Dr. Duke's Blog

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Written by Dr. Duke

Created: 22 April 2023

The Standard and Poors 500 index (SPX) closed yesterday at 4134, up four points on the day or +0.1%. SPX opened the week at 4137, essentially unchanged over the week. Note the long lower shadows on the candlesticks this week. The bulls are holding the market up but are not strong enough to push it higher. Trading volume continues to run below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 17.6%, and steadily declined to yesterday’s close at 16.8%. Implied volatility is also largely unchanged for the week.

The NASDAQ Composite index closed at 12,072 yesterday, up 13 points or +0.1%. NASDAQ opened the week at 12,108, down 0.3% for the week or effectively unchanged. The long lower shadow on yesterday’s candlestick shows the support of the bulls; they are holding back the bears but aren’t able or willing to drive it higher. NASDAQ’s trading volume continues to run below the 50 dma.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 177.6, up 0.2 points or +0.1% on the day. IWM opened the week at 177, so the Russell 2000 index is also trading sideways, in parallel with its big brothers, SPX and NASDAQ.

The fundamentals of this market remain unchanged. We continue to have high inflation, although the last CPI and PPI reports gave us some hope of moderation. On the other hand, the Fed’s pushing interest rates higher to fight inflation is stressing the banks holding large quantities of low interest treasury bonds. These forces appear to be roughly balanced at this point and I think the sideways trading in the market is evidence of that standoff. The S&P 500 index continues to trade between well-defined support around 4100 and the February highs around 4200. Traders are watching closely for signals of a breakout up through 4200 or a break down through 4100 or even 4050.

The SPX iron condors in my Flying With The Condor™ service are working very well in this market, up 35% in 2021, up 38% last year, and up 21% thus far this year. We have added a sister product, focused on smaller accounts, trading the S&P ETF, SPY. Our May and June positions stand at +18% and +12%, respectively. Contact me if you have any questions about this new service.

I remain cautious in this market. A small number of stocks are weathering the storm, but prices are very volatile. Being whipsawed in and out of positions is commonplace. Trade small and retain a large proportion of your trading capital in cash.

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Written by Dr. Duke

Created: 15 April 2023

The Standard and Poors 500 index (SPX) closed yesterday at 4138, down 9 points on the day or -1.3%. Support is found at 4100, the failed December rally highs, and SPX has held its ground above that support level this week. Yesterday’s candlestick pattern is the classic doji, the mark of indecision. That may signal a reversal of the most recent trend higher. Trading volume continues to lag well below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, opened the week at 19.4%, and steadily declined to yesterday’s close at 17.1%. This is approximately the low from early February before the decline of SPX to its March lows.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 176.5, down 1.7 points or -0.9% on the day but IWM remained up 2% for the week. IWM remains below both its 50 dma and its 200 dma. The Russell 2000 index continues to trade weakly compared to the S&P and NASDAQ companies. That is a bearish signal for the overall market.

The NASDAQ Composite index closed at 12,123 yesterday, down 43 points or -0.4%. However, NASDAQ opened the week at 11,975, thereby holding a small gain of 1.2% for the week. NASDAQ remains well above support at 11,900, but Friday’s doji candlestick may be forewarning a reversal. NASDAQ’s trading volume continues to run significantly below average.

This week’s economic data were generally pretty flat, but the moderation of the Consumer and Producer price indices gave analysts hope that we may have seen the worst of inflation. And that, in turn, causes optimism that interest rates won’t be pushed any higher by the Fed. But those may be thinly supported hopes.

Two fundamental questions remain unanswered:

·      Is the bear market of 2022 over?
·      Is it safe to devote more capital to this market?

Using the S&P 500 index as our best indicator of the market at large, we are caught between well-defined support around 4100 and the February highs around 4200. If we broke out above 4200, that would be encouraging, but when we look back and realize SPX began last year around 4800, we are far from feeling confident about the resumption of a bull market trend. We have a lot of ground to make up before we are out of this hole. That answers the first question and leads to a somewhat negative answer to the second question.

I am devoting more cash to my far OTM SPX and SPY iron condors simply because those trades have been working very well in this market. But a lot of cash remains on the sideline.

I remain cautious.

