Daily Market Newsletter

Markets rocked on Friday in anticipation of the final tax bill being signed; with all of the good news already priced into the markets, is there anything left to push markets higher into year-end? Well, yes there is….it’s called “Fund Manager Bonuses.” I think that we will continue to see incremental “shell game” rotation into year-end, but be aware that there will be some selling pressure based on the “first-in-first-out” rule to valuing stock assets in the new bill. That means that if you bought into AAPL at $30 years ago, and then averaged in later at higher prices, those $30 shares would be used to compute capital gains on that sale if you did so next year once the new tax bill is in place, instead of the averaged price. This might provide an incentive to some to take profits by year-end in those early assets while they can use an averaged price. We have nine trading days left in the year and anything can happen during that time; I’m anticipating a bit more intraday volatility but any intraday dips will likely be bought.

Financial firms are sand-bagging next year already, looking for a 7% return. Remember that bubbles can always go for much further than anyone would expect. With the dollar in free-fall these days, asset prices might have to continue to scream higher to just retain par value. I think we’ll look back on this period in history and realize that the Fed got it all wrong with respect to inflation and wage growth. Due to the Fed’s policy, stock asset values have grown exponentially, but wage growth has been almost non-existent. They are wrenching their shoulders out of joint congratulating themselves, but I think their policy experiment has been a disaster.

And perhaps because of this, cryptocurrencies have exploded lately, as early adopters are starting to sense the paradigm shift in how individuals can better protect their assets from “the State.” To this end, I am teaming up with someone smarter than myself in these matters and will be releasing a new cryptocurrency service around the new year, with helping people understand how to invest and protect themselves in this space. I’m finding that this topic is so much deeper than I ever anticipated, and I cannot do it justice in one tab of this newsletter. Stay tuned for my announcement of free educational materials, they are truly stunning and I can’t wait to share them with you.

The market remains at extreme risk of an “exogenous event” which is news coming into the market that has not already been priced in. We could easily see a 3-5% single day event if the wrong news hit the wire. Make sure that your treatment of risk in your account can account for that potential move. We should continue to trade with the uptrend but in this Musical Chairs market, the music can stop very quickly. Any dip regardless of depth should create higher prices to follow.

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 (Bitcoin in a Bubble?) is available here

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

SPY Expected Move levels have been derived; see the “Weekly EM” section below for actions.
I will try to enter DUST puts on Monday, but only at the levels/credits specified in the “stock” section below.

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.
Please see my comments about the QQQ call spread in the “whale” section below.
Please note the $.05 debit exit being placed on BAC puts in the “stock” 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 well above average Friday and breadth was very strong with +348 advancers minus decliners.

SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. This chart is about one positive day away from a full bearish cluster, which we’ve seen often this year with little effect.

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 fell to 9.42, back inside the bollinger bands. The /VX volatility futures hit a new all-time low on Friday. This is after a twenty-year low on the VIX. The RVX fell to 13.72 and is inside the bollinger bands.

Fibonacci Retracements: If we see an actual pullback then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2557 … with no overhead resistance. The RUT has support at RUT 1350 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 now down into exhaustion again with a reading of 23. The Weekly chart is now in exhaustion with an energy reading of 29, due to the recent trend. The Daily chart is showing a level of 50 which is now almost recharged again.

Other Technicals: The SPX Stochastics indicator flattened at 74, below overbought. The RUT Stochastics indicator fell to 39, mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2575 and resistance at the upper band at 2686 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1495 to 1547 and price is below the upper band.

We are seeing 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.

I had the following results for the 15DEC 2017 Options Cycle:

High Probability Iron Condors

No trades this period

Low Probability Iron Condors

SPX 15DEC 2560/2565*2615/2620 Iron Condor was added for a $2.50 credit with two contracts.I closed down the call spreads for a $5 debit and let the put spreads expire worthless. This trade produced a net $512 loss including commissions.
SPX 29DEC 2620/2625*2695/2700 Iron Condor was added for a $2.50 credit with two contracts.and was closed for a $1.80 debit, creating a $124 profit after commissions.

Time Spreads

No trades this period.

Cash-Secured Puts/Covered Calls

F 15DEC $11 short puts expired for a $110 profit on ten contracts.
CHK 15DEC $3.5 puts were closed early for an $300 profit on twenty contracts.
NUGT 01DEC $31 calls were closed for break-even.
NUGT stock was closed for break-even at $31 cost .
DUST 24NOV $25.5 puts created a profit of $145 on 5 contracts after commissions.
DUST 01DEC $24.5 puts created a profit of $120 on 5 contracts after commissions.
AMD 15DEC $10 puts created a net profit of $120 on ten contracts after commissions.

