Daily Market Newsletter
February 19, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
March Expiration
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Market Commentary
Tops are a “process”….markets saw another “mutual fund Monday” today as early weakness seemed almost manufactured when the dip was bought with both hands in a typical “Groundhog Day” move that we’ve seen again and again over the last ten years. One thing to note, however, was the last hour was notably weak today. This might be uncertainty prior to tomorrow’s “main event” for the FOMC Minutes. Yes, markets will breathlessly anticipate the minutes from last month’s FOMC meeting, looking for cryptic clues about forward rate direction.
The Bond market seems to think that rates will be lower in the future.
Markets have made one helluva run for the past six weeks and should be ready for a short pause. Unfortunately this pause will come after I have already closed down our short call spread on the SPX at our exit. On the plus side, all of my recent bullish call spreads have worked out for a profit. We’re also almost out of the AMD short puts as well. A nice scary “higher low” would be a good trading opportunity in the near term, let’s see if it shows.
Here is the current scorecard – up and down – for the correction from the September 2018 highs:
- S&P was down ~594 points or 20.20%, now up 440 points or 18.75% from the bottom.
- Dow was down 5239 points or 19.44%, now up 4248 points or 19.56% from the bottom.
- /NQ is down 1908 points or 24.69%, now up 1274 points or 21.89% from the bottom.
- RUT is down 475 points or 27.27%, now up 311 points or 24.55% from the bottom.
The majority of the market-moving earnings heavyweights have already reported (FB, AAPL, AMZN, GOOGL). The FOMC meeting and most of the important economic numbers have been printed. The Market’s on its own from this point, perhaps with the help of a little FedSpeak. Anything can happen, but as long as the FOMC is operating with the “implied put” to backstop this market (even though there is LITTLE that they can do!) then I believe that the price is showing us higher in the near term. The Bear will not re-appear as long as the Fed is market-friendly.
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Offensive Actions
Offensive Actions for the next trading day:
- On Wednesday morning I’ll try again to add the CAT call vertical as described in the “Whale” 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.
- Closing orders have been entered for all new spreads.
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 and breadth ended the day with a mediocre +90 advancers minus decliners, with the high-water mark at +212 in the late afternoon.
SPX Market Timer : The Intermediate line flattened into the Upper Reversal Zone, still showing a bullish bias. The two largest timeframes are inside the Upper Reversal Zone, showing the Strong Bearish cluster after seeing the relatively-rare Full Bearish Cluster with all three timeframes overbought on Friday. This can be a leading signal for a pause but usually not immediately..
DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, 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 14.88 after peaking at 50.3 a year ago, inside the bollinger bands. The RVX rose to 16.51 and is back inside the bollinger bands.
Fibonacci Retracements: The price has moved through several important Fib levels and is not caring about any confluence levels that these present.
Support/Resistance: For the SPX, support is at 2350 and 2600 … with overhead resistance at 2800 and 2941. The RUT has support at RUT 1267 with overhead resistance at 1553. The S&P500, Russell 2000, Dow, and Nasdaq 100 have all printed a Death Cross with the 50ma crossing below the 200ma; this can be a leading signal for a true Bearish move. It can also signal “false” and create a massive swing higher.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 59. The Weekly chart has an energy reading of 44, starting to reflect the uptrend. The Daily chart is showing a level of 37 which is in exhaustion. This chart is just about ready for the next major swing as soon as the daily chart recharges.
Other Technicals: The SPX Stochastics indicator fell to 87, overbought. The RUT Stochastics indicator rose to 90, overbought. SPX MACD histogram rose above the signal line, showing a return of upside momentum but also showing negative divergence; this can be a leading signal for a pause. The SPX is inside the Bollinger Bands with Bollinger Band support at 2612 and resistance at the upper band at 2795 with price is at the upper band. The RUT is outside the Bollinger Bands with its boundaries at 1439 to 1576 and price is at the upper band.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 15MAR 2820/2830 call credit spread (1/17) entered for $.80 credit and closed (2/19) for $3.55 debit. This created a net loss after commissions of $279. This trade was set up with about 200 points of “room” to the upside but still got taken out. The realized vol is still much higher than the effective implied vol over any given time period for the past several months; this does not favor credit spread selling .
