Daily Market Newsletter
December 12, 2016Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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December Expiration
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Market Commentary
Gravity might be starting to take hold as just about all of the index charts are in multiple timeframes of exhaustion. The political noise from both sides of the spectrum is starting to give markets a slight pause, at the same time that the FOMC has a 95% chance of rising rates in the meeting with the lowest expected drama over the past several years.
I am still expecting a relatively quick “flush” to the downside that will yield an excellent buying opportunity, and it will arrive during a point of maximum adversity to the majority that just went long.
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Offensive Actions
Offensive Actions for the next trading day:
- No trades for 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.
- The LP Iron Condor is risk-managed with the initial setup, however if the price is going to continue screaming to the upside, we’ll hedge the position with the SPY butterfly (and closed vertical) spreads that we already have in place .
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 about average today. Breadth was mixed with -82 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened within the Upper Reversal Zone, showing a bullish bias. The Near Term line joined it in the Upper Reversal Zone today, creating a Strong Bearish Cluster for the fifth day in a row with the two stronger timeframes overbought. This can normally be a leading signal for a pause .
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 uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose 7.57% to 12.64, back inside the bollinger bands. The RVX rose .11% to 17.96 and is back inside the bollinger bands.
Fibonacci Retracements: Fibs (retracements and extensions) are not in play right now.
Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 with no overhead resistance. 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 still charged with a reading of 45. The Weekly chart is declining with an energy reading of 44, due to the recent breakout. The Daily chart is showing a level of 35 which is at technical exhaustion for the third day in a row. We’ll likely see another short consolidation at this level soon.
Other Technicals: The SPX Stochastics indicator flattened at 75, below overbought. The RUT Stochastics indicator flattened at 70, below overbought. 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 2157 and resistance at the upper band at 2240 and is above the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1281 to 1387 and price is at 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.
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.
I have the following positions.
- SPX 2165/2170*2230/2235 LP Iron Condor (12/5) was entered for a $2.50 credit. I will look for a $2.00 closing debit in the coming days. I do not have any “defense” for this position, it is risk-managed from day one.
This position got physically run over last week and might be looking at max debit. I will hold the fly position on the SPY as a hedge, and we might still come out well ahead. Profits on the long vertical have already covered a full loss on the LP condor.
I have the following positions:
- C 23DEC/30 DEC 58.5/60.5 Call Diagonal (12/12) was entered for a $.96 credit. I will look for about a 50% return on risk to exit this trade.
Per this weekend’s advisory I entered the C short diagonal, one of the banksters. The price has rocketed up to hit the $60 level with exhaustion on both the weekly and daily charts.Will the price hold at $60? We have no way of knowing but I am willing to risk $100/contract to find out.
Remember, I’ll give this trade a “viking funeral” on entry, setting it on fire as I push it off from shore, and assuming a complete loss. Only when I “release” this trade can I effectively manage it.
I set the risk for these such that I have no “stop” other than closing the position on expiry. If we see a quick downdraft the profits will come quickly; shooting to exit at about half of the credit value.
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, and will continue to write time against these shares on every rally. I will look to sell more calls in the next bounce higher in SLV.
- GE JAN17 30 puts (11/28) – I sold five contracts of $30 puts for $.39 credit
- TWTR JAN17 $15 puts (11/30) I sold ten contracts of $15 puts for $.22 credit.
- RIG JAN17 $12 puts (12/8) I sold ten contracts of $12 puts for $.18 credit.
Nothing to do at this time with current positions. I will be continuing to “bottom fish” in the subsequent weeks to identify stock candidates that I would want to own long-term.
Position Management – Directional Trades
- 8/21 EMA Crossover -This one is gone. Looking for the next crossover. .
- RSI(2) CounterTrend – Awaiting the next signal.
- 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.
I have the following positions:
- SPY 28DEC 224/226/228 Call Butterfly (12/5) – added this position for $.21 debit.
- SPY 28 DEC 225/227 Call Vertical (12/5) added this position for a $.19 debit, and was closed (12/12) for a $1.19 credit. This gave me a net profit after commissions of $96/contract or a 457% return on capital.
I will hang onto the Butterfly position as long as I’m in the SPX LP Condor, or if the price starts to close outside the expiration envelope of the Butterfly.
I added the FEB puts today, just in time to see the price tack on another 30 handles.
I never got the upside “burst” to allow me to sell call spreads above SPY 230 that I wanted; now I can concentrate on selling put spreads at some level below SPY 190. Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment.
We currently have the following positions in play with this strategy:
- SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.
- SPY FEB17 200 long puts – I entered this position (12/7) for a $.95 debit.