Daily Market Newsletter

Right on time, financial pundits picked up where they left off last year by spreading more FUD. (fear, uncertainty, and doubt) Look, it’s not like we haven’t been through the wringer for the past nine years since the bottom of the 2009 crash….we’ve seen the “flash crash,” the Greek Crisis morphing into the EuroCrisis, the Ebola sell-off, the China crisis, and lord knows what else that the market has found a way to skirt disaster. Look, the worst crash that anyone can remember is the crash in 1987 which trimmed about 58 points off of the S&P 500, or 20% in a day. I should note that the price had already come down 13.8% in the previous 9 days; selling is always worst at the end of a move. Those equivalent percentages placed against today’s market would be:

13.8% initial drop – 373 point drop in a period of 9 days to SPX 2323
20% finishing drop – 465 point drop on the final day to SPX 1858.

I don’t want to say “it’s different this time” but we have different conditions today regarding liquidity and interest rates, but certainly a drop to the 1800 handle on the SPX would erase everything gained over the past 2 years and would push the “reset” button in the markets.

The only reason that I go through this exercise is for perspective; it’s important to note that the 1987 crash came off of a fairly dramatic “lower high” which is something that we always look for. This is about the only great example of a crash that came off of the highs, with the possible exception of the 2015 mini-crash.

I’m still looking for volatility to perk up in the back half of January.

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 (Ripple) is available here

Please sign up for our free daily crypto report 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.
No new trades for 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

Technical Analysis Section

Market Internals: Volume was average today and breadth was good with +181 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. No leading signals at this time but perhaps one or two positive days away again from a bearish cluster.

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 dropped to 9.77, back inside the bollinger bands. The RVX fell to 14.16 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 2652 … with no overhead resistance. The RUT has support at RUT 1505 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 26. The Weekly chart is now in exhaustion with an energy reading of 33, due to the recent trend. The Daily chart is showing a level of 55 which is now fully-charged and could power the next swing, whatever direction that is.

Other Technicals: The SPX Stochastics indicator fell to 77, below overbought. The RUT Stochastics indicator rose to 77, below overbought. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2626 and resistance at the upper band at 2708 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1505 to 1559 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.

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. I also sold FEB18 $17 calls (1/2) against my stock position for $.17 credit.
NUGT stock – We are once again green light on NUGT. I did not see a decent pullback to enter NUGT puts so we might be out of luck for the 5JAN series..
DUST – We are out of DUST for the time being.

I will look for the next pullback to sell NUGT puts. I will also put together a short-term shopping list of under-priced stocks paying a dividend that we might start selling puts against.

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 – Looking for the next setup.
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. I believe what we’re seeing now is the beginning of a longer corrective period, so look for dips to the bottom of a range to pick up inventory.

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 “Ripple”

Viewing the SPY from the current Friday closing price at 266.86, there is a +/- 2.907 EM into this coming Friday. This is larger than the average EM that we’ve seen this year.

The EM targets for this Friday’s close is 269.77 to the upside, and 263.95 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. Keep in mind that there are only 4 trading days this week so the options market is pricing in some turbulence.

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:

SPY 31JAN 261/262 Debit Put Spread (12/29) entered for a $.12 debit. I will look for a minimum 100% return from this trade after commissions.

I might be open to looking for vertical call spreads again with the S&P having built up a decent amount of daily energy again. .

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.
SPY MAR18 240 long puts (12/20) – I entered this position for a $.94 debit