Daily Market Newsletter
August 2, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
August Expiration
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Market Commentary
Apple really went berzerk today and lifted the rest of the market with it as it hit the Trillion dollar valuation. That’s a lot of iPhones. And iPads. And iMacs. And pretty much everything iElse. The bearish tone of the last few days was put on its ear right out of the gate this morning as a negative European market and a premarket gap was bought hard.
What we have to watch out for (now that everyone’s a bull again) is a “lower high” and the price rolling over. To that end, I might begin legging into some stocks that have gotten way ahead of themselves and could be good candidates for some potential downside action. These would be essentially the opposite of a covered call, but instead of using short stock, I’d use deep ITM long puts dated out a few months. We would then turn around and sell OTM puts against them. By this weekend I hope to create the appropriate scan criteria for identifying the right candidates.
TSLA offered high drama yesterday with Elon Musk making the “most valuable apology of all time” in his press conference. Remember on yesterday’s market video I showed that the Expected Move into tomorrow was +/- 29 handles….well it’s reaching +47 as I write this and shorts are scrambling like crazy to get out. Elon killing them with humility…what’s next?
I think that the market is pricing in a strong Jobs report tomorrow morning; watch for it tomorrow at 0830a ET.
We have the following earnings/risk events to watch for this week:
- Friday: Non-Farm Payrolls report
The scan for the “Cheap Stocks with Weeklys” is available here.
The RSI(2) FE scan is available here.
The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.
The latest crypto video (Cryptocurrency Market Visualized) is available here
Please sign up for our free daily crypto report here.
For an embedded video player version of today’s market video, please click here.
Offensive Actions
Offensive Actions for the next trading day:
- We’ll look to our next offensive cycle in this weekend’s newsletter.
- Watch for the EM fades 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.
- Closing orders have been entered for all new spreads.
- A test of the 200 day SPX moving average would cause an exit from the Hindenburg strategy; see below.
- Exits are defined for the new RUT Iron Condor, see “Hp Condors” below.
- Watch closely for an exit on the XLB spread.
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
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Technical Analysis Section
Market Internals: Volume was average today and breadth ended the day a little stronger (but not that strong) at +133 advancers minus decliners.
SPX Market Timer : The Intermediate line fell just below the Upper Reversal Zone, now showing a neutral bias. No leading signals at this time however this chart is once again very close to a full bearish cluster.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. 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 downtrend.
VIX: The VIX fell to 12.19 after peaking at 50.3 five months ago, back inside the bollinger bands. The RVX fell to 15.01 and is inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally; so far this has been a garden-variety correction.
Support/Resistance: For the SPX, support is at 2700 … with overhead resistance at 2878. The RUT has support at RUT 1630 with overhead resistance at 1708. 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 almost recharged again, with a reading of 51. The Weekly chart is at exhaustion with an energy reading of 38. The Daily chart is showing a level of 60 which is fully recharged due to the recent chop.
Other Technicals: The SPX Stochastics indicator fell to 66, mid-scale. The RUT Stochastics indicator fell to 42, mid-scale. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2767 and resistance at the upper band at 2846 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1660 to 1711 and price is above the lower band. We recently saw the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move. Markets are about to release from the sideways/volatile correction.
Position Management – NonDirectional Trades
I have the following positions in play:
- RUT 21SEP 1580/1590*1790/1800 Iron Condor (7/23) entered for $2.00 credit. My exits will be if 1) we’re able to buy back the condor for $1.00, 2) we are within 30 days of 21 September, 3) the short call hits .35 delta, or 4) the short put hits .45 delta..
This trade is doing just fine for now but we’ll need to close it down no later than August 21st.
I have the following positions:
- SPX 24AUG 2775/2780*2855/2860 Iron Condor (7/30) was entered for a $2.50 credit. I will look for a 25% return on risk from this position.
Today’s price action pushed the price higher into the profitability envelope; we still have another 30 points of room.
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so there is a good shot that we can start to play these again.
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 am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic. I have the following positions in play:
- 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 currently have 17AUG $16.50 SLV calls (6/8) for $24 credit. .
No entries at this time; I’d like to see if this current pullback has any more desire to go lower.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions; the next crossover is showing right now. The 21EMA was hit today and I was out of my office when it occurred; no entry for me. 🙁
- RSI(2) CounterTrend – Looking for the next setup.
- 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.
- Swing – Looking for the next setup.
The crypto market has been very soft the last two days and many bear flags have been broken; BTC is still holding strong but cannot hold up the entire market by itself.
Investors should currently be looking to find technical entries to warehouse BTC/ETH/LTC assets for eventual trades on Alt-coins. You should also be looking to devices like “trezor” or other cold-storage devices to keep your assets off of the network, or other secure wallet such as Navcoin. Relying on the security of your broker is no longer good enough; no one can log into your ETrade account and “steal” your stock assets, but the whole nature of Cryptocurrencies and their portability means that someone can grab your assets and transfer them elsewhere. I will continue to discuss the tradingview platform in daily videos as I think that it is currently the best way to chart the “big three.”
Viewing the SPY from the Friday closing price at 281.42, there is a +/-3.525 EM into this coming Friday. This is slightly larger than last week’s 3.217 EM, which shows the reflection of the uncertainty of last week’s earnings and the likelihood of forward volatility.
The EM targets for this Friday’s close is 284.95 to the upside, and 277.90 to the downside.
Last week’s upper EM was a good fade, as we had discussed earlier in the week. I believe that we have another opportunity for an EM fade this week, simply because I believe that there is a good chance that we stay range-bound in the near future.
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
Entry criteria are:
- Using calls
- 17 to 50 calendar days
- center strike .25 to .40 delta
- ratio is 1/3/2 quantity, from the bottom, calls are long/short/long
We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods. I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation. TOS scan code: http://tos.mx/hvWmMl
I have the following positions:
- XLB 10AUG 58.5/60.5 call vertical (7/11) entered for $.91 debit. I will look for a 50% return from this trade; I will have to close this on the next move higher.
- XRT 17AUG 49/51 call vertical (7/17) entered for $1.02 debit. I will look for a 50% return from this trade. If the price hits the $51 level and gets stuck there, let’s exit the trade rather than fight overhead supply.
No other trade setups at this time. We are better off looking for ETFs and Indices to play in the near term while earnings season is going full tilt.
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. Frankly, 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 entered the 17AUG SPY 245 puts (5/14) for a $1.41 debit. I will hold these through the next test of the 200 dma.