Daily Newsletter
February 10, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
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February Expiration
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Market Commentary
I had written on Saturday: “The only technical issue at hand is the recent “Island Formation” showing on the S&P500 and the Dow Industrials, which might be a short-term reversal signal indicating that the Weekly consolidation is not yet finished.” So much for THAT island; another broad-based rally sent the S&P and NASDAQ to new highs again, led by AMZN and NVDA. Let’s not over-think things and just play the trend. The Ten-Year Note dropped about 2% to 15.47, or 1.547%. Capital has no other place to go than equities. The game of musical chairs continues.
My overall forecast is for this market to continue heading higher as long as rates are heading lower. Earnings are out of the way for the most part, and the Fed is weeks away and considered supportive.
I got a question over the weekend about how one can play earnings reports; I’ll cover my thoughts on that in today’s video.
The following stocks are reporting earnings over the next few days:
- Tuesday: UA
- Wednesday: AMAT, CSCO,
- Thursday: BABA, PEP, YELP
- Friday: Small Caps
- Tuesday: WMT
Subscriber Update: I will be “grandfathering” OptionsLinebacker and DocsTradingTools customers over to a new advisory service, targeting the February timeframe. I intend to make this service more “actionable” with more trade alerts, and plan to include guest contributors who are experts in their specific strategies. If there are any elements of the OLD (existing) service that you want to make sure are carried into the new service, please let me know by dropping me at line at doc@docstradingtools.com
Short-Term Outlook: Prices are breaking from a massive consolidation pattern in play since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. The first weekly trend from that consolidation is already into exhaustion and looks to be ready to consolidate.
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Offensive Actions
Offensive Actions for the next trading day:
- No additional trade entries 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.
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 below-average today, with the advancers minus decliners showing a modest strength of +202.
SPX Market Timer : The Intermediate line has risen into the Upper Reversal Zone and is now “bullish” No leading signals at this time but this chart is close to showing a bearish cluster with at least two timeframes in the Upper Reversal Zone.
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 15.06, inside the Bollinger bands. The RVX fell to 17.13 and is inside the Bollinger bands.
Fibonacci Retracements: The SPX has come down to test the 23.6% fib retracement of the entire October- January swing, and is above the 50% fib retracement of the latest swing higher since December. Back to the former highs again.
Support/Resistance: For the SPX, support is at 3070 with no overhead resistance. The DOW has support at 27325 and no overhead resistance. The RUT has support at 1580 and resistance around 1715.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 34, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 40, above exhaustion and recharging quickly due to the last four weeks of non-linear action. The Daily chart is showing 52, nearly fully-charged.
Other Technicals: SPX Stochastics rose to 54, mid-scale. RUT Stochastics rose to 41, mid-scale. The SPX MACD rose above the signal line, showing an increase in positive momentum. The SPX is below the upper bollinger band with the range 3231 to 3367. The RUT is below the upper bollinger band with the range 1623 and 1711.
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 21FEB 323/324*337/338 long condor (1/21) entered for $.50 debit. I will seek a 25% return on the trade. At the time of entry, the price of the SPY was 331.4 with a +/- 9.93 move into the 21FEB EM, or a final target of 341.3.
No additional trades at this time.
We are not in a good mode for the traditional “High Probability” short iron condors since the price movement has been incredibly directional, and the Implied Vol is reflective of this with a very low/complacent value. Not good odds to sell options right now, better odds to buy them and go “long gamma.”
I have the following positions in play:
- SPX 28FEB 3150/3155*3320/3325 LP Iron Condor was entered for $2.55 credit (2/3) and will look for a 25% return on risk.
Based on the bounce that we’re seeing it looks like this move might turn into a “slingshot” in which case I’ll just wave goodbye at it. This swing out of the consolidation has been so incredibly strong that it’s running over every single attempt to catch the chart in a brief consolidation. This is what low interest rates will do, and has made this strategy almost unplayable since 2013.
I have no open positions at this time.
This is the wrong type of price character to play Time Spreads; we’re seeing vol crush and a huge buying panic.The previous fear about Corona has disappeared overnight.
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:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. Looking for the next rally to sell calls against.
We’ll look for the next pullback to potentially sell puts against our next candidate.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Awaiting the next signal.
- RSI(2) CounterTrend – I’ll look for the next setup.
- Daily S&P Advancers – Looking for the next signal to go long with single-digit advancers to close the day; stay tuned for this signal to show in the near future.
- Swing – I have no positions in play:
BTC and other top-ten coins have been breaking higher over the last three weeks. Not sure at this point whether the gains will hold, or whether this will just turn the advance into another Weekly “lower high.”
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.”
From Friday’s close at SPY 332.20 there is a +/-5.125 EM into this coming Friday; this is much smaller than the 7.959 EM from last week, but is elevated from the previous average of about 3.5/week. The EM targets for this Friday’s close are 337.33 to the upside, and 327.08 to the downside.
A lot of energy still coursing in these markets. Would expect to see at least one of the EM limits tested this week.
I have the following positions in play:
- SPY 21FEB 319/320 debit put spread (1/22) entered for $.11 debit. I am looking for a $.44 exit from this trade. I might have been too aggressive with my profit target as this trade got up to about a $.35 exit on 1/31.
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have the following positions in play at this time:
- XLF 6MAR 31/32 debit call spread (2/6) was added for a $.45 debit. I will look for a 50% return.
- FB 13MAR 212.5/215 debit call spread (2/10) was added for a $1.18 debit. I will look for a 50% return.
No additional trades at this time.
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.
I have the following open positions at this time:
- SPY 21FEB 279 long puts (11/15) entered for $2.21 debit. I will look to clear half of the position on any test of the 200 sma, and the other half upon a 10% haircut in price. Looks like this one will burn off unused as the price never dropped below the 50ma the entire time.