Daily Market Newsletter
February 9, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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February Expiration
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Market Commentary
I felt like today was “opposite day” once again as the market reacted in the opposite manner from what everyone’s been predicting for the past several weeks…..”wait until Trump tweets the wrong thing, the market will sell off!” Hasn’t happened yet although the tweets keep coming. I think this is one more example of how everyone’s had this past year pretty much wrong at every turn. Look at the sell-off last January….the Brexit vote….the US election. Everything that we’d come to depend on as far as “conventional wisdom” was wrong, wrong wrong.
This market’s about as stretched as other times that I’ve seen it, such as in 2013. I am not expecting a huge sell-off, just a transition into a larger range.
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Offensive Actions
Offensive Actions for the next trading day:
- AAPL might be setting up for either a LP Iron Condor or a Short Call Diagonal soon.
- I’ll look for more setups this weekend.
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.
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 above average today. Breadth was good with 263 advancers minus decliners.
SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. This chart is very close to once again showing the somewhat rare “Full Bearish Cluster” which sometimes foreshadows a pause in the trend..
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 4.98% to 10.88, inside the bollinger bands. The RVX fell 3.64% to 17.99 and is inside the bollinger bands.
Fibonacci Retracements: Fibs are not in play right now.
Support/Resistance: For the SPX, support is at 2188 … with overhead resistance at 2300. The RUT has support at RUT 1300 with overhead resistance at 1393. 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 39, almost into exhaustion. The Weekly chart is now technically exhausted with an energy reading of 35, due to the recent breakout. The Daily chart is showing a level of 50 which is completely recharged again; we are seeing the expected short consolidation at this level but it’s not going to last much longer as the daily energy must go somewhere.
Other Technicals: The SPX Stochastics indicator rose to 72, below overbought. The RUT Stochastics indicator fell to 56. 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 2258 and resistance at the upper band at 2308 and is at the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1342 to 1384 and price is below the upper band. The Bollinger Bands are starting to squeeze, especially on the RUT.
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 would be a good thing to see first.
Position Management – NonDirectional Trades
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 2200 level, this might be our first opportunity to sell premium against that level.
AAPL might be setting up as a potential LP IC Condor candidate as well as a Time Spread (below) trade. .
I would want to see the price hit $134, then throw off the first red candle to enter the LP IC trade.
The next time spread will be on AAPL if the price rises up to tag the $134 level; I will set up a short call diagonal by selling the ITM call that’s about 7+ days to expiration, and buying the ATM strike with about another week of time.
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.
- 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 I sold SLV FEB $17 calls (1/17) for $.19 credit. No action required.
- GE I will look to sell MAR17 $28 puts if the pullback continues and I can receive at least a $.28 credit.
- TWTR I added another ten contracts (1/3) of $13 FEB puts for $.20. I don’t care about the recent bad press.
- RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .
- X – I added the MAR17 $25 puts (1/30) for $.47 credit. .
Position Management – Directional Trades
- 8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
- RSI(2) CounterTrend – I’ll look for more of these in the near future; I need to tighten up the rule set first..
- 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.
- DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit. I will look for a 50% return from this position. I show this as a $1.46 credit limit.
I have the following positions:
- BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade so if the price breaks down or does not move at all I will wave goodbye at it and not try to “mitigate the loss” via some other technique.
- TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
The XLU trade didn’t work out this morning as the price faded; I’ll look again this weekend.
There is one setup that I like going forward:
- TIF – we might see an attempted breakout prior to TIF earnings which I’d estimate would be in late February. A break above $82.20 would see me buying a 30-35 day $2-wide call spread for about $1 debit.
There are many, many charts currently showing a very large amount of energy on the daily chart, but are still in exhaustion on the weekly or even monthly charts. We might be on borrowed time with directional upside plays.
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
We currently have the following positions in play with this strategy:
- SPY FEB17 200 long puts – I entered this position (12/7) for a $.95 debit.
- SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
- SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.