“Whale” Trades

No trades this period.

Swing Trades

AMAT 15DEC 52/53 call spread vertical call spread (RSI2) was closed for a net profit of $85 on five contracts.
SPY 8DEC 258/260/262 Ratio Butterfly was closed for a $177 loss on one contract.

Hindenburg Positions

No trades closed this period.

SPY EM Fade/Target

SPY 24NOV 259.5/260.5 debit put spread (EM Fade) was closed for a net profit of $60 on five contracts..

Lessons Learned from this cycle:

A profitable cycle again but not overly so and somewhat inefficient; I had two “larger” losing trades this cycle and both of them were entirely my fault due to confirmation bias of seeing what I wanted to see in the charts. The Ratio Butterfly was at our profit target after a couple of days yet I felt that it would be in position to create greater profits. We do not get any smarter when in the middle of a trade, and this is a great example of that statement.

Secondly, I added the first SPX LP Condor when I felt that the SPX 2600 level would offer resistance, however there were no signals on the chart implying that this level would hold….in fact, the daily energy was peaking and led to a large break higher.

This is an extremely difficult market to find any “alpha” in, which are the returns above and beyond just buying the S&P500. Everything in my experience shows that buying the S&P at this level is suicidal, so I’d rather continue looking for incremental returns on various edges that we find on individual equities and S&P setups..

I am expecting another “2014” to be the result of this year, regardless of what everyone believes are markets stretched beyond belief.

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.I have not put this strategy into play since the 2016 Brexit reaction as the ultra-low risk premium in today’s market has not made this a wise strategy to pursue due to the inherent risk against the backdrop of super-low risk premium.

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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have no positions at this time. Not the right type of market for non-directional trades.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement.

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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top.” To combat this risk, 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:

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 the 19JAN $15 puts (12/4) for $.19 credit.
F 15DEC $11 puts were sold for $.12 (10/16). These expired OTM on Friday for full profit.
NUGT stock – We are out of NUGT for the time being as it’s in a primary downtrend. We’ll look for a reversal back to the upside to begin selling puts again.
DUST – Wait on the next dip! I am looking to sell the 22DEC DUST $25.5 puts for $.30, otherwise I will pass.
BAC 19JAN $25 puts (11/27) were sold for $.40 credit. I will enter a $.05 debit exit GTC on Monday.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry. The last entry was at the end of August.
RSI(2) CounterTrend – I filled the AMAT 15DEC 52/53 call spread (12/4) for $.49; I closed this trade (12/15) for a $.70 credit with about an hour left to go. This goes to show that you should never give up on a trade! No setups at this time. .
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.

Bitcoin and Ethereum are still the ones to accumulate. Bitcoin is now fully on the consciousness of the investing public and has gone completely parabolic. I’m holding my current ETH and LTC. Litecoin and ETH just blew up this week after being dormant for some time. I also decided to get into Ripple last week after reading how it could be 1) listed on Coinbase, the holy grail of Fiat/coin conversion, and 2) that Amazon might consider payments on it. I would also look for entries into Monero as well.

The CME Bitcoin futures will be listed as /BTC on TDA this Sunday evening. I don’t know when TDA will turn on the ability to trade the /XBT and /BTC futures, but these are not yet ready for prime time.

Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos.

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.”

Here is the most recent video which is “Bitcoin in a bubble?”

Viewing the SPY from the current Friday closing price at 266.51, there is a +/- 2.426 EM into this coming Friday. This is close to a normal EM that we’ve seen this year.

The EM targets for this Friday’s close is 268.94 to the upside, and 264.08 to the downside.

I will fade either of these levels this week as long as I see some reaction to the level as it hits it. I will use front-week spreads into mid-week, and then long options on Thursday or Friday.

I have no current positions:.

I have no new trades to add with this strategy. Markets are in a final euphoric parabolic run to the upside.

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.

QQQ 29 DEC 156/157 call spread (12/12) was entered for a $.46 debit. I will look for a $.73 credit exit.

There might be a slight problem with this trade as the ex-dividend date is Monday and the short call is slightly ITM. This should not be a problem as long as the associated puts to the short calls are trading for more than the dividend amount, which is $3294. I’ll talk about this in today’s video.

I am very close to my profit target on this trade and almost hit it on Friday. Assuming that I don’t have issues with assignment, I’ll go ahead and look for the profit target. If I am somehow assigned on the short calls, I will immediately close the remainder of the position, which would be short stock/long calls.

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

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

SPY JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.

I might look to enter MAR18 puts next week. They couldn’t be cheaper.