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Written by Dr. Duke

Created: 01 April 2023

The Standard and Poors 500 index (SPX) closed today at 4109, up 58 points on the day or +1.4%. SPX opened the week at 3983 for a weekly gain of 3.2%. SPX is up 6.6% year to date. Today’s close broke the failed December rally highs at 4100, but I would like to see that confirmed next week. I have been fooled too many times over the last 18 months. Trading volume ran below the 50-day moving average (dma) this week. That isn’t a solid endorsement of the rally.

VIX, the volatility index for the S&P 500 options, opened the week at 22.1%, and steadily declined to today’s close at 18.7%. closed today at 21.7%, up 0.9 points or +4%. Some analysts view a low level of volatility to be bearish and it is true we have recently hit levels around 18% and that was followed by another spike higher. Historically, levels around 18% are not really low.
 
I track the Russell 2000 index with the IWM ETF, which closed today at 178.4, up 3.2 points or 1.8% on the day and up 2.6% for the week. IWM remains below both its 200 dma and its 50 dma. The Russell 2000 index posted a strong performance this week but remains comparatively weak.

The NASDAQ Composite index closed at 12,222 today, gaining 208 points or +1.7%. NASDAQ opened the week at 11,869 leading to a 3% gain for the week. NASDAQ has now broken out above above both its 50 dma and 200 dma and is threatening its February high. On the other hand, NASDAQ’s trading volume is not very encouraging, running well below average all week.

This week’s economic data are mediocre at best, although the trends are sideways to slightly higher. A key piece of data was today’s PCE price index, up 0.3% for February, down from January’s +0.6%, but the year over year figure remains at 5.0%, down slightly from 5.3% last month. The FOMC focuses on the PCE data, so this may encourage a continuation of the discount rate hikes this year. The FOMC’s primary tool to bring down the inflation rates is to continue to raise interest rates. However, higher rates are stressing the banking system. March has turned out to be reasonably strong, but the market remains volatile and may twitch lower on any bad news.

I have been entering a small number of trades but remain cautious. I closed several trades earlier this week that would have been profitable if I had held them through today. I posed the question above: Is the Bear Market Over? I have the scars from last year and it isn’t clear to me that this market has turned higher. IBD has changed their market assessment to Confirmed Uptrend, but I will need additional confirmation before committing additional cash to this market.

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Written by Dr. Duke

Created: 25 March 2023

The Standard and Poors 500 index (SPX) closed yesterday at 3971, up 22 points on the day or +0.6%. However, SPX opened the week at 3917 for a weekly gain of 1.4%. SPX found support at the 200 dma on Wednesday and held above that support the balance of the week. Trading volume steadily declined this week, running slightly above and then below the 50-day moving average (dma) as the week progressed.

VIX, the volatility index for the S&P 500 options, closed yesterday at 21.7%, up 0.9 points or +4%. VIX opened the week at 27.8%, declined significantly on Monday and Tuesday, but then traded sideways the rest of the week.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 171.8, up 1.5 points or 0.9% on the day but down 0.3% for the week. IWM is about ten points below its 200 dma and is about fifteen points below its 50 dma. This extremely weak Russell 2000 is the most negative sign of all for this market.

The NASDAQ Composite index closed at 11,824 yesterday, gaining 37 points or +0.3%. NASDAQ opened the week at 11,614 leading to a 1.8% gain for the week. NASDAQ remains well above both its 50 dma and 200 dma. NASDAQ’s trading volume opened below the 50 dma on Monday and continued to decline as the week wore on.

The big news this week centered on the FOMC meeting and its announcement on Wednesday to raise the federal discount rate by 20 basis points, resulting in a federal funds rate of 4.75% - 5.00%. In the press conference, Powell emphasized that the banking system is sound, but that inflation remains a problem and the FOMC will continue to pursue its goal of 2% annual inflation. Committee members predicted one more rate hike this year on the so-called “dot map” of economic projections.

The FOMC finds itself in a tough spot. If it truly is committed to reducing inflation to their stated goal of 2%, its primary tool is to continue to raise interest rates. However higher rates are stressing the banking system and continue to threaten a severe recession. The CPI and PPI reports last week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. But we also learned that the rising interest rates were at the heart of last week’s bank failures. The Fed is, indeed, in a tough spot.

