Dr. Duke's Blog

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Written by Dr. Duke

Created: 08 November 2012

Traders sold off in strength in reaction to the election results. To some degree, one's analysis reflects one's politics. The most politically neutral analysis simply sees the current political landscape as conducive to continued political gridlock leading to recession next year as taxes rise and automatic spending cuts kick in. SPX lost $34, closing at $1395 while RUT lost $21 to close at $805. Trading volume jumped up dramatically with 3.3 billion shares of the S&P 500 stocks trading. Trading volume on the NYSE rose 32% and trading on NASDAQ rose 15%.

Regardless of whether one drew his support line on SPX at $1405 or $1400, support was broken today. That was the area where we spent most of August. The 200 dma is at $1380. RUT fared even worse, breaking its 200 dma at $807. Tomorrow will be crucial for technical analysts watching the charts.

Today's big move downward actually helped my condor positions. The Nov position stands at a P/L of +$2,420 or +15% with delta = +$39 and theta = +$194. The 760 puts have a delta of 8, so the downside is pretty safe thus far. The Dec position is up $980 or 6% with delta = +$1 and theta = +$69. The delta of the Dec 710 puts is 11, so the put spreads are still relatively safe.

So now we wait to see of the carnage continues or we get a bit of a bounce after today's big drop.

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Written by Dr. Duke

Created: 06 November 2012

Virtually everyone in this country is focused on the election today. Will the results move this market? The market continues to chop sideways; the bulls view it as a consolidation phase in a larger bull market trend. The bears portray the past few weeks as the beginning of a new downward market trend. The market's current direction is clearly at a tipping point. I really don't know what effect, if any, this election may have on the markets. A true free market capitalist (there aren't many of us left) would view a win by conservatives as positive (sometimes "conservative" has nothing to do with the party; I voted for a democrat today who is trying to reform our corrupt county government).  But Wall Street has been addicted to the same government hand-outs that blind many voters. The Fed has been propping up this market for several years now. So it wouldn't be surprising to see the market sell off at the prospects of giving up that support. Living independently is always difficult and it will always be tempting to invite government to solve our problems. But you pay for that help with a loss of your freedom. There is a thinly disguised hook in that government program.  Remember when states were free to specify the speed limits on their highways?

The markets opened with little fanfare today, but rallied pretty strongly before hitting resistance. SPX closed $11 higher at $1428 after moving as high as $1433. RUT traded upward $6 to close at $826. Trading volume was rather low yesterday, and by that comparison, trading volume bounced upward today, but the 2.5 billion shares of the S&P 500 stocks that traded today just moved us back up to the 50 dma. Trading volume increased 18% on the NYSE and increased 19% on NASDAQ. Economic news was sparse today. The VIX dropped almost one percentage point to close at 17.6% - still a relatively high number and another measure to suggest we are at the tipping point.

My November iron condor position on RUT is up $2,060 (+13%) with delta = -$60 and theta = +$236. My Dec condor is up $560 (+3%) with delta = -$52 and theta = +$79.

If you haven't exercised your responsibility to vote yet, get to it. In spite of what I perceive as the erosion of our freedoms, this remains the only nation in the world where we can live as free as we do here. Voting is a privilege many people don't have.

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Written by Dr. Duke

Created: 02 November 2012

Remember the see saw from the playground at school? This market reminds me of that childhood toy. Yesterday, SPX opened at $1412 and ran to $1428. This morning, SPX opens at $1428 and trades down to close at $1414, almost where we started yesterday. RUT fared even worse, losing $13 to close at $814, almost a 2% drop. Today's move keeps the broad market averages solidly in this sideways consolidation pattern of the past week to ten days. As you might expect, volatility bounced back up with VIX closing the day at 17.6%. Trading volume dropped off from yesterday with 2.7 billion shares of the S&P 500 stocks trading today. Trading volume dropped less than 1% on the NYSE and dropped 3% on NASDAQ.

The non-farm payroll report was the big news of the day, reporting 171k new jobs, better than economists expected, but the unemployment rate ticked up to 7.9%. The jobs report appeared to start trading off on a positive note this morning, but that quickly faded. I suppose the jobs report had something for everyone; bulls could look at it as "somewhat better" or "on the right path", while the bears saw "a weak economic recovery" and "no improvement in the unemployment picture". SPX moved into the red within an hour of the open, and ticked steadily down after 1:00 pm ET.