- SPY 27FEB 225/256*275/276 Long Iron Condor (1/25) entered for $.18 debit on the put spreads and $.20 debit on the call spreads for a total $.38 overall debit. I closed the call spreads (2/12) for a $.51 credit; this gave me a net profit on the call spreads of $27/contract and I still hold the puts.
If we see a very sharp move lower in the near future, then we’ll start to scope out a downside put spread entry. There might be a “higher low” that shows up.
I have no positions in play.
Waiting for the next condition to sell options again; realized vol is out-pacing implied vol again. The rebound off of the bottom has been violent and traders are chasing after the move.
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so we’ll want to wait for that type of price action to show 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.
With all of the four major indices in a death cross, I am suspending additional short put selling until those signals clear, unless a stock is clear of the death cross. I have the following positions in play:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I currently have the SLV 18APR $15.5 calls (2/11) for a $.17 credit.
- AMD MAR19 $19 puts (2/11) were opened for a $.24 credit. I will look to close these for $.05 debit GTC
I am open to adding a little bit of inventory on stocks that are not in a death cross at this time. Seeing a pullback first would be a good thing.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal, which at this point would be the test of the 21ema.
- RSI(2) CounterTrend – Looking for the next setup.
- Daily S&P Advancers – Looking for the next signal to go long when we have single-digit advancers on the ADSPD.
- Swing – I have the following position:
- BAC 26.5/27.5 debit put spread (2/8) entered for $.24 debit per last Thursday’s advisory. I will look for 100% return.
Crypto markets have been strong when equities are weak; it appears like they might be negatively correlated and could create some important opportunities for us in 2019 if the equities market takes a dump. Right now we’re seeing crypto just holding steady in the face of the relentless equities rebound.
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 277.37, there is a +/-3.519 EM into this coming Friday. This is less than last week’s EM, some of that is due to a four-day week. The EM targets for this Friday’s close are 280.89 to the upside, and 273.85 to the downside.
Last week’s upper EM level was completely blown through as we once again have HV>IV. We did have a couple of mid-week opportunities to fade the upper EM for nice gains, although I was not able to take advantage of them. This week might offer a better opportunity for the price to do little, apart from Wednesday’s FOMC minutes and Thursday’s Home Sales.
I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe.
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 had the following positions in play:
- NFLX 1MAR 347.5/350 debit call spread (2/4) entered for $1.28 debit and closed (2/19) for $1.92 credit. This gave me a profit of $60/contract after commissions, which was a 46% return on capital.
- MSFT 1MAR 106/107 debit call spread (2/5) entered for $.52 debit, and per Thursday’s advisory I saw an opportunity to exit this trade on Friday for $.70, giving me a net $14/contract profit after commissions. MAKE SURE YOU EXIT BY TUESDAY to avoid Dividend risk!
We are out of all positions. I was not able to enter the CAT trade today as I never got a good entry point that was near the $.50 debit, nor the $1 debit for the $2-wide. I’ll try again tomorrow unless we see a big gap down in the futures, at which point I’ll shelf the order.
I like the CAT 22MAR ATM debit call spreads, $1-wide, for around $.50 debit. Depending on the gap that we see Wednesday morning, we might have to pull our strike prices up or down to secure the right fill. If a reasonable debit is not see on the $1-wide, I’ll move out to $2-wide and spend about $1 debit.
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 no positions at this time. I cleared out the most recent set of puts on the drop to the 200ma back in October. I will “reload” again soon, if/when the weekly chart goes into upside exhaustion. The three-month puts are still somewhat expensive. (3 months out/90% of current price).