Remember that your brokerage accounts are insured for double the amount of FDIC insurance on bank accounts. And the brokerages are just sweeping those funds in and out of money market funds – much safer than the banks.

Be careful. Stay largely in cash.

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Written by Dr. Duke

Created: 17 March 2023

The Standard and Poors 500 index (SPX) closed today at 3917, down 44 points on the day or -1.1%. However, SPX opened the week at 3835 for a weekly gain  of 2.1%. Today was the only down day all week. But the extreme price volatility leaves us feeling as though it traded down all week. Trading volume really came to life this week, running above the 50 day moving average (dma) all week, and peaking at 5.6 billion shares today, double the 50 dma at 2.6 billion shares.

VIX, the volatility index for the S&P 500 options, closed today at 25.5%, up 2.5 points or +11%. VIX opened the week at 24.1%, spiked as high as 30% on Wednesday and then dropped to a low of 23% on Thursday before running up to 25.5% today. The banking scare has created a wild ride for volatility.

I track the Russell 2000 index with the IWM ETF, which closed today at 171.23, down 4.8 points or -2.7% on the day and down 0.75% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today. IWM is well below both its 50 dma and 200 dma.

The NASDAQ Composite index closed at 11,631 today with a loss of 87 points or -0.7%. However, NASDAQ opened the week at 11,041 leading to a 4.3% gain for the week. NASDAQ managed to regain both its 50 dma and 200 dma this week. NASDAQ’s trading volume ran above average all week and spiked higher today with 7.9 billion shares as compared to the 50 dma at 5.4 billion shares.

We have experienced an interesting couple of weeks. Last Friday we read about the failure of the Silicon Valley Bank. That was a shock. No sooner had Yellen assured us all was well, then Signature Bank closed its doors and now we are hearing dire news about Republic Bank.
 
The CPI and PPI reports early this week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. Then we learned that the rising interest rates were at the heart of these bank failures. Of course, one has to wonder about bank management that didn’t see the writing on the wall as the Fed started this rate hike journey last year.
 
These events have led to speculation that the Fed meeting next week might announce a small discount rate hike or might even take a pause for a meeting or two. This administration has made some special concessions for these banks to keep their depositors whole. One has to wonder if Yellen is leaning on Powell to announce a pause in rate hikes at their meeting next week.
 
A small number of stocks appear to be handling this news well: AMD, AMAT, ANET and others. But this market remains extremely volatile.

Be careful. Stay largely in cash.

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Written by Dr. Duke

Created: 10 March 2023

The Standard and Poors 500 index (SPX) closed today at 3862, down 57 points on the day or -1.5%. SPX opened the week at 4055 for a weekly loss of 4.8%. SPX broke down through the 50-day moving average (dma) on Thursday and broke through the 200 dma today. This is serious. Trading volume ran below the 50 dma through Wednesday, but then increased on Thursday and spiked much higher today.

VIX, the volatility index for the S&P 500 options, spiked upward today to 29% before settling down to close at 25%. VIX opened the week at 19% for a weekly increase of 32%. The market is spooked by the prospect of a large number of bank failures. But it is worth noting that VIX pulled back from that spike at 29% before the market closed. That may be evidence of traders panicking and hitting the sell button too quickly, or it could be the beginning of something much more serious.

I track the Russell 2000 index with the IWM ETF, which closed today at 176.18, down 5.2 points or 2.9% on the day and down 8% for the week. IWM broke its 50 dma yesterday and then broke the 200 dma today.

The NASDAQ Composite index closed at 11,139 today with a loss of 199 points or -1.8%, and a weekly loss of 5.1%. NASDAQ broke down through its 200 dma yesterday and broke the 50 dma today. NASDAQ’s trading volume ran along the 50 dma all week and spiked higher today.

Recall my comments from last week: “The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday; his comments could change everything.”
 
Powell’s comments did cause some market weakness, but the surprise failure of the Silicon Valley Bank spooked the markets to the core. Suddenly everyone is talking about the financial collapse of 2008. The doomsday gurus are out in force. However, I think this is a typical overreaction. There is some measure of truth in the danger of rising interest rates on holders of large quantities of low yielding treasury bonds, but I think a specialty bank like Silicon Valley Bank is much different than J.P. Morgan Chase.
 