My November iron condor on RUT stands at a P/L of +$2,220 (+13%) with position delta = -$3 and position theta = +$134 (on 20 contracts). My December position on RUT at 710/720 and 880/890 stands at a P/L of +$1,020 (+6%) with position delta = -$23 and position theta = +$63.

Enjoy your weekend.

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Written by Dr. Duke

Created: 31 October 2012

The last time the NYSE was closed for two days due to weather was for a blizzard in 1888. The markets opened today to very little fanfare and basically traded sideways. I believe we dodged a bullet. If a significant world event had occurred, e.g., if the Israelis had attacked Iran, or more bad news erupted out of the European economic mess, we could have seen a huge crash this morning as panicked traders headed for the exits. But fortunately, all was calm financially while the weather was anything but calm. SPX closed unchanged at $1412 but RUT gained $5 to close at $819. Is the small cap index trying to tell us something? VIX jumped up almost a full point to close at 18.6%.

SPX is treading water at a solid support level around $1410, the range it held most of the month of August. RUT shows a much better defined down trend on the chart from the peak in early September to breaking the 50 dma and bouncing off the 200 dma a few days ago. We can't be sure we are "out of the woods" until both SPX and RUT break out above their 50 dma. But absent any significant news, we may be trading sideways until after the election. This may be great news for you non-directional traders.

My November iron condor on RUT stands at a P/L of +$1,340 with delta = -$14 and theta = +$201. I established new Nov call spreads at 860/870 today to re-balance this position. I had been waiting on a strong market day, but gave up on that. The Chicago PMI came out today basically flat. ADP employment reports tomorrow with the jobs report coming Friday, so we still have the opportunity for some market moving data this week.

Don't let the goblins get you!

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Written by Dr. Duke

Created: 26 October 2012

The markets appear to be trading sideways at this point, unsure which way to turn. SPX closed down $1 at $1412 while RUT lost $4 to close at $813. VIX remains essentially unchanged at 17.8%. If we draw a downward trend line on RUT's chart from its peak on September 14 to today, the upper edge of the band today is at about $835 and the lower edge of the band is around $805. Interestingly, the 50 dma is at $832 and the 200 dma is at $806. So the question facing traders is this: Is this downward trend just a consolidation within a larger bullish trend? Or is it the beginning of a new bearish trend? Trading below the 200 dma will confirm the bearish trend scenario and breaking out above the 50 dma will confirm the resumption of the bullish run. In the meantime, we are dawdling here in "no man's land".

GDP for the third quarter came in today higher than expected at a +2.0% annualized growth rate, a big improvement over the second quarter's 1.3%. But that apparently didn't impress traders one way or the other. Bulls couldn't capitalize on the news, but neither could the bears. The University of Michigan's consumer sentiment survey came in at 82.6 for October, a slight decrease from September's 83.1, but probably well within the margin of error.

My November iron condor position remains at a gain of about 9% with 20 days until expiration.

We are having classic fall weather here in Chicago. Enjoy your weekend with family and friends. It is easy to become distracted as we trade all week; remind yourself what's important this weekend.

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Written by Dr. Duke

Created: 25 October 2012

SPX jumped upward at the open today but quickly lost steam and basically traded sideways. SPX closed up $4 at $1413 while RUT gained $3 to close at $817. Trading volume was mixed with the volume of the S&P 500 stocks essentially flat at 2.6 billion shares. Trading on the NYSE was up 7% but trading on NASDAQ was down 4%. VIX ended the day without much change at 18.1% - a dicey area, but not too bad.

Initial unemployment claims came in lower at 369k and continuing claims were essentially flat. Durable orders showed a gain of 9.9% for September and pending home sales rose a bit at 0.3%. But this didn't seem to affect the market much one way or the other.

SPX is holding support at $1410 rather well. For most of August, SPX traded between $1400 and $1420, so this is a pretty solid support area. The 200 dma is down at $1377; that could be a logical stopping point if we break support here.

My Nov condor position stands at a gain of 9%; I am looking for a stronger market to re-establish my call spreads. The 750/760 put spreads are pretty safe with a short strike delta of 12. Both AAPL and AMZN disappointed analysts with their earnings announcements, but neither stock is down very much in after hours trading. If that holds, maybe these results won't drive a bearish response in the overall market tomorrow.

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Written by Dr. Duke

Created: 24 October 2012

The markets basically traded sideways today; the Fed announcement had almost no effect on the markets. I suppose that makes sense; what else can the Fed say? Interest rates have been promised to stay low and the last announcement said they would do everything necessary to support the economy. SPX dropped $4 to close at $1409 and RUT lost $3 to close at $814. Trading volume dropped a bit to 2.6 billion shares of the S&P 500. Trading volume on the NYSE was down 3%, but was up 8% on NASDAQ (Facebook effect?). VIX lost a half point to close at 18.3%.

