Daily Newsletter
February 27, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
March Expiration
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Market Commentary
We ticked off a lot of boxes today for this correction; the price of the S&P’s has dropped about 416 points since last week, and today was no picnic to trade. Here are some data points for this move so far:
- Correction: The SPX has dropped 416 points in only 6 days to notch a 12.25% haircut.
- Fear/Greed: The CNN Fear/Greed study is showing a value of 13; we have seen much lower values than this. (below)
- VIX; The VIX closed at a value of 37.79 today, the highest value since the early 2018 correction.
- Volume: Highest value of the last few days today but still dwarfed by previous corrections.
Something that we’ll all want to see is early weakness and late strength. Most rallies that begin early in the day do not last, and that was the case today. The price rallied 90 handles off of the morning lows but were unable to keep those gains, giving up every handle to close at the lows of the day.
How does this move compare to recent drops over the last few years?
- August 2015: 11.18% drop over 5-6 days.
- February 2018: 11.8% drop over 10 days
- December 2018: This was really two parts to the entire 20% drop, the first was 11.3% over 19 days, and the last drop was 16% over 15 days. The CNN Fear/Greed indicator read “7” at the end of the year.
Watch these levels for the S&P “circuit breakers.”
There is no certainty coming to the markets to rescue them; everything done by politicians to calm the waters has added more uncertainty as the market is the world’s best BS indicator. I talked last week (when markets were still at highs) that SOMETHING was going to happen between now and November to make the election interesting; this correction might start a vicious cycle. Just like how the 2008 crash was blamed on the party in power, this will be blamed on Trump as well, and the presumed opponent (Sanders) would create a huge cloud of uncertainty over Wall Street. More uncertainty = more selling with no end in sight.
There is now a 59% probability of the Fed stepping in at their next meeting in three weeks and lowering rates. The political pressure to do so might be incredible should this drop continue.
Let’s step to the sideline to wait out the capitulation which should be soon. (And it’s a damned shame that my Hindenburg puts expired a week too early!)
My New Book is Available! – Fractal Energy Trading is now available on amazon.com for paperback or kindle!
Subscriber Update: I will be “grandfathering” OptionsLinebacker and DocsTradingTools customers over to a new advisory service, targeting <soon>. 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: We’ll be in a corrective pattern for several months as markets transition to sideways/volatile.
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Offensive Actions
Offensive Actions for the next trading day:
- No trades for tomorrow. Support levels are not holding.
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.
- I now have an SSO long position based on my A/D swing signal that I discussed on Monday. I will look to clear this position on the next bounce up.
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 huge again today, with the advancers minus decliners showing a closing value of -475 by the closing bell, the low mark of the day.
SPX Market Timer : All three lines declined today. The Intermediate line has fallen into the Lower Reversal Zone and is now “bearish.” There is now a rare Full Bullish Cluster with all three timeframes oversold. This can be a leading signal for a bounce.
DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate downtrend and short-term downtrend.
VIX: The VIX soared to 39.31, well outside of the Bollinger bands. The RVX rose to 38.55 and is outside the Bollinger bands.
Fibonacci Retracements: The price has come down to undercut the 38.2% fib retracement of the entire 2018-2020 swing.
Support/Resistance: All of the previous support lines have failed; once the capitulation occurs we’ll re-draw.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 37, and is starting to gain energy from the counter-trend move. The Weekly chart has an energy reading of 41, starting to recover. The Daily chart is showing 23, severely exhausted to the downside.
Other Technicals: SPX Stochastics fell to 57, mid-scale. RUT Stochastics fell to 60, below overbought. The SPX MACD fell below the signal line, showing a decrease in positive momentum. The SPX is below the lower bollinger band with the range 3078 to 3504. The RUT is below the lower bollinger band with the range 1545 and 1754.
Position Management – NonDirectional Trades
I have no positions in play at this time.
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 closed (2/24) for a $1.85 debit. This gave us a gross profit of $70/contract before commissions, or a 28.6% return on risk. .
It’s not often that I get saved by the black swan, but that’s what happened to this trade…as the Monday sell-off put the price right in the middle of the Condor range and allowed me to take this trade off at slightly better than target profit.
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.
- BAC 03APR $32.5 Puts (2/18) were sold for $.33 credit.
No additional trades at this time.
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; I entered the SSO long (2/25) at a price of 142.18/share. I will look for the RSI(2) to hit a value of 70 to close this position.
- Swing – I have no positions in play:
BTC and other top-ten coins have been breaking higher in 2020. The price action looks very good and is moving into linear formation.
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 333.48 there is a +/-5.476EM into this coming Friday; this is larger than the four-day 4.039 EM from last week. The EM targets for this Friday’s close are 338.96 to the upside, and 328.00 to the downside.
The lower EM got eviscerated Monday and has not looked back. There is still a +/- 74 handle EM into Friday.
I have the following positions in play:
- SPY 13MAR 328/323 debit put spread (2/12) entered for $.66 debit, and closed (2/24) for a $2.07 credit. This gave me a gross profit before commissions of $141/contract, or a 214% return on capital.
No additional trades at this time.
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.
- INTC 20MAR 65/67.5 debit call spread (2.18) was added for a $1.25 debit. I will look for a 50% return.
- GDX 20MAR 29/31 debit call spread (2/20) was added for an $.86 debit and was closed (2/24) for a $1.29 credit. This gave us a gross profit of $43/contract or a 50% return on capital.
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. The timing on these credit spreads has been nearly impossible to determine with today’s declining-rate environment, and we might be in the process of one final mighty blow-off.
I will continue to buy long puts into extreme upside strength. Puts won’t be cheap any time soon now.
I have no open positions at this time.