Daily Market Newsletter

April 25, 2017

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Market Commentary

All of the attention tonight was on the NASDAQ index hitting a new round number but this is not really news; it’s been the strongest index for quite some time now. What will be worth watching is how the S&P deals with the 2400 level, as well as the RUT dealing with a break above 1415. One thing that is “different” about how the price has reacted to “good news” vs. the past six weeks is that the move has “stuck” instead of being a distribution point. We need to see if the price fades from these highs, or breaks above.

A lot of noise has been made about a government shutdown which might occur in the next week or two if the administration fails to strike a deal with Congress. If you think that this is a big risk, look back to the one time recently where this actually did happen (October 2013) and you’ll see that it was much ado about nothing.

If the video above does not play, please try this version of the video with embedded player.

Offensive Actions

Offensive Actions for the next trading day:

Please see the “swing trades” section below for an 8/21 ema long swing that I’ll take on IWM tomorrow.

Defensive Actions

Defensive actions for the next trading day:

Any vertical, butterfly, or diagonal debit spreads that we set up are risk-managed from day one, and no defense is really required.
I have my action points defined for my SPY Calendar spread in the “time spreads” section below.

Strategy Summary Graphs

Each graph below represents a summary of the current performance of a strategy category. For an explanation of what the graphs mean, watch this video.

Non-Directional Strategies

Semi-Directional Strategies

Directional Strategies

Technical Analysis Section

Market Internals: Volume was below average today. Breadth was good but diverging with +257 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up below the Upper Reversal Zone, now showing a bullish bias. No leading signals at this time but the two weaker timeframes are close to a bearish cluster.

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term uptrend. The RUT is in a long-term uptrend, an intermediate sideways trend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX fell .74% to 10.76, back inside the bollinger bands. The RVX fell 1.61% to 15.86 and is back inside the bollinger bands.

Fibonacci Retracements: The SPX has come down to the 23.6% Fib Retracement of the entire November-March rally.

Support/Resistance: For the SPX, support is at 2320 … with overhead resistance at about 2400. The RUT has support at RUT 1335 with overhead resistance at about 1415. All three major index charts that we follow are now showing a Golden Cross with the 50 day moving average crossing above the 200 day average.

Fractal Energies: The major timeframe (Monthly) is now into exhaustion with a reading of 37. The Weekly chart is now recharging quickly with an energy reading of 48, due to the recent chop. The Daily chart is showing a level of 53 which is now recharged. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom.

Other Technicals: The SPX Stochastics indicator rose to 42, mid-scale. The RUT Stochastics indicator rose to 57. mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is outside the Bollinger Bands with Bollinger Band support at 2331 and resistance at the upper band at 2381 and is above the upper band. The RUT is outside the Bollinger Bands with its boundaries at 1342 to 1402 and price is above the upper band.

We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves, but a pullback to stoke up the negativity and move into a larger trading range would be a good thing to see first.

Position Management – NonDirectional Trades

I have no positions in play; I will wait on the first significant pullback to allow me to secure put spreads below support.

Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.

If I see price drop to the SPX 2300 level, this might be our first opportunity to sell premium against that level.

I have no positions at this time. While I do think that we have a small window of opportunity to play LP Condors yet in this environment, the energy is quickly building up in most markets that we follow and my preference is that we wait on a short-term exhaustion signal to fire before we risk capital based on a hunch.No entries at this time..

I have the following positions at this time:

SPY 19MAY/16JUN 237 Put Calendar (4/24) was entered for $1.69 debit.
SPY 19MAY/16JUN 241 Call Calendar (4/25) was entered for $1.10 debit.
My lower “action point” is 237, and my upper action point is 241. If one of those action points is hit, then I will exit the opposite side of the trade and double up on the remaining calendar spread .

The calendar spread tracking sheet is available for your download here. Yes, if you follow the math in the sheet, all of the numbers account for commissions in and out of the trade. Please note: If you trade these positions please keep the size small, to the point where you “do not care” about the success or failure of this position.

I have the following positions in play:

SDS Stock – I still own 100 shares of this stock from 2011 and will continue to write calls against this position with every correction/pullback.
VXX Stock – I own 12 shares of this stock and will hold until Armageddon occurs.
SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I sold 19MAY $18 calls (3/27) against this position for a $.22 credit.
RIG – not thrilled about energy markets and production at this time. Looks like a monthly swing down so I’ll find something else to trade .
X – I added the 19MAY $25 puts (3/13) for $.37 credit. This stock is getting hammered but we had an excellent entry on it and it’s likely to bounce before assignment. If the price drops lower i might consider selling JUN puts too, perhaps at the $20 level.
AMD – I sold 19MAY $10 puts (3/27) for a $.25 credit.
NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit.
XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – I’m going to enter the IWM 2JUN 140/142 (or equivalent) debit call spread for about $1 tomorrow, with a target gain of 50%.
RSI(2) CounterTrend – I will look for more RSI(2) trades in the near future.
Daily S&P Advancers – if I see the number of daily S&P500 advancers drop into single digits near the close of any trading day, I will go long shares of the SSO.

We’ll look for more earnings trades in the latter part of this week.

I have the following positions:

QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit. Still need more downside movement to light these up.
QQQ 28APR 130/132 debit put spread (3/28) was entered for $.85 debit. This one looks likely to expire OTM this week.

I have the following positions:

TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.

Most of the candidates showing on the Whale scan watchlist are about to report earnings.

The “Hindenburg Strategy” is meant to capture “value” from successive corrections that lead up to the final “death spiral” with a Bear Market. The basic principle is to buy 3-month out long puts on the SPY, and to finance those puts by the sale of credit spreads.

Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment. I will only sell put spreads on decent pullbacks that allow me to secure put spreads 10% OTM

I will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate.

We currently have the following positions in play with this strategy:

SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.