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 (IWM) are all flashing similar danger signals. SPX is down 1.5% today and down 4.8% for the week. Similarly, NASDAQ is down 1.8% today and down 5.1% for the week. And IWM is down 2.9% today and down 8.0% for the week. All three indices have broken down through their 50 and 200 day moving averages.

The next FOMC meeting is scheduled for 3/21 and 3/22. Before the Silicon Valley Bank failure, the general consensus for that announcement was a 50-basis point increase in the federal reserve discount rate. This bank failure may give the hawks on the FOMC a pause. They don’t want to be blamed for a large-scale financial collapse in their quest to control inflation.
 
Even if I am correct about today’s move being an overreaction, I don’t see much solid economic data to cause a quick or significant bounce next week. If anything, the fear of the Fed announcement the following week will keep traders treading water.
 
Stay largely in cash. This could get rough.

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Written by Dr. Duke

Created: 04 March 2023

The Standard and Poors 500 index (SPX) closed Friday at 4046, up 64 points on the day or +1.6%. SPX opened the week at 3992 for a weekly gain of 1.4%. With the exception of Tuesday, trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed Friday at 18.5%. VIX opened the week at 22% and declined steadily. Before I run off on a bullish charge, I have reminded myself that we have seen VIX at these levels several times this year. This market remains volatile and dangerous.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 191.50, up 2.6 points or 1.4% on the day and up 1.3% for the week. Friday’s trading decisively broke out above the failed rally highs of November and December.

The NASDAQ Composite index closed at 11,689 yesterday with a gain of 226 points or +2%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran along the 50 dma all week.

The market decline that began in the first week of February may have found support this week and led to large gains on Thursday and Friday. However, Jerome Powell will be speaking to Congress on Monday, and his comments could change everything.
 
The S&P 500 index, the NASDAQ Composite, and the Russell 2000 all gained about one and a half percent this week. Traders were closely watching the resistance levels established in November and December by the failed recovery highs. NASDAQ and Russell broke those levels last week, but the S&P 500 index lags behind.
 
The consensus of economists is for a 50 basis point increase in the federal discount rate at the FOMC meeting later this month. The announcement is scheduled for 3/22. The market is focused on two issues:



·      The need to get inflation under control.



·      The concern that the Fed may raise rates too aggressively and drive the economy into recession.



Powell’s comments before Congress on Monday will be watched very closely and will likely result in market volatility. Don’t go too far out on the thin ice. Stay cautious.

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Written by Dr. Duke

Created: 25 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 3970, down 42 points on the day or -1.1%. SPX opened the week at 4052 for a weekly loss of 2.0%. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed Friday at 21.3% after spiking as high as 22.9%. VIX opened the week at 21.8% with minimal change for the holiday shortened week. That was surprising given the weakness of the market.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 187.51, down 1.8 points or 0.9% on the day and down 1.7% for the week. IWM stood out last week, finding support at the failed rally highs of November and December. That support level was broken yesterday.

The NASDAQ Composite index closed at 11,395 yesterday with a loss of 195 points or -1.7%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran below the 50 dma and steadily declined all week.

Last week, comments from two FOMC members and strong numbers from the CPI and PPI reports appeared to support the prospect that more rate hikes may be required to get inflation to subside. The PCE price index report this week reinforced that fear and led to more selling.
 
The S&P 500 index fell 2.0% this week; NASDAQ declined 2.1% and the Russell 2000 dropped 1.7%. Traders were closely watching the support levels established in December by the failed recovery highs. SPX broke that level last week; the Russell 2000 index broke down on Tuesday and NASDAQ broke down on Friday.
 
The market is selling off because it fears continued rate increases by the Fed will drive the economy into recession, the often cited “hard landing”. The next Fed announcement is scheduled for 3/22 and all evidence suggests another rate increase. The only debate is the amount. The March FOMC announcement will most likely trigger another sharp market decline. Is this month’s market decline the result of the large institutional players pulling back and hedging their portfolios in preparation for that announcement? Using the S&P 500 as our market proxy, a decline of 12% from Friday’s close would return to the lows around 3500 from last October.
 
