

It appears that the bears are gaining more control in this market over the past couple of days. But the pullbacks this year have generally been taken as opportunities to buy. So I would be cautious about playing to the downside.

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Written by Dr. Duke

Created: 18 November 2013

Was today's minor pull back just a blip on the bullish screen or the beginning of the correction everyone is predicting? Hard to tell. But it is rare that the market does what everyone is expecting. SPX dropped off $7 to close at $1792 and RUT fell $9 to close at $1107. The VIX rose almost one point to 13.1%. That remains a low level of volatility, but it bears watching. Trading volume fell today, which serves to lend less credence to the drop in the indexes. Trading in the S&P 500 stocks dropped to 2.1 billion shares while trading on the NYSE decreased 13%. Trading on NASDAQ dropped 4%. SPX traded sideways all day until about 3 pm ET, when it began to fall. It recovered only slightly (about $3) a few minutes before the close.

I always compare the advances or declines on SPX versus RUT. And lately, that signal has generally been bearish. SPX has been setting new all-time highs, but RUT has not set a new high for about three weeks. Today, both indexes pulled back modestly, but RUT pulled back more (0.4% vs. 0.8%). It is fair to conclude that the market's bullishness is at least moderating.

The only economic news today was the NAHB Housing Market Index, which came in unchanged for November at 54.

My Dec iron condor stands at a net P/L of +$1,160 or +8.4% with position delta = -$62 and position theta = +$140 (20 contracts). 

The drop in the markets this afternoon was attributed to Carl Icahn's bearish comments at a conference. This is one more indicator of the general nervousness of this market. It moves on the most trivial of data.

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Written by Dr. Duke

Created: 15 November 2013

This market just can't stop trading higher. Analysts keep predicting a correction, but the market keeps trading higher. But I often fall into the trap of thinking the market is a rational entity, but, of course, that isn't correct. SPX added another $8 today, closing at $1798 while RUT added $5 to close at $1116. This was another all-time high for SPX, but RUT is still trying to catch up. Volatility dropped a bit with the VIX trading down to 12.2%, not far from the 11.8% low of early August. Trading volume was basically flat with 2.3 billion shares of the S&P 500 stocks trading. Volume rose 3% on the NYSE, but dropped 4% on NASDAQ.

Economic data isn't driving this market; it's the Fed stimulus. Today's economic data were pretty weak, but it didn't matter. The Empire Manufacturing survey came in at -2.2, down from the previous +1.5. Industrial production declined 0.1% in October, as compared to September's +0.7%. Capacity utilization was flat for October at 78.1%.

SPX settled at $1790.90 and RUT settled at $1111.25. That finalized my November condor position on SPX at a loss of 8%, bringing the year to date record for Flying With The Condor™ to +6.2%. My Dec condor on RUT at 1030/1040 and 1150/1160 stands at a net gain of $560 on 20 contracts or +4.1% with position delta = -$92 and position theta = +$124.

Have a great weekend.

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Written by Dr. Duke

Created: 14 November 2013

SPX tacked on a few more dollars to set a new all-time high, closing at $1791, up $9. But RUT lost a dollar to close at $1111. This is beginning to be a familiar pattern with SPX leading the bull charge while RUT lags behind. This is not a bullish indicator. RUT has led this bull market trend all year, but has lagged behind for the past couple of weeks. RUT set new highs in October around $1123, but has yet to return even close to those levels as SPX sets new all-time highs toward the end of October and through today. All of this adds up to a dangerous time; we are overdue for some type of breather. That breather may be more or less benign. It could be simply a period of sideways choppiness or it could be an ugly correction. The longer the market trades higher and higher, the higher the probability of a severe correction.

Trading volume was mixed today with the trading of the S&P 500 moving slightly higher at 2.2 billion shares, while trading volume on the NYSE dropped 6%. But trading on the NASDAQ increased 9%. The VIX is almost unchanged, dropping about two tenths of a point to 12.4%. That low VIX reading tells me that the large institutional players aren't concerned about this market as yet. But I think they should be.

Initial unemployment claims were flat with 339 thousand and continuing claims were precisely the same as last week at 2.874 million. Tomorrow brings the Empire manufacturing survey, industrial production and capacity utilization reports, but normally those reports don't cause significant market moves. But it is hard to predict what might move this market.

Happy birthday to Prince Charles (and me). As usual, his birthday made the news, but mine...

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Written by Dr. Duke

Created: 13 November 2013

 SPX broke out to new all time highs today with a spurt of $14 to close at $1782. RUT ran up $11 to close at $1112, but RUT's all time high remains quite a bit higher at $1123. Trading volume in the S&P 500 stocks bumped up to the 50 dma at 2.1 billion shares. Trading on the NYSE increased 9% and trading volume on NASDAQ increased 2%. The VIX dropped back down to 12.5%.

Most of the talking heads attributed today's big rally to Macy's excellent earnings announcement causing analysts to think holiday sales will be strong. But that announcement occurred before the market opened this morning and SPX opened down at the open. It was only after noon that the markets began to trade upward. SPX appeared to be trading in a tight consolidation range from about $1745 to $1772 until today's break out. Does today's move mark a new leg in the bull rally? Or will we see the market sell off tomorrow? Hard to say, but I would want to see an open tomorrow above today's close at $1782 to start playing the all out bullish trades.

The earnings parade continues with CSCO this evening and WMT tomorrow after the close.