It is interesting to note that the SPX hit the same intraday low at $1407 that it hit yesterday. Breaking through $1400 would be very bearish. RUT has not really kept up with SPX since June; the trend line has not been as well defined; it took much longer to set new 2012 highs, etc. Now, you can draw a very nice downward trend on RUT and we are sitting on the bottom edge of that trend - not a good sign.

My November iron condor on RUT sits at a net gain of $1,180 or 7%. The 760 put is about one and a half standard deviations OTM with a delta = 14. Now we wait to see if earnings announcements from AMZN and AAPL perk up or depress this tenuous market.

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Written by Dr. Duke

Created: 23 October 2012

For several weeks now, companies have been warning about disappointing earnings and now we have seen several weak reports from the likes of FedEx, IBM, Intel, and 3M. More importantly, many of the companies reporting thus far have painted bleak pictures for the upcoming quarter. It appears that this morning's report from DuPont was the last straw and the selling began in earnest. SPX had closed right at support at $1430 last evening and it quickly sliced through that support level and traded as low as $1408 before rebounding a bit to close at $1413, down $21. RUT dropped $4 to close at $816. The SPX chart shows a lot of congestion in the range of $1400 - $1410 from late August, so I would expect this broad level of support to hold, but if it doesn't, look out below! It is hard to believe that Bernanke was promising more quantitative easing just a few weeks ago; today's drop takes us back to pre-Bernanke announcement levels.

Trading volume jumped up a bit to 2.8 billion shares of the S&P 500 (50 dma = 2.5B). Trading on the NYSE was up 7% and was up 9% on NASDAQ.

VIX spiked up to 19.7% earlier today, but settled at $18.8%, up 2.2 points. This is the neighborhood where VIX was just before the Draghi press conference in early September when the focus was on Europe - this is a dangerous neighborhood. I will be looking closely at the futures tomorrow morning to see if the slide is likely to continue.

I took today's market weakness as an opportunity to close the 910/920 call spreads on my November iron condor on RUT. It now stands at a net gain of $1,280 or 7.5%. Tomorrow brings the FOMC report and press conference; will it matter?

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Written by Dr. Duke

Created: 22 October 2012

It was only one week ago that we noted that SPX had bounced off support at the 50 dma; then SPX headed back up and challenged earlier highs around $1465. But that challenge failed and led to the huge decline Friday, closing at the 50 dma. Then SPX traded down as low as $1422 today before clawing its way back to close near the 50 dma at $1434. It was a quick round trip. SPX closed at $1434, up $1 and RUT closed at $821 down less than a dollar. If you look at the one minute chart, you will see that the last hour of trading saved the day for SPX. It appears we are trading in the $1430 to $1465 range in roughly one week cycles back and forth. Perhaps this is the pre-election dance?

Trading volume dropped off dramatically with 2.4 billion shares of the S&P 500 trading; trading on the NYSE declined 30% and volume dropped 26% on NASDAQ.

My Nov iron condor stands at a P/L of +$1,500 with position delta = +$48 and position theta = +$60. It will be interesting to watch AAPL this week through both a new product launch and an earnings announcement. After hitting that low at $610 Friday, AAPL was up over $24 today. And analysts wonder why individual investors are hiding under the bed?

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Written by Dr. Duke

Created: 18 October 2012

GOOG inadvertently released its earnings announcement during the trading session today and spooked the markets. Trading opened a little weak this morning based on weak unemployment claims data (388k vs. last week's 342k), but had rebounded until about 12:30 pm ET when the GOOG earnings announcement surprised the market. GOOG tumbled and then trading in GOOG was halted, but the market averages tumbled with GOOG and then continued for a couple of hours before recovering some of their losses before the close. SPX closed down $4 at $1457 and RUT lost $5 before closing at $837. Trading volume bumped up a bit with 2.9 billion shares of the S&P 500 (GOOG alone traded 12 million shares). Trading on the NYSE increased 5% and trading volume on NASDAQ increased 15%.

Despite all of the excitement surrounding Google, volatility remained calm with the VIX at 15%.

My Nov iron condor on RUT stands at a net gain of $1,800 with position delta = +$13 and position theta = +$64. It will be interesting to see if the GOOG debacle and Microsoft's earnings disappointment pull this market back down tomorrow, or if it rebounds after today's GOOG shock.