That analysis only leaves us with questions: Will February give back January’s gains? Is the bear market that began in early 2022 beginning a new leg lower? The best course of action is to stay largely in cash and focus on long term 
ultra-conservative positions.

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Written by Dr. Duke

Created: 18 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 4079, down 11 points on the day or -0.3%. SPX opened the week at 4097 for a weekly loss of 0.4%. Resistance at 4100 was set by the failed rallies in December and that level was solidly broken with a high at 4195 on February 2nd. This week witnessed a rally attempt that made it to 4150 before faltering and closing well below support at 4100. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, opened the week at 21.7% and declined to 18.1% on Wednesday. Comments from a couple of the FOMC members on Thursday spiked volatility to 20.3%. VIX declined on Friday to close down slightly lower at 20.0%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 193.13, up 0.3% on the day, but up 1.4% for the week. IWM had a remarkable week, posting positive trading gains every day this week. In contrast to the S&P 500 index, IWM found support at the failed rally highs of November and December and steadily climbed higher this week.

The NASDAQ Composite index closed at 11,787 yesterday with a loss of 69 points or -0.6%. NASDAQ trended higher the first three days of this week but declined with the S&P 500 index on Thursday and Friday. NASDAQ’s trading volume ran below the 50 dma all week. Unlike SPX, NASDAQ remains well above the support levels of the failed rally attempts in November and December.

Comments from two FOMC committee members threw cold water on the market on Thursday, renewing fears that additional rate hikes are in store. Of course, the strong numbers from the CPI and PPI reports didn’t help. Those reports support the Fed’s case that more rate hikes may be required to get inflation to subside. The next Fed discount rate announcement is scheduled for March 22nd.
 
The most encouraging sign in the markets this week is the strength shown in the Russell 2000 this week. Those small to midcap stocks are the classic high beta stocks that the large funds tend to move into when they foresee a bullish market.
 
Trading volume has again fallen below the 50 dma. Note the spiking trading volume around February 2nd when the market broke through resistance to the upside. That money has returned to safety.
 
I will be watching the markets carefully on Tuesday for signs of strength. I noted the long lower shadows on the SPX and NASDAQ candlesticks for Friday. That often shows that traders sold off and drove prices lower but then met a group of buyers who found those prices attractive. We will see if that action follows through on Tuesday.
 
This market looks somewhat better than last week, but it is entirely too early to say the bear market is over. Stay vigilant.

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Written by Dr. Duke

Created: 11 February 2023

The Standard and Poors 500 index (SPX) closed Friday at 4090, up 9 points on the day or +0.2%, but that didn’t save the week, ending down 0.7%. SPX broke resistance at 4100 last week and advanced to a high around 4200 on February 2nd before beginning the pull back that continued this week. This latest rally set a new resistance level a hundred points higher, but the bear market isn’t over yet. Trading volume was mixed all week, running just above and just below the 50-day moving average (dma).

VIX, the volatility index for the S&P 500 options, closed yesterday at 20.5% after opening the week at 19.2%. VIX spiked on Friday to 22% but pulled back into the close at 20.5%.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 190.31, up less than a point on the day, but down 2.7% for the week. Unlike SPX, this latest IWM rally hit resistance around 199, the level set back in August by the failure of that rally. SPX never came close to its August levels. IWM found support on Friday at its January highs around 188.
 
The NASDAQ Composite index closed at 11,718 yesterday with a loss of 71 points or -0.6%. NASDAQ trended lower this week, losing 1.6%. NASDAQ’s trading volume ran above average three days this week before falling significantly below the 50 dma on Friday.

The FOMC announcement last week, coupled with the positive January Trifecta, seemed to bring the bulls back to the table, but that enthusiasm faded this week. The market broke out above the most recent rally highs last week but could not hold those highs and gave back all of those gains this week. On Friday, I entered bullish trades on ENPH and SLB. Both stocks were trading positively in the midst of a bearish market. Our AAPL diagonal spread is still in the black after a tough week.
 
This market remains solidly in its bearish posture, having quashed the latest bullish recovery. I am largely on the sidelines at this point.