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Written by Dr. Duke

Created: 12 November 2013

The Standard and Poors 500 Index (SPX) is what I principally watch as a measure of the broad stock market. Everyone talks about the Dow, but that is only 30 stocks. The 500 stocks in SPX give us a better overall view of the market. SPX opened downward this morning and tried to bounce but instead slid downward until later in the afternoon when it recovered somewhat but still closed down $4 at $1768. RUT closed unchanged at $1101. Volatility moved up about one third of a point to 12.8%, so we seem to be in a relatively complacent sideways market that is just treading water for now. One wonders when the next shoe drops and we see a spurt one way or the other. But it is nice to see some calm seas for a change.

There were no economic reports of any consequence today. Trading volume increased a bit from yesterday with 2.0 billion shares of the S&P 500 stocks trading, but this remains below the 50 dma at 2.1B. Trading increased 17% on the NYSE and volume increased 10% on NASDAQ.

This is a good time to be trading non-directionally and just watch time decay work for you. But stay alert. I don't think the era of high price volatility is over.

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Written by Dr. Duke

Created: 11 November 2013

 Many traders must have taken Veteran's Day off. Trading was very slow. SPX traded up $1 to close at $1772 and RUT rose $2 to close at $1102. The VIX fell almost a half point to 12.5%. Trading volume fell off dramatically with 1.6 billion shares of the S&P 500 stocks trading (2.4B traded Friday). Trading fell 35% on the NYSE and volume dropped 19% on NASDAQ.

No economic news was released today.

Unless you own PriceLine, it was a slow day. PCLN is trying to break through $1100 per share. It managed it this morning but then it pulled back.

My thanks to all of you veterans. We owe you big time.

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Written by Dr. Duke

Created: 08 November 2013

The S&P 500 gave up $23 yesterday, closing at $1727. Today, SPX rose $23 to close at $1771.  RUT behaved similarly, closing up $21 at $1100. SPX essentially made a rather large round trip in just two days - wow! What does that tell us? The trading gods are toying with us.

Yesterday we had an excellent GDP report with annualized growth in the third quarter of 2.8%. And the market traded down. The standard explanation was either 1) the correction we have expected has begun, or 2) this means the Fed will begin to reduce their stimulus programs. This morning we were surprised by a good jobs report of 204 thousand new jobs. Unemployment ticked up a bit to 7.3%, and most of the new jobs were minimum wage jobs, but it was still refreshingly good. And the markets regained everything that was lost yesterday! So good news was bad news yesterday, but good news was treated as great news today. I can't explain it. I think it merely reinforces what we have been subjected to all year. The markets have repeatedly traded scared and then reversed on a dime. Very few fund managers have reported consistently good results this year. It has been a maddening market. I think it is a combination of traders trying to predict the effects of the Fed supporting the market and the increasing amount of automated trading that swings huge volumes back and forth in very short periods of time.

Trading volume dropped back a bit from yesterday with 2.4 billion shares of the S&P 500 trading. Trading on the NYSE declined 8% while trading volume on NASDAQ dropped 13%. Volatility decreased by a full percentage point with the VIX coming in at 12.9%.

I think yesterday's price action, at a minimum, serves as a warning about this market. Traders are nervous and the rush for the exits can easily be triggered by rather benign events.

I closed my Nov SPX 1800/1810 call spreads today. This locks in a 6.4% loss for November, assuming the 1650/1660 put spreads expire worthless. But my December positions are already up about 3%.

This was certainly an interesting week in the markets. Relax and enjoy your weekend.

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Written by Dr. Duke

Created: 06 November 2013

Today's markets were reasonably positive, if you didn't look too closely. And the talking heads struggled to explain why. The two most common reasons given were a report from Germany of improved industrial orders and a report that Microsoft is narrowing their search for a CEO. Really?

SPX gained $8 to close at $1770, but RUT didn't follow suit. It fell $5 to close at $1099. So, once again, as we have seen several times recently, SPX and the Dow are running higher on their own and the small caps and mid-caps are showing weakness. This isn't a sign of strength. And the root cause isn't German industrial orders. This market is running out of steam. A sideways consolidation will be the most gentle correction. Investor's Intelligence reported its weekly survey of investors' bullish and bearish expectations. We are near record highs with over 55% of the investors surveyed saying they are bullish. This survey often predicts the tops and bottoms of the market based on these excesses of sentiment in one direction or the other.

Trading volume was mixed, with the S&P 500 stocks increasing to 2.1 billion shares and volume dropping 4% on the NYSE. But trading volume rose 5% on NASDAQ.

My November condor continues to limp along. I will most likely close the call spreads Friday and that will effectively close the trade.

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Written by Dr. Duke

Created: 05 November 2013

After yesterday's strong push back higher, one might have expected a continuation of the bullish trend. The markets opened weakly this morning, but regained their footing by noon and closed with modest losses on the day. SPX lost $5, closing at $1763 and RUT closed down $5 at $1104.  Volatility rose a touch with VIX closing up three tenths of a point at 13.3%. Trading volume was modestly higher with 2.0 billion shares of the S&P 500 trading today (up from 1.9B yesterday). Trading volume increased 13% on the NYSE and increased 7% on NASDAQ.

The ISM Services index came out this morning at 55.4 for October, up modestly from last month's 54.4. But that didn't seem to impress the markets. The Boston Fed president, Eric Rosengren, was reported to have said that the FOMC will keep interest rates low for "quite some time". You might think that would encourage the bulls, but it didn't appear to have much effect. My impression is that more and more market observers are worrying about the long term effects of the Fed meddling in the markets.

My Nov iron condor on SPX continues to benefit from time decay lessening the loss on the position to -9% with position delta = -$66 and theta = +$230.

In after hours trading the market darling, Tesla, appears to have stumbled with the shares down over $20 to $157 in after hours trading following their earnings announcement. Is this the beginning of a slide or will the bulls come